Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer.
Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (£216bn) of drugs profits was absorbed into the economic system as a result.
This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said.
Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said.
"Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities... There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered.
"That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said.
The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover.
Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth £352bn, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US.
British bankers would want to see any evidence that Costa has to back his claims. A British Bankers' Association spokesman said: "We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks."
maandag 14 december 2009
Obama's Big Sellout
Barack Obama ran for president as a man of the people, standing up to Wall Street as the global economy melted down in that fateful fall of 2008. He pushed a tax plan to soak the rich, ripped NAFTA for hurting the middle class and tore into John McCain for supporting a bankruptcy bill that sided with wealthy bankers "at the expense of hardworking Americans." Obama may not have run to the left of Samuel Gompers or Cesar Chavez, but it's not like you saw him on the campaign trail flanked by bankers from Citigroup and Goldman Sachs. What inspired supporters who pushed him to his historic win was the sense that a genuine outsider was finally breaking into an exclusive club, that walls were being torn down, that things were, for lack of a better or more specific term, changing.
Then he got elected.
What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.
How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?
Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.
How did we get here? It started just moments after the election — and almost nobody noticed.
'Just look at the timeline of the Citigroup deal," says one leading Democratic consultant. "Just look at it. It's fucking amazing. Amazing! And nobody said a thing about it."
Barack Obama was still just the president-elect when it happened, but the revolting and inexcusable $306 billion bailout that Citigroup received was the first major act of his presidency. In order to grasp the full horror of what took place, however, one needs to go back a few weeks before the actual bailout — to November 5th, 2008, the day after Obama's election.
That was the day the jubilant Obama campaign announced its transition team. Though many of the names were familiar — former Bill Clinton chief of staff John Podesta, long-time Obama confidante Valerie Jarrett — the list was most notable for who was not on it, especially on the economic side. Austan Goolsbee, a University of Chicago economist who had served as one of Obama's chief advisers during the campaign, didn't make the cut. Neither did Karen Kornbluh, who had served as Obama's policy director and was instrumental in crafting the Democratic Party's platform. Both had emphasized populist themes during the campaign: Kornbluh was known for pushing Democrats to focus on the plight of the poor and middle class, while Goolsbee was an aggressive critic of Wall Street, declaring that AIG executives should receive "a Nobel Prize — for evil."
But come November 5th, both were banished from Obama's inner circle — and replaced with a group of Wall Street bankers. Leading the search for the president's new economic team was his close friend and Harvard Law classmate Michael Froman, a high-ranking executive at Citigroup. During the campaign, Froman had emerged as one of Obama's biggest fundraisers, bundling $200,000 in contributions and introducing the candidate to a host of heavy hitters — chief among them his mentor Bob Rubin, the former co-chairman of Goldman Sachs who served as Treasury secretary under Bill Clinton. Froman had served as chief of staff to Rubin at Treasury, and had followed his boss when Rubin left the Clinton administration to serve as a senior counselor to Citigroup (a massive new financial conglomerate created by deregulatory moves pushed through by Rubin himself).
Incredibly, Froman did not resign from the bank when he went to work for Obama: He remained in the employ of Citigroup for two more months, even as he helped appoint the very people who would shape the future of his own firm. And to help him pick Obama's economic team, Froman brought in none other than Jamie Rubin who happens to be Bob Rubin's son. At the time, Jamie's dad was still earning roughly $15 million a year working for Citigroup, which was in the midst of a collapse brought on in part because Rubin had pushed the bank to invest heavily in mortgage-backed CDOs and other risky instruments.
Now here's where it gets really interesting. It's three weeks after the election. You have a lame-duck president in George W. Bush — still nominally in charge, but in reality already halfway to the golf-and-O'Doul's portion of his career and more than happy to vacate the scene. Left to deal with the still-reeling economy are lame-duck Treasury Secretary Henry Paulson, a former head of Goldman Sachs, and New York Fed chief Timothy Geithner, who served under Bob Rubin in the Clinton White House. Running Obama's economic team are a still-employed Citigroup executive and the son of another Citigroup executive, who himself joined Obama's transition team that same month.
So on November 23rd, 2008, a deal is announced in which the government will bail out Rubin's messes at Citigroup with a massive buffet of taxpayer-funded cash and guarantees. It is a terrible deal for the government, almost universally panned by all serious economists, an outrage to anyone who pays taxes. Under the deal, the bank gets $20 billion in cash, on top of the $25 billion it had already received just weeks before as part of the Troubled Asset Relief Program. But that's just the appetizer. The government also agrees to charge taxpayers for up to $277 billion in losses on troubled Citi assets, many of them those toxic CDOs that Rubin had pushed Citi to invest in. No Citi executives are replaced, and few restrictions are placed on their compensation. It's the sweetheart deal of the century, putting generations of working-stiff taxpayers on the hook to pay off Bob Rubin's fuck-up-rich tenure at Citi. "If you had any doubts at all about the primacy of Wall Street over Main Street," former labor secretary Robert Reich declares when the bailout is announced, "your doubts should be laid to rest."
It is bad enough that one of Bob Rubin's former protégés from the Clinton years, the New York Fed chief Geithner, is intimately involved in the negotiations, which unsurprisingly leave the Federal Reserve massively exposed to future Citi losses. But the real stunner comes only hours after the bailout deal is struck, when the Obama transition team makes a cheerful announcement: Timothy Geithner is going to be Barack Obama's Treasury secretary!
Geithner, in other words, is hired to head the U.S. Treasury by an executive from Citigroup — Michael Froman — before the ink is even dry on a massive government giveaway to Citigroup that Geithner himself was instrumental in delivering. In the annals of brazen political swindles, this one has to go in the all-time Fuck-the-Optics Hall of Fame.
Wall Street loved the Citi bailout and the Geithner nomination so much that the Dow immediately posted its biggest two-day jump since 1987, rising 11.8 percent. Citi shares jumped 58 percent in a single day, and JP Morgan Chase, Merrill Lynch and Morgan Stanley soared more than 20 percent, as Wall Street embraced the news that the government's bailout generosity would not die with George W. Bush and Hank Paulson. "Geithner assures a smooth transition between the Bush administration and that of Obama, because he's already co-managing what's happening now," observed Stephen Leeb, president of Leeb Capital Management.
Left unnoticed, however, was the fact that Geithner had been hired by a sitting Citigroup executive who still had a big bonus coming despite his proximity to Obama. In January 2009, just over a month after the bailout, Citigroup paid Froman a year-end bonus of $2.25 million. But as outrageous as it was, that payoff would prove to be chump change for the banker crowd, who were about to get everything they wanted — and more — from the new president.
The irony of Bob Rubin: He's an unapologetic arch-capitalist demagogue whose very career is proof that a free-market meritocracy is a myth. Much like Alan Greenspan, a staggeringly incompetent economic forecaster who was worshipped by four decades of politicians because he once dated Barbara Walters, Rubin has been held in awe by the American political elite for nearly 20 years despite having fucked up virtually every project he ever got his hands on. He went from running Goldman Sachs (1990-1992) to the Clinton White House (1993-1999) to Citigroup (1999-2009), leaving behind a trail of historic gaffes that somehow boosted his stature every step of the way.
As Treasury secretary under Clinton, Rubin was the driving force behind two monstrous deregulatory actions that would be primary causes of last year's financial crisis: the repeal of the Glass-Steagall Act (passed specifically to legalize the Citigroup megamerger) and the deregulation of the derivatives market. Having set that time bomb, Rubin left government to join Citi, which promptly expressed its gratitude by giving him $126 million in compensation over the next eight years (they don't call it bribery in this country when they give you the money post factum). After urging management to amp up its risky investments in toxic vehicles, a strategy that very nearly destroyed the company, Rubin blamed Citi's board for his screw-ups and complained that he had been underpaid to boot. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said.
Despite being perhaps more responsible for last year's crash than any other single living person — his colossally stupid decisions at both the highest levels of government and the management of a private financial superpower make him unique — Rubin was the man Barack Obama chose to build his White House around.
There are four main ways to be connected to Bob Rubin: through Goldman Sachs, the Clinton administration, Citigroup and, finally, the Hamilton Project, a think tank Rubin spearheaded under the auspices of the Brookings Institute to promote his philosophy of balanced budgets, free trade and financial deregulation. The team Obama put in place to run his economic policy after his inauguration was dominated by people who boasted connections to at least one of these four institutions — so much so that the White House now looks like a backstage party for an episode of Bob Rubin, This Is Your Life!
At Treasury, there is Geithner, who worked under Rubin in the Clinton years. Serving as Geithner's "counselor" — a made-up post not subject to Senate confirmation — is Lewis Alexander, the former chief economist of Citigroup, who advised Citi back in 2007 that the upcoming housing crash was nothing to worry about. Two other top Geithner "counselors" — Gene Sperling and Lael Brainard — worked under Rubin at the National Economic Council, the key group that coordinates all economic policymaking for the White House.
As director of the NEC, meanwhile, Obama installed economic czar Larry Summers, who had served as Rubin's protégé at Treasury. Just below Summers is Jason Furman, who worked for Rubin in the Clinton White House and was one of the first directors of Rubin's Hamilton Project. The appointment of Furman — a persistent advocate of free-trade agreements like NAFTA and the author of droolingly pro-globalization reports with titles like "Walmart: A Progressive Success Story" — provided one of the first clues that Obama had only been posturing when he promised crowds of struggling Midwesterners during the campaign that he would renegotiate NAFTA, which facilitated the flight of blue-collar jobs to other countries. "NAFTA's shortcomings were evident when signed, and we must now amend the agreement to fix them," Obama declared. A few months after hiring Furman to help shape its economic policy, however, the White House quietly quashed any talk of renegotiating the trade deal. "The president has said we will look at all of our options, but I think they can be addressed without having to reopen the agreement," U.S. Trade Representative Ronald Kirk told reporters in a little-publicized conference call last April.
The announcement was not so surprising, given who Obama hired to serve alongside Furman at the NEC: management consultant Diana Farrell, who worked under Rubin at Goldman Sachs. In 2003, Farrell was the author of an infamous paper in which she argued that sending American jobs overseas might be "as beneficial to the U.S. as to the destination country, probably more so."
Joining Summers, Furman and Farrell at the NEC is Froman, who by then had been formally appointed to a unique position: He is not only Obama's international finance adviser at the National Economic Council, he simultaneously serves as deputy national security adviser at the National Security Council. The twin posts give Froman a direct line to the president, putting him in a position to coordinate Obama's international economic policy during a crisis. He'll have help from David Lipton, another joint appointee to the economics and security councils who worked with Rubin at Treasury and Citigroup, and from Jacob Lew, a former Citi colleague of Rubin's whom Obama named as deputy director at the State Department to focus on international finance.
Over at the Commodity Futures Trading Commission, which is supposed to regulate derivatives trading, Obama appointed Gary Gensler, a former Goldman banker who worked under Rubin in the Clinton White House. Gensler had been instrumental in helping to pass the infamous Commodity Futures Modernization Act of 2000, which prevented regulation of derivative instruments like CDOs and credit-default swaps that played such a big role in cratering the economy last year. And as head of the powerful Office of Management and Budget, Obama named Peter Orszag, who served as the first director of Rubin's Hamilton Project. Orszag once succinctly summed up the project's ideology as a sort of liberal spin on trickle-down Reaganomics: "Market competition and globalization generate significant economic benefits."
Taken together, the rash of appointments with ties to Bob Rubin may well represent the most sweeping influence by a single Wall Street insider in the history of government. "Rather than having a team of rivals, they've got a team of Rubins," says Steven Clemons, director of the American Strategy Program at the New America Foundation. "You see that in policy choices that have resuscitated — but not reformed — Wall Street."
While Rubin's allies and acolytes got all the important jobs in the Obama administration, the academics and progressives got banished to semi-meaningless, even comical roles. Kornbluh was rewarded for being the chief policy architect of Obama's meteoric rise by being outfitted with a pith helmet and booted across the ocean to Paris, where she now serves as America's never-again-to-be-seen-on-TV ambassador to the Organization for Economic Cooperation and Development. Goolsbee, meanwhile, was appointed as staff director of the President's Economic Recovery Advisory Board, a kind of dumping ground for Wall Street critics who had assisted Obama during the campaign; one top Democrat calls the panel "Siberia."
Joining Goolsbee as chairman of the PERAB gulag is former Fed chief Paul Volcker, who back in March 2008 helped candidate Obama write a speech declaring that the deregulatory efforts of the Eighties and Nineties had "excused and even embraced an ethic of greed, corner-cutting, insider dealing, things that have always threatened the long-term stability of our economic system." That speech met with rapturous applause, but the commission Obama gave Volcker to manage is so toothless that it didn't even meet for the first time until last May. The lone progressive in the White House, economist Jared Bernstein, holds the impressive-sounding title of chief economist and national policy adviser — except that the man he is advising is Joe Biden, who seems more interested in foreign policy than financial reform.
The significance of all of these appointments isn't that the Wall Street types are now in a position to provide direct favors to their former employers. It's that, with one or two exceptions, they collectively offer a microcosm of what the Democratic Party has come to stand for in the 21st century. Virtually all of the Rubinites brought in to manage the economy under Obama share the same fundamental political philosophy carefully articulated for years by the Hamilton Project: Expand the safety net to protect the poor, but let Wall Street do whatever it wants. "Bob Rubin, these guys, they're classic limousine liberals," says David Sirota, a former Democratic strategist. "These are basically people who have made shitloads of money in the speculative economy, but they want to call themselves good Democrats because they're willing to give a little more to the poor. That's the model for this Democratic Party: Let the rich do their thing, but give a fraction more to everyone else."
Even the members of Obama's economic team who have spent most of their lives in public office have managed to make small fortunes on Wall Street. The president's economic czar, Larry Summers, was paid more than $5.2 million in 2008 alone as a managing director of the hedge fund D.E. Shaw, and pocketed an additional $2.7 million in speaking fees from a smorgasbord of future bailout recipients, including Goldman Sachs and Citigroup. At Treasury, Geithner's aide Gene Sperling earned a staggering $887,727 from Goldman Sachs last year for performing the punch-line-worthy service of "advice on charitable giving." Sperling's fellow Treasury appointee, Mark Patterson, received $637,492 as a full-time lobbyist for Goldman Sachs, and another top Geithner aide, Lee Sachs, made more than $3 million working for a New York hedge fund called Mariner Investment Group. The list goes on and on. Even Obama's chief of staff, Rahm Emanuel, who has been out of government for only 30 months of his adult life, managed to collect $18 million during his private-sector stint with a Wall Street firm called Wasserstein-Perella.
The point is that an economic team made up exclusively of callous millionaire-assholes has absolutely zero interest in reforming the gamed system that made them rich in the first place. "You can't expect these people to do anything other than protect Wall Street," says Rep. Cliff Stearns, a Republican from Florida. That thinking was clear from Obama's first address to Congress, when he stressed the importance of getting Americans to borrow like crazy again. "Credit is the lifeblood of the economy," he declared, pledging "the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money." A president elected on a platform of change was announcing, in so many words, that he planned to change nothing fundamental when it came to the economy. Rather than doing what FDR had done during the Great Depression and institute stringent new rules to curb financial abuses, Obama planned to institutionalize the policy, firmly established during the Bush years, of keeping a few megafirms rich at the expense of everyone else.
Obama hasn't always toed the Rubin line when it comes to economic policy. Despite being surrounded by a team that is powerfully opposed to deficit spending — balanced budgets and deficit reduction have always been central to the Rubin way of thinking — Obama came out of the gate with a huge stimulus plan designed to kick-start the economy and address the job losses brought on by the 2008 crisis. "You have to give him credit there," says Sen. Bernie Sanders, an advocate of using government resources to address unemployment. "It's a very significant piece of legislation, and $787 billion is a lot of money."
But whatever jobs the stimulus has created or preserved so far — 640,329, according to an absurdly precise and already debunked calculation by the White House — the aid that Obama has provided to real people has been dwarfed in size and scope by the taxpayer money that has been handed over to America's financial giants. "They spent $75 billion on mortgage relief, but come on — look at how much they gave Wall Street," says a leading Democratic strategist. Neil Barofsky, the inspector general charged with overseeing TARP, estimates that the total cost of the Wall Street bailouts could eventually reach $23.7 trillion. And while the government continues to dole out big money to big banks, Obama and his team of Rubinites have done almost nothing to reform the warped financial system responsible for imploding the global economy in the first place.
The push for reform seemed to get off to a promising start. In the House, the charge was led by Rep. Barney Frank, the outspoken chair of the House Financial Services Committee, who emerged during last year's Bush bailouts as a sharp-tongued critic of Wall Street. Back when Obama was still a senator, he and Frank even worked together to introduce a populist bill targeting executive compensation. Last spring, with the economy shattered, Frank began to hold hearings on a host of reforms, crafted with significant input from the White House, that initially contained some very good elements. There were measures to curb abusive credit-card lending, prevent banks from charging excessive fees, force publicly traded firms to conduct meaningful risk assessment and allow shareholders to vote on executive compensation. There were even measures to crack down on risky derivatives and to bar firms like AIG from picking their own regulators.
Then the committee went to work — and the loopholes started to appear.
The most notable of these came in the proposal to regulate derivatives like credit-default swaps. Even Gary Gensler, the former Goldmanite whom Obama put in charge of commodities regulation, was pushing to make these normally obscure investments more transparent, enabling regulators and investors to identify speculative bubbles sooner. But in August, a month after Gensler came out in favor of reform, Geithner slapped him down by issuing a 115-page paper called "Improvements to Regulation of Over-the-Counter Derivatives Markets" that called for a series of exemptions for "end users" — i.e., almost all of the clients who buy derivatives from banks like Goldman Sachs and Morgan Stanley. Even more stunning, Frank's bill included a blanket exception to the rules for currency swaps traded on foreign exchanges — the very instruments that had triggered the Long-Term Capital Management meltdown in the late 1990s.
Given that derivatives were at the heart of the financial meltdown last year, the decision to gut derivatives reform sent some legislators howling with disgust. Sen. Maria Cantwell of Washington, who estimates that as much as 90 percent of all derivatives could remain unregulated under the new rules, went so far as to say the new laws would make things worse. "Current law with its loopholes might actually be better than these loopholes," she said.
An even bigger loophole could do far worse damage to the economy. Under the original bill, the Securities and Exchange Commission and the Commodity Futures Trading Commission were granted the power to ban any credit swaps deemed to be "detrimental to the stability of a financial market or of participants in a financial market." By the time Frank's committee was done with the bill, however, the SEC and the CFTC were left with no authority to do anything about abusive derivatives other than to send a report to Congress. The move, in effect, would leave the kind of credit-default swaps that brought down AIG largely unregulated.
Why would leading congressional Democrats, working closely with the Obama administration, agree to leave one of the riskiest of all financial instruments unregulated, even before the issue could be debated by the House? "There was concern that a broad grant to ban abusive swaps would be unsettling," Frank explained.
Unsettling to whom? Certainly not to you and me — but then again, actual people are not really part of the calculus when it comes to finance reform. According to those close to the markup process, Frank's committee inserted loopholes under pressure from "constituents" — by which they mean anyone "who can afford a lobbyist," says Michael Greenberger, the former head of trading at the CFTC under Clinton.
This pattern would repeat itself over and over again throughout the fall. Take the centerpiece of Obama's reform proposal: the much-ballyhooed creation of a Consumer Finance Protection Agency to protect the little guy from abusive bank practices. Like the derivatives bill, the debate over the CFPA ended up being dominated by horse-trading for loopholes. In the end, Frank not only agreed to exempt some 8,000 of the nation's 8,200 banks from oversight by the castrated-in-advance agency, leaving most consumers unprotected, he allowed the committee to pass the exemption by voice vote, meaning that congressmen could side with the banks without actually attaching their name to their "Aye."
To win the support of conservative Democrats, Frank also backed down on another issue that seemed like a slam-dunk: a requirement that all banks offer so-called "plain vanilla" products, such as no-frills mortgages, to give consumers an alternative to deceptive, "fully loaded" deals like adjustable-rate loans. Frank's last-minute reversal — made in consultation with Geithner — was such a transparent giveaway to the banks that even an economics writer for Reuters, hardly a far-left source, called it "the beginning of the end of meaningful regulatory reform."
But the real kicker came when Frank's committee took up what is known as "resolution authority" — government-speak for "Who the hell is in charge the next time somebody at AIG or Lehman Brothers decides to vaporize the economy?" What the committee initially introduced bore a striking resemblance to a proposal written by Geithner earlier in the summer. A masterpiece of legislative chicanery, the measure would have given the White House permanent and unlimited authority to execute future bailouts of megaconglomerates like Citigroup and Bear Stearns.
Democrats pushed the move as politically uncontroversial, claiming that the bill will force Wall Street to pay for any future bailouts and "doesn't use taxpayer money." In reality, that was complete bullshit. The way the bill was written, the FDIC would basically borrow money from the Treasury — i.e., from ordinary taxpayers — to bail out any of the nation's two dozen or so largest financial companies that the president deems in need of government assistance. After the bailout is executed, the president would then levy a tax on financial firms with assets of more than $10 billion to repay the Treasury within 60 months — unless, that is, the president decides he doesn't want to! "They can wait indefinitely to repay," says Rep. Brad Sherman of California, who dubbed the early version of the bill "TARP on steroids."
The new bailout authority also mandated that future bailouts would not include an exchange of equity "in any form" — meaning that taxpayers would get nothing in return for underwriting Wall Street's mistakes. Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts. In fact, the resolution authority proposed by Frank was such a slurpingly obvious blow job of Wall Street that it provoked a revolt among his own committee members, with junior Democrats waging a spirited fight that restored congressional oversight to future bailouts, requires equity for taxpayer money and caps assistance to troubled firms at $150 billion. Another amendment to force companies with more than $50 billion in assets to pay into a rainy-day fund for bailouts passed by a resounding vote of 52 to 17 — with the "Nays" all coming from Frank and other senior Democrats loyal to the administration.
Even as amended, however, resolution authority still has the potential to be truly revolutionary legislation. The Senate version still grants the president unlimited power over equity-free bailouts, and the amended House bill still institutionalizes a system of taxpayer support for the 20 to 25 biggest banks in the country. It would essentially grant economic immortality to those top few megafirms, who will continually gobble up greater and greater slices of market share as money becomes cheaper and cheaper for them to borrow (after all, who wouldn't lend to a company permanently backstopped by the federal government?). It would also formalize the government's role in the global economy and turn the presidential-appointment process into an important part of every big firm's business strategy. "If this passes, the very first thing these companies are going to do in the future is ask themselves, 'How do we make sure that one of our executives becomes assistant Treasury secretary?'" says Sherman.
On the Senate side, finance reform has yet to make it through the markup process, but there's every reason to believe that its final bill will be as watered down as the House version by the time it comes to a vote. The original measure, drafted by chairman Christopher Dodd of the Senate Banking Committee, is surprisingly tough on Wall Street — a fact that almost everyone in town chalks up to Dodd's desperation to shake the bad publicity he incurred by accepting a sweetheart mortgage from the notorious lender Countrywide. "He's got to do the shake-his-fist-at-Wall Street thing because of his, you know, problems," says a Democratic Senate aide. "So that's why the bill is starting out kind of tough."
The aide pauses. "The question is, though, what will it end up looking like?"
He's right — that is the question. Because the way it works is that all of these great-sounding reforms get whittled down bit by bit as they move through the committee markup process, until finally there's nothing left but the exceptions. In one example, a measure that would have forced financial companies to be more accountable to shareholders by holding elections for their entire boards every year has already been watered down to preserve the current system of staggered votes. In other cases, this being the Senate, loopholes were inserted before the debate even began: The Dodd bill included the exemption for foreign-currency swaps — a gift to Wall Street that only appeared in the Frank bill during the course of hearings — from the very outset.
The White House's refusal to push for real reform stands in stark contrast to what it should be doing. It was left to Rep. Paul Kanjorski in the House and Bernie Sanders in the Senate to propose bills to break up the so-called "too big to fail" banks. Both measures would give Congress the power to dismantle those pseudomonopolies controlling almost the entire derivatives market (Goldman, Citi, Chase, Morgan Stanley and Bank of America control 95 percent of the $290 trillion over-the-counter market) and the consumer-lending market (Citi, Chase, Bank of America and Wells Fargo issue one of every two mortgages, and two of every three credit cards). On November 18th, in a move that demonstrates just how nervous Democrats are getting about the growing outrage over taxpayer giveaways, Barney Frank's committee actually passed Kanjorski's measure. "It's a beginning," Kanjorski says hopefully. "We're on our way." But even if the Senate follows suit, big banks could well survive — depending on whom the president appoints to sit on the new regulatory board mandated by the measure. An oversight body filled with executives of the type Obama has favored to date from Citi and Goldman Sachs hardly seems like a strong bet to start taking an ax to concentrated wealth. And given the new bailout provisions that provide these megafirms a market advantage over smaller banks (those Paul Volcker calls "too small to save"), the failure to break them up qualifies as a major policy decision with potentially disastrous consequences.
"They should be doing what Teddy Roosevelt did," says Sanders. "They should be busting the trusts."
That probably won't happen anytime soon. But at a minimum, Obama should start on the road back to sanity by making a long-overdue move: firing Geithner. Not only are the mop-headed weenie of a Treasury secretary's fingerprints on virtually all the gross giveaways in the new reform legislation, he's a living symbol of the Rubinite gangrene crawling up the leg of this administration. Putting Geithner against the wall and replacing him with an actual human being not recently employed by a Wall Street megabank would do a lot to prove that Obama was listening this past Election Day. And while there are some who think Geithner is about to go — "he almost has to," says one Democratic strategist — at the moment, the president is still letting Wall Street do his talking.
Morning, the National Mall, November 5th. A year to the day after Obama named Michael Froman to his transition team, his political "opposition" has descended upon the city. Republican teabaggers from all 50 states have showed up, a vast horde of frowning, pissed-off middle-aged white people with their idiot placards in hand, ready to do cultural battle. They are here to protest Obama's "socialist" health care bill — you know, the one that even a bloodsucking capitalist interest group like Big Pharma spent $150 million to get passed.
These teabaggers don't know that, however. All they know is that a big government program might end up using tax dollars to pay the medical bills of rapidly breeding Dominican immigrants. So they hate it. They're also in a groove, knowing that at the polls a few days earlier, people like themselves had a big hand in ousting several Obama-allied Democrats, including a governor of New Jersey who just happened to be the former CEO of Goldman Sachs. A sign held up by New Jersey protesters bears the warning, "If You Vote For Obamacare, We Will Corzine You."
I approach a woman named Pat Defillipis from Toms River, New Jersey, and ask her why she's here. "To protest health care," she answers. "And then amnesty. You know, immigration amnesty."
I ask her if she's aware that there's a big hearing going on in the House today, where Barney Frank's committee is marking up a bill to reform the financial regulatory system. She recognizes Frank's name, wincing, but the rest of my question leaves her staring at me like I'm an alien.
"Do you care at all about economic regulation?" I ask. "There was sort of a big economic collapse last year. Do you have any ideas about how that whole deal should be fixed?"
"We got to slow down on spending," she says. "We can't afford it."
"But what do we do about the rules governing Wall Street . . ."
She walks away. She doesn't give a fuck. People like Pat aren't aware of it, but they're the best friends Obama has. They hate him, sure, but they don't hate him for any reasons that make sense. When it comes down to it, most of them hate the president for all the usual reasons they hate "liberals" — because he uses big words, doesn't believe in hell and doesn't flip out at the sight of gay people holding hands. Additionally, of course, he's black, and wasn't born in America, and is married to a woman who secretly hates our country.
These are the kinds of voters whom Obama's gang of Wall Street advisers is counting on: idiots. People whose votes depend not on whether the party in power delivers them jobs or protects them from economic villains, but on what cultural markers the candidate flashes on TV. Finance reform has become to Obama what Iraq War coffins were to Bush: something to be tucked safely out of sight.
Around the same time that finance reform was being watered down in Congress at the behest of his Treasury secretary, Obama was making a pit stop to raise money from Wall Street. On October 20th, the president went to the Mandarin Oriental Hotel in New York and addressed some 200 financiers and business moguls, each of whom paid the maximum allowable contribution of $30,400 to the Democratic Party. But an organizer of the event, Daniel Fass, announced in advance that support for the president might be lighter than expected — bailed-out firms like JP Morgan Chase and Goldman Sachs were expected to contribute a meager $91,000 to the event — because bankers were tired of being lectured about their misdeeds.
"The investment community feels very put-upon," Fass explained. "They feel there is no reason why they shouldn't earn $1 million to $200 million a year, and they don't want to be held responsible for the global financial meltdown."
Which makes sense. Shit, who could blame the investment community for the meltdown? What kind of assholes are we to put any of this on them?
This is the kind of person who is working for the Obama administration, which makes it unsurprising that we're getting no real reform of the finance industry. There's no other way to say it: Barack Obama, a once-in-a-generation political talent whose graceful conquest of America's racial dragons en route to the White House inspired the entire world, has for some reason allowed his presidency to be hijacked by sniveling, low-rent shitheads. Instead of reining in Wall Street, Obama has allowed himself to be seduced by it, leaving even his erstwhile campaign adviser, ex-Fed chief Paul Volcker, concerned about a "moral hazard" creeping over his administration.
"The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted," Volcker told Congress in September, expressing concerns about all the regulatory loopholes in Frank's bill. "Ultimately, the possibility of further crises — even greater crises — will increase."
What's most troubling is that we don't know if Obama has changed, or if the influence of Wall Street is simply a fundamental and ineradicable element of our electoral system. What we do know is that Barack Obama pulled a bait-and-switch on us. If it were any other politician, we wouldn't be surprised. Maybe it's our fault, for thinking he was different.
Then he got elected.
What's taken place in the year since Obama won the presidency has turned out to be one of the most dramatic political about-faces in our history. Elected in the midst of a crushing economic crisis brought on by a decade of orgiastic deregulation and unchecked greed, Obama had a clear mandate to rein in Wall Street and remake the entire structure of the American economy. What he did instead was ship even his most marginally progressive campaign advisers off to various bureaucratic Siberias, while packing the key economic positions in his White House with the very people who caused the crisis in the first place. This new team of bubble-fattened ex-bankers and laissez-faire intellectuals then proceeded to sell us all out, instituting a massive, trickle-up bailout and systematically gutting regulatory reform from the inside.
How could Obama let this happen? Is he just a rookie in the political big leagues, hoodwinked by Beltway old-timers? Or is the vacillating, ineffectual servant of banking interests we've been seeing on TV this fall who Obama really is?
Whatever the president's real motives are, the extensive series of loophole-rich financial "reforms" that the Democrats are currently pushing may ultimately do more harm than good. In fact, some parts of the new reforms border on insanity, threatening to vastly amplify Wall Street's political power by institutionalizing the taxpayer's role as a welfare provider for the financial-services industry. At one point in the debate, Obama's top economic advisers demanded the power to award future bailouts without even going to Congress for approval — and without providing taxpayers a single dime in equity on the deals.
How did we get here? It started just moments after the election — and almost nobody noticed.
'Just look at the timeline of the Citigroup deal," says one leading Democratic consultant. "Just look at it. It's fucking amazing. Amazing! And nobody said a thing about it."
Barack Obama was still just the president-elect when it happened, but the revolting and inexcusable $306 billion bailout that Citigroup received was the first major act of his presidency. In order to grasp the full horror of what took place, however, one needs to go back a few weeks before the actual bailout — to November 5th, 2008, the day after Obama's election.
That was the day the jubilant Obama campaign announced its transition team. Though many of the names were familiar — former Bill Clinton chief of staff John Podesta, long-time Obama confidante Valerie Jarrett — the list was most notable for who was not on it, especially on the economic side. Austan Goolsbee, a University of Chicago economist who had served as one of Obama's chief advisers during the campaign, didn't make the cut. Neither did Karen Kornbluh, who had served as Obama's policy director and was instrumental in crafting the Democratic Party's platform. Both had emphasized populist themes during the campaign: Kornbluh was known for pushing Democrats to focus on the plight of the poor and middle class, while Goolsbee was an aggressive critic of Wall Street, declaring that AIG executives should receive "a Nobel Prize — for evil."
But come November 5th, both were banished from Obama's inner circle — and replaced with a group of Wall Street bankers. Leading the search for the president's new economic team was his close friend and Harvard Law classmate Michael Froman, a high-ranking executive at Citigroup. During the campaign, Froman had emerged as one of Obama's biggest fundraisers, bundling $200,000 in contributions and introducing the candidate to a host of heavy hitters — chief among them his mentor Bob Rubin, the former co-chairman of Goldman Sachs who served as Treasury secretary under Bill Clinton. Froman had served as chief of staff to Rubin at Treasury, and had followed his boss when Rubin left the Clinton administration to serve as a senior counselor to Citigroup (a massive new financial conglomerate created by deregulatory moves pushed through by Rubin himself).
Incredibly, Froman did not resign from the bank when he went to work for Obama: He remained in the employ of Citigroup for two more months, even as he helped appoint the very people who would shape the future of his own firm. And to help him pick Obama's economic team, Froman brought in none other than Jamie Rubin who happens to be Bob Rubin's son. At the time, Jamie's dad was still earning roughly $15 million a year working for Citigroup, which was in the midst of a collapse brought on in part because Rubin had pushed the bank to invest heavily in mortgage-backed CDOs and other risky instruments.
Now here's where it gets really interesting. It's three weeks after the election. You have a lame-duck president in George W. Bush — still nominally in charge, but in reality already halfway to the golf-and-O'Doul's portion of his career and more than happy to vacate the scene. Left to deal with the still-reeling economy are lame-duck Treasury Secretary Henry Paulson, a former head of Goldman Sachs, and New York Fed chief Timothy Geithner, who served under Bob Rubin in the Clinton White House. Running Obama's economic team are a still-employed Citigroup executive and the son of another Citigroup executive, who himself joined Obama's transition team that same month.
So on November 23rd, 2008, a deal is announced in which the government will bail out Rubin's messes at Citigroup with a massive buffet of taxpayer-funded cash and guarantees. It is a terrible deal for the government, almost universally panned by all serious economists, an outrage to anyone who pays taxes. Under the deal, the bank gets $20 billion in cash, on top of the $25 billion it had already received just weeks before as part of the Troubled Asset Relief Program. But that's just the appetizer. The government also agrees to charge taxpayers for up to $277 billion in losses on troubled Citi assets, many of them those toxic CDOs that Rubin had pushed Citi to invest in. No Citi executives are replaced, and few restrictions are placed on their compensation. It's the sweetheart deal of the century, putting generations of working-stiff taxpayers on the hook to pay off Bob Rubin's fuck-up-rich tenure at Citi. "If you had any doubts at all about the primacy of Wall Street over Main Street," former labor secretary Robert Reich declares when the bailout is announced, "your doubts should be laid to rest."
It is bad enough that one of Bob Rubin's former protégés from the Clinton years, the New York Fed chief Geithner, is intimately involved in the negotiations, which unsurprisingly leave the Federal Reserve massively exposed to future Citi losses. But the real stunner comes only hours after the bailout deal is struck, when the Obama transition team makes a cheerful announcement: Timothy Geithner is going to be Barack Obama's Treasury secretary!
Geithner, in other words, is hired to head the U.S. Treasury by an executive from Citigroup — Michael Froman — before the ink is even dry on a massive government giveaway to Citigroup that Geithner himself was instrumental in delivering. In the annals of brazen political swindles, this one has to go in the all-time Fuck-the-Optics Hall of Fame.
Wall Street loved the Citi bailout and the Geithner nomination so much that the Dow immediately posted its biggest two-day jump since 1987, rising 11.8 percent. Citi shares jumped 58 percent in a single day, and JP Morgan Chase, Merrill Lynch and Morgan Stanley soared more than 20 percent, as Wall Street embraced the news that the government's bailout generosity would not die with George W. Bush and Hank Paulson. "Geithner assures a smooth transition between the Bush administration and that of Obama, because he's already co-managing what's happening now," observed Stephen Leeb, president of Leeb Capital Management.
Left unnoticed, however, was the fact that Geithner had been hired by a sitting Citigroup executive who still had a big bonus coming despite his proximity to Obama. In January 2009, just over a month after the bailout, Citigroup paid Froman a year-end bonus of $2.25 million. But as outrageous as it was, that payoff would prove to be chump change for the banker crowd, who were about to get everything they wanted — and more — from the new president.
The irony of Bob Rubin: He's an unapologetic arch-capitalist demagogue whose very career is proof that a free-market meritocracy is a myth. Much like Alan Greenspan, a staggeringly incompetent economic forecaster who was worshipped by four decades of politicians because he once dated Barbara Walters, Rubin has been held in awe by the American political elite for nearly 20 years despite having fucked up virtually every project he ever got his hands on. He went from running Goldman Sachs (1990-1992) to the Clinton White House (1993-1999) to Citigroup (1999-2009), leaving behind a trail of historic gaffes that somehow boosted his stature every step of the way.
As Treasury secretary under Clinton, Rubin was the driving force behind two monstrous deregulatory actions that would be primary causes of last year's financial crisis: the repeal of the Glass-Steagall Act (passed specifically to legalize the Citigroup megamerger) and the deregulation of the derivatives market. Having set that time bomb, Rubin left government to join Citi, which promptly expressed its gratitude by giving him $126 million in compensation over the next eight years (they don't call it bribery in this country when they give you the money post factum). After urging management to amp up its risky investments in toxic vehicles, a strategy that very nearly destroyed the company, Rubin blamed Citi's board for his screw-ups and complained that he had been underpaid to boot. "I bet there's not a single year where I couldn't have gone somewhere else and made more," he said.
Despite being perhaps more responsible for last year's crash than any other single living person — his colossally stupid decisions at both the highest levels of government and the management of a private financial superpower make him unique — Rubin was the man Barack Obama chose to build his White House around.
There are four main ways to be connected to Bob Rubin: through Goldman Sachs, the Clinton administration, Citigroup and, finally, the Hamilton Project, a think tank Rubin spearheaded under the auspices of the Brookings Institute to promote his philosophy of balanced budgets, free trade and financial deregulation. The team Obama put in place to run his economic policy after his inauguration was dominated by people who boasted connections to at least one of these four institutions — so much so that the White House now looks like a backstage party for an episode of Bob Rubin, This Is Your Life!
At Treasury, there is Geithner, who worked under Rubin in the Clinton years. Serving as Geithner's "counselor" — a made-up post not subject to Senate confirmation — is Lewis Alexander, the former chief economist of Citigroup, who advised Citi back in 2007 that the upcoming housing crash was nothing to worry about. Two other top Geithner "counselors" — Gene Sperling and Lael Brainard — worked under Rubin at the National Economic Council, the key group that coordinates all economic policymaking for the White House.
As director of the NEC, meanwhile, Obama installed economic czar Larry Summers, who had served as Rubin's protégé at Treasury. Just below Summers is Jason Furman, who worked for Rubin in the Clinton White House and was one of the first directors of Rubin's Hamilton Project. The appointment of Furman — a persistent advocate of free-trade agreements like NAFTA and the author of droolingly pro-globalization reports with titles like "Walmart: A Progressive Success Story" — provided one of the first clues that Obama had only been posturing when he promised crowds of struggling Midwesterners during the campaign that he would renegotiate NAFTA, which facilitated the flight of blue-collar jobs to other countries. "NAFTA's shortcomings were evident when signed, and we must now amend the agreement to fix them," Obama declared. A few months after hiring Furman to help shape its economic policy, however, the White House quietly quashed any talk of renegotiating the trade deal. "The president has said we will look at all of our options, but I think they can be addressed without having to reopen the agreement," U.S. Trade Representative Ronald Kirk told reporters in a little-publicized conference call last April.
The announcement was not so surprising, given who Obama hired to serve alongside Furman at the NEC: management consultant Diana Farrell, who worked under Rubin at Goldman Sachs. In 2003, Farrell was the author of an infamous paper in which she argued that sending American jobs overseas might be "as beneficial to the U.S. as to the destination country, probably more so."
Joining Summers, Furman and Farrell at the NEC is Froman, who by then had been formally appointed to a unique position: He is not only Obama's international finance adviser at the National Economic Council, he simultaneously serves as deputy national security adviser at the National Security Council. The twin posts give Froman a direct line to the president, putting him in a position to coordinate Obama's international economic policy during a crisis. He'll have help from David Lipton, another joint appointee to the economics and security councils who worked with Rubin at Treasury and Citigroup, and from Jacob Lew, a former Citi colleague of Rubin's whom Obama named as deputy director at the State Department to focus on international finance.
Over at the Commodity Futures Trading Commission, which is supposed to regulate derivatives trading, Obama appointed Gary Gensler, a former Goldman banker who worked under Rubin in the Clinton White House. Gensler had been instrumental in helping to pass the infamous Commodity Futures Modernization Act of 2000, which prevented regulation of derivative instruments like CDOs and credit-default swaps that played such a big role in cratering the economy last year. And as head of the powerful Office of Management and Budget, Obama named Peter Orszag, who served as the first director of Rubin's Hamilton Project. Orszag once succinctly summed up the project's ideology as a sort of liberal spin on trickle-down Reaganomics: "Market competition and globalization generate significant economic benefits."
Taken together, the rash of appointments with ties to Bob Rubin may well represent the most sweeping influence by a single Wall Street insider in the history of government. "Rather than having a team of rivals, they've got a team of Rubins," says Steven Clemons, director of the American Strategy Program at the New America Foundation. "You see that in policy choices that have resuscitated — but not reformed — Wall Street."
While Rubin's allies and acolytes got all the important jobs in the Obama administration, the academics and progressives got banished to semi-meaningless, even comical roles. Kornbluh was rewarded for being the chief policy architect of Obama's meteoric rise by being outfitted with a pith helmet and booted across the ocean to Paris, where she now serves as America's never-again-to-be-seen-on-TV ambassador to the Organization for Economic Cooperation and Development. Goolsbee, meanwhile, was appointed as staff director of the President's Economic Recovery Advisory Board, a kind of dumping ground for Wall Street critics who had assisted Obama during the campaign; one top Democrat calls the panel "Siberia."
Joining Goolsbee as chairman of the PERAB gulag is former Fed chief Paul Volcker, who back in March 2008 helped candidate Obama write a speech declaring that the deregulatory efforts of the Eighties and Nineties had "excused and even embraced an ethic of greed, corner-cutting, insider dealing, things that have always threatened the long-term stability of our economic system." That speech met with rapturous applause, but the commission Obama gave Volcker to manage is so toothless that it didn't even meet for the first time until last May. The lone progressive in the White House, economist Jared Bernstein, holds the impressive-sounding title of chief economist and national policy adviser — except that the man he is advising is Joe Biden, who seems more interested in foreign policy than financial reform.
The significance of all of these appointments isn't that the Wall Street types are now in a position to provide direct favors to their former employers. It's that, with one or two exceptions, they collectively offer a microcosm of what the Democratic Party has come to stand for in the 21st century. Virtually all of the Rubinites brought in to manage the economy under Obama share the same fundamental political philosophy carefully articulated for years by the Hamilton Project: Expand the safety net to protect the poor, but let Wall Street do whatever it wants. "Bob Rubin, these guys, they're classic limousine liberals," says David Sirota, a former Democratic strategist. "These are basically people who have made shitloads of money in the speculative economy, but they want to call themselves good Democrats because they're willing to give a little more to the poor. That's the model for this Democratic Party: Let the rich do their thing, but give a fraction more to everyone else."
Even the members of Obama's economic team who have spent most of their lives in public office have managed to make small fortunes on Wall Street. The president's economic czar, Larry Summers, was paid more than $5.2 million in 2008 alone as a managing director of the hedge fund D.E. Shaw, and pocketed an additional $2.7 million in speaking fees from a smorgasbord of future bailout recipients, including Goldman Sachs and Citigroup. At Treasury, Geithner's aide Gene Sperling earned a staggering $887,727 from Goldman Sachs last year for performing the punch-line-worthy service of "advice on charitable giving." Sperling's fellow Treasury appointee, Mark Patterson, received $637,492 as a full-time lobbyist for Goldman Sachs, and another top Geithner aide, Lee Sachs, made more than $3 million working for a New York hedge fund called Mariner Investment Group. The list goes on and on. Even Obama's chief of staff, Rahm Emanuel, who has been out of government for only 30 months of his adult life, managed to collect $18 million during his private-sector stint with a Wall Street firm called Wasserstein-Perella.
The point is that an economic team made up exclusively of callous millionaire-assholes has absolutely zero interest in reforming the gamed system that made them rich in the first place. "You can't expect these people to do anything other than protect Wall Street," says Rep. Cliff Stearns, a Republican from Florida. That thinking was clear from Obama's first address to Congress, when he stressed the importance of getting Americans to borrow like crazy again. "Credit is the lifeblood of the economy," he declared, pledging "the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money." A president elected on a platform of change was announcing, in so many words, that he planned to change nothing fundamental when it came to the economy. Rather than doing what FDR had done during the Great Depression and institute stringent new rules to curb financial abuses, Obama planned to institutionalize the policy, firmly established during the Bush years, of keeping a few megafirms rich at the expense of everyone else.
Obama hasn't always toed the Rubin line when it comes to economic policy. Despite being surrounded by a team that is powerfully opposed to deficit spending — balanced budgets and deficit reduction have always been central to the Rubin way of thinking — Obama came out of the gate with a huge stimulus plan designed to kick-start the economy and address the job losses brought on by the 2008 crisis. "You have to give him credit there," says Sen. Bernie Sanders, an advocate of using government resources to address unemployment. "It's a very significant piece of legislation, and $787 billion is a lot of money."
But whatever jobs the stimulus has created or preserved so far — 640,329, according to an absurdly precise and already debunked calculation by the White House — the aid that Obama has provided to real people has been dwarfed in size and scope by the taxpayer money that has been handed over to America's financial giants. "They spent $75 billion on mortgage relief, but come on — look at how much they gave Wall Street," says a leading Democratic strategist. Neil Barofsky, the inspector general charged with overseeing TARP, estimates that the total cost of the Wall Street bailouts could eventually reach $23.7 trillion. And while the government continues to dole out big money to big banks, Obama and his team of Rubinites have done almost nothing to reform the warped financial system responsible for imploding the global economy in the first place.
The push for reform seemed to get off to a promising start. In the House, the charge was led by Rep. Barney Frank, the outspoken chair of the House Financial Services Committee, who emerged during last year's Bush bailouts as a sharp-tongued critic of Wall Street. Back when Obama was still a senator, he and Frank even worked together to introduce a populist bill targeting executive compensation. Last spring, with the economy shattered, Frank began to hold hearings on a host of reforms, crafted with significant input from the White House, that initially contained some very good elements. There were measures to curb abusive credit-card lending, prevent banks from charging excessive fees, force publicly traded firms to conduct meaningful risk assessment and allow shareholders to vote on executive compensation. There were even measures to crack down on risky derivatives and to bar firms like AIG from picking their own regulators.
Then the committee went to work — and the loopholes started to appear.
The most notable of these came in the proposal to regulate derivatives like credit-default swaps. Even Gary Gensler, the former Goldmanite whom Obama put in charge of commodities regulation, was pushing to make these normally obscure investments more transparent, enabling regulators and investors to identify speculative bubbles sooner. But in August, a month after Gensler came out in favor of reform, Geithner slapped him down by issuing a 115-page paper called "Improvements to Regulation of Over-the-Counter Derivatives Markets" that called for a series of exemptions for "end users" — i.e., almost all of the clients who buy derivatives from banks like Goldman Sachs and Morgan Stanley. Even more stunning, Frank's bill included a blanket exception to the rules for currency swaps traded on foreign exchanges — the very instruments that had triggered the Long-Term Capital Management meltdown in the late 1990s.
Given that derivatives were at the heart of the financial meltdown last year, the decision to gut derivatives reform sent some legislators howling with disgust. Sen. Maria Cantwell of Washington, who estimates that as much as 90 percent of all derivatives could remain unregulated under the new rules, went so far as to say the new laws would make things worse. "Current law with its loopholes might actually be better than these loopholes," she said.
An even bigger loophole could do far worse damage to the economy. Under the original bill, the Securities and Exchange Commission and the Commodity Futures Trading Commission were granted the power to ban any credit swaps deemed to be "detrimental to the stability of a financial market or of participants in a financial market." By the time Frank's committee was done with the bill, however, the SEC and the CFTC were left with no authority to do anything about abusive derivatives other than to send a report to Congress. The move, in effect, would leave the kind of credit-default swaps that brought down AIG largely unregulated.
Why would leading congressional Democrats, working closely with the Obama administration, agree to leave one of the riskiest of all financial instruments unregulated, even before the issue could be debated by the House? "There was concern that a broad grant to ban abusive swaps would be unsettling," Frank explained.
Unsettling to whom? Certainly not to you and me — but then again, actual people are not really part of the calculus when it comes to finance reform. According to those close to the markup process, Frank's committee inserted loopholes under pressure from "constituents" — by which they mean anyone "who can afford a lobbyist," says Michael Greenberger, the former head of trading at the CFTC under Clinton.
This pattern would repeat itself over and over again throughout the fall. Take the centerpiece of Obama's reform proposal: the much-ballyhooed creation of a Consumer Finance Protection Agency to protect the little guy from abusive bank practices. Like the derivatives bill, the debate over the CFPA ended up being dominated by horse-trading for loopholes. In the end, Frank not only agreed to exempt some 8,000 of the nation's 8,200 banks from oversight by the castrated-in-advance agency, leaving most consumers unprotected, he allowed the committee to pass the exemption by voice vote, meaning that congressmen could side with the banks without actually attaching their name to their "Aye."
To win the support of conservative Democrats, Frank also backed down on another issue that seemed like a slam-dunk: a requirement that all banks offer so-called "plain vanilla" products, such as no-frills mortgages, to give consumers an alternative to deceptive, "fully loaded" deals like adjustable-rate loans. Frank's last-minute reversal — made in consultation with Geithner — was such a transparent giveaway to the banks that even an economics writer for Reuters, hardly a far-left source, called it "the beginning of the end of meaningful regulatory reform."
But the real kicker came when Frank's committee took up what is known as "resolution authority" — government-speak for "Who the hell is in charge the next time somebody at AIG or Lehman Brothers decides to vaporize the economy?" What the committee initially introduced bore a striking resemblance to a proposal written by Geithner earlier in the summer. A masterpiece of legislative chicanery, the measure would have given the White House permanent and unlimited authority to execute future bailouts of megaconglomerates like Citigroup and Bear Stearns.
Democrats pushed the move as politically uncontroversial, claiming that the bill will force Wall Street to pay for any future bailouts and "doesn't use taxpayer money." In reality, that was complete bullshit. The way the bill was written, the FDIC would basically borrow money from the Treasury — i.e., from ordinary taxpayers — to bail out any of the nation's two dozen or so largest financial companies that the president deems in need of government assistance. After the bailout is executed, the president would then levy a tax on financial firms with assets of more than $10 billion to repay the Treasury within 60 months — unless, that is, the president decides he doesn't want to! "They can wait indefinitely to repay," says Rep. Brad Sherman of California, who dubbed the early version of the bill "TARP on steroids."
The new bailout authority also mandated that future bailouts would not include an exchange of equity "in any form" — meaning that taxpayers would get nothing in return for underwriting Wall Street's mistakes. Even more outrageous, it specifically prohibited Congress from rejecting tax giveaways to Wall Street, as it did last year, by removing all congressional oversight of future bailouts. In fact, the resolution authority proposed by Frank was such a slurpingly obvious blow job of Wall Street that it provoked a revolt among his own committee members, with junior Democrats waging a spirited fight that restored congressional oversight to future bailouts, requires equity for taxpayer money and caps assistance to troubled firms at $150 billion. Another amendment to force companies with more than $50 billion in assets to pay into a rainy-day fund for bailouts passed by a resounding vote of 52 to 17 — with the "Nays" all coming from Frank and other senior Democrats loyal to the administration.
Even as amended, however, resolution authority still has the potential to be truly revolutionary legislation. The Senate version still grants the president unlimited power over equity-free bailouts, and the amended House bill still institutionalizes a system of taxpayer support for the 20 to 25 biggest banks in the country. It would essentially grant economic immortality to those top few megafirms, who will continually gobble up greater and greater slices of market share as money becomes cheaper and cheaper for them to borrow (after all, who wouldn't lend to a company permanently backstopped by the federal government?). It would also formalize the government's role in the global economy and turn the presidential-appointment process into an important part of every big firm's business strategy. "If this passes, the very first thing these companies are going to do in the future is ask themselves, 'How do we make sure that one of our executives becomes assistant Treasury secretary?'" says Sherman.
On the Senate side, finance reform has yet to make it through the markup process, but there's every reason to believe that its final bill will be as watered down as the House version by the time it comes to a vote. The original measure, drafted by chairman Christopher Dodd of the Senate Banking Committee, is surprisingly tough on Wall Street — a fact that almost everyone in town chalks up to Dodd's desperation to shake the bad publicity he incurred by accepting a sweetheart mortgage from the notorious lender Countrywide. "He's got to do the shake-his-fist-at-Wall Street thing because of his, you know, problems," says a Democratic Senate aide. "So that's why the bill is starting out kind of tough."
The aide pauses. "The question is, though, what will it end up looking like?"
He's right — that is the question. Because the way it works is that all of these great-sounding reforms get whittled down bit by bit as they move through the committee markup process, until finally there's nothing left but the exceptions. In one example, a measure that would have forced financial companies to be more accountable to shareholders by holding elections for their entire boards every year has already been watered down to preserve the current system of staggered votes. In other cases, this being the Senate, loopholes were inserted before the debate even began: The Dodd bill included the exemption for foreign-currency swaps — a gift to Wall Street that only appeared in the Frank bill during the course of hearings — from the very outset.
The White House's refusal to push for real reform stands in stark contrast to what it should be doing. It was left to Rep. Paul Kanjorski in the House and Bernie Sanders in the Senate to propose bills to break up the so-called "too big to fail" banks. Both measures would give Congress the power to dismantle those pseudomonopolies controlling almost the entire derivatives market (Goldman, Citi, Chase, Morgan Stanley and Bank of America control 95 percent of the $290 trillion over-the-counter market) and the consumer-lending market (Citi, Chase, Bank of America and Wells Fargo issue one of every two mortgages, and two of every three credit cards). On November 18th, in a move that demonstrates just how nervous Democrats are getting about the growing outrage over taxpayer giveaways, Barney Frank's committee actually passed Kanjorski's measure. "It's a beginning," Kanjorski says hopefully. "We're on our way." But even if the Senate follows suit, big banks could well survive — depending on whom the president appoints to sit on the new regulatory board mandated by the measure. An oversight body filled with executives of the type Obama has favored to date from Citi and Goldman Sachs hardly seems like a strong bet to start taking an ax to concentrated wealth. And given the new bailout provisions that provide these megafirms a market advantage over smaller banks (those Paul Volcker calls "too small to save"), the failure to break them up qualifies as a major policy decision with potentially disastrous consequences.
"They should be doing what Teddy Roosevelt did," says Sanders. "They should be busting the trusts."
That probably won't happen anytime soon. But at a minimum, Obama should start on the road back to sanity by making a long-overdue move: firing Geithner. Not only are the mop-headed weenie of a Treasury secretary's fingerprints on virtually all the gross giveaways in the new reform legislation, he's a living symbol of the Rubinite gangrene crawling up the leg of this administration. Putting Geithner against the wall and replacing him with an actual human being not recently employed by a Wall Street megabank would do a lot to prove that Obama was listening this past Election Day. And while there are some who think Geithner is about to go — "he almost has to," says one Democratic strategist — at the moment, the president is still letting Wall Street do his talking.
Morning, the National Mall, November 5th. A year to the day after Obama named Michael Froman to his transition team, his political "opposition" has descended upon the city. Republican teabaggers from all 50 states have showed up, a vast horde of frowning, pissed-off middle-aged white people with their idiot placards in hand, ready to do cultural battle. They are here to protest Obama's "socialist" health care bill — you know, the one that even a bloodsucking capitalist interest group like Big Pharma spent $150 million to get passed.
These teabaggers don't know that, however. All they know is that a big government program might end up using tax dollars to pay the medical bills of rapidly breeding Dominican immigrants. So they hate it. They're also in a groove, knowing that at the polls a few days earlier, people like themselves had a big hand in ousting several Obama-allied Democrats, including a governor of New Jersey who just happened to be the former CEO of Goldman Sachs. A sign held up by New Jersey protesters bears the warning, "If You Vote For Obamacare, We Will Corzine You."
I approach a woman named Pat Defillipis from Toms River, New Jersey, and ask her why she's here. "To protest health care," she answers. "And then amnesty. You know, immigration amnesty."
I ask her if she's aware that there's a big hearing going on in the House today, where Barney Frank's committee is marking up a bill to reform the financial regulatory system. She recognizes Frank's name, wincing, but the rest of my question leaves her staring at me like I'm an alien.
"Do you care at all about economic regulation?" I ask. "There was sort of a big economic collapse last year. Do you have any ideas about how that whole deal should be fixed?"
"We got to slow down on spending," she says. "We can't afford it."
"But what do we do about the rules governing Wall Street . . ."
She walks away. She doesn't give a fuck. People like Pat aren't aware of it, but they're the best friends Obama has. They hate him, sure, but they don't hate him for any reasons that make sense. When it comes down to it, most of them hate the president for all the usual reasons they hate "liberals" — because he uses big words, doesn't believe in hell and doesn't flip out at the sight of gay people holding hands. Additionally, of course, he's black, and wasn't born in America, and is married to a woman who secretly hates our country.
These are the kinds of voters whom Obama's gang of Wall Street advisers is counting on: idiots. People whose votes depend not on whether the party in power delivers them jobs or protects them from economic villains, but on what cultural markers the candidate flashes on TV. Finance reform has become to Obama what Iraq War coffins were to Bush: something to be tucked safely out of sight.
Around the same time that finance reform was being watered down in Congress at the behest of his Treasury secretary, Obama was making a pit stop to raise money from Wall Street. On October 20th, the president went to the Mandarin Oriental Hotel in New York and addressed some 200 financiers and business moguls, each of whom paid the maximum allowable contribution of $30,400 to the Democratic Party. But an organizer of the event, Daniel Fass, announced in advance that support for the president might be lighter than expected — bailed-out firms like JP Morgan Chase and Goldman Sachs were expected to contribute a meager $91,000 to the event — because bankers were tired of being lectured about their misdeeds.
"The investment community feels very put-upon," Fass explained. "They feel there is no reason why they shouldn't earn $1 million to $200 million a year, and they don't want to be held responsible for the global financial meltdown."
Which makes sense. Shit, who could blame the investment community for the meltdown? What kind of assholes are we to put any of this on them?
This is the kind of person who is working for the Obama administration, which makes it unsurprising that we're getting no real reform of the finance industry. There's no other way to say it: Barack Obama, a once-in-a-generation political talent whose graceful conquest of America's racial dragons en route to the White House inspired the entire world, has for some reason allowed his presidency to be hijacked by sniveling, low-rent shitheads. Instead of reining in Wall Street, Obama has allowed himself to be seduced by it, leaving even his erstwhile campaign adviser, ex-Fed chief Paul Volcker, concerned about a "moral hazard" creeping over his administration.
"The obvious danger is that with the passage of time, risk-taking will be encouraged and efforts at prudential restraint will be resisted," Volcker told Congress in September, expressing concerns about all the regulatory loopholes in Frank's bill. "Ultimately, the possibility of further crises — even greater crises — will increase."
What's most troubling is that we don't know if Obama has changed, or if the influence of Wall Street is simply a fundamental and ineradicable element of our electoral system. What we do know is that Barack Obama pulled a bait-and-switch on us. If it were any other politician, we wouldn't be surprised. Maybe it's our fault, for thinking he was different.
maandag 16 november 2009
She who measures
Are we truly free?
Are our desires our own or just a construct of the society we were born in, or is there a chance to escape after all?
Are our desires our own or just a construct of the society we were born in, or is there a chance to escape after all?
zondag 15 november 2009
vrijdag 30 oktober 2009
Structural Woes - an interview with Stoneleigh of TAE
Euan Mearns: Stoneleigh, the world economy seems to be suffering from two great structural woes at present, namely stubbornly high energy prices that are linked to demand that is persistently ahead of the supply curve, and a level of debt that has destabilized the global finance and banking systems.
Can you explain for us the scale and structure of this debt and to what extent write-downs and quantitative easing (QE) have solved this problem?
Stoneleigh: Firstly, I would say that the energy prices that currently seem stubbornly high should fall substantially as the speculative premium evaporates and demand falls on a resumption of the credit crunch. The sucker rally that has spawned all the talk of green shoots is essentially over in my opinion.
The result should be a reversal of a number of trends that depend on the ebb and flow of liquidity - we should see stock markets and commodity prices fall, a significant resurgence in the US dollar and a large contraction of credit. The scale of the reversal should be substantial, as should its effects on energy demand. Demand is not what one wants, but what one is ready, willing and able to pay for, and in a severe credit crunch the capacity to pay for supplies of most things will be severely reduced.
As demand falls, and with it prices, investment in the energy sector is likely to dry up. Many projects will be uneconomic at much lower prices, meaning that the projects which might have cushioned the downslope of Hubbert’s curve (and the much steeper net energy curve), are unlikely to be developed. In this way a demand collapse sets the stage for a supply collapse that could place a hard ceiling on any prospect of economic recovery. That is a recipe for extremely high energy prices in the future.
Secondly, our vulnerability to the consequences of debt is extremely high at the moment. The scale of that debt is staggeringly large. The global credit hyper-expansion has been decades in the making and is now significantly larger than notable events of the past such as the South Sea Bubble of the 1720s and the Tulip Bubble of the 1630s. It dwarfs the excesses that led to the Great Depression.
Credit bubbles are inherently self-limiting, proceeding until the debt they generate can no longer be supported. We have already passed that point and we are now two years into a contraction phase that is about to accelerate. As the aftermath of a credit bubble is typically proportional to the scale of the excesses that preceded it, we should be in for the largest economic contraction for at least several hundred years, and it will be global.
Real estate, which is a major focus of the mania, should do particularly badly in the coming years (in fact the coming decades or longer). There is still so much deleveraging ahead, and so many danger signals, such as the scale of the coming interest resets on US mortgages between now and 2012 (below). While the subprime resets are ending, Alt A and Option ARMs are just beginning.
There will be a very significant undershoot of historically average values, as there always is following a mania (much more than the Case-Shiller projection below suggests). In my opinion, housing prices are likely to fall at least 90% on average. For those who own property on margin, this will be a disaster.
For evidence that this crisis is indeed global, look, for instance, at European housing bubbles, which were worse than in the US.
Unlike inflation, which divides the underlying real wealth pie into smaller and smaller pieces, credit expansion creates multiple and mutually exclusive claims to the same pieces of pie. Once a credit expansion reaches its maximum extent, and contraction begins, these excess claims begin to be extinguished.
Unfortunately, the leverage is such that there are probably over a hundred claims to each piece of pie. While contraction begins slowly, as is the nature of positive feedback loops, it picks up momentum until a cascade point is reached, whereupon one can expect the excess claims to be extinguished in a rapid and chaotic process. This amounts to a rapid collapse in the supply of money and credit relative to available goods and services, which is the definition of deflation.
The scale of the problem has been temporarily concealed by a market rally and the shovelling of tens of trillions of dollars of taxpayer’s money into a giant black hole of credit destruction. This has done nothing to reignite lending, but the temporary (and entirely irrational) resurgence of confidence has restored a measure of liquidity. As that confidence evaporates with the end of the rally, that liquidity will also disappear
Banks hold extremely large amounts of illiquid ‘assets’ which are currently marked-to-make-believe. So long as large-scale price discovery events can be avoided, this fiction can continue. Unfortunately, a large-scale loss of confidence is exactly the kind of circumstance that is likely to result in a fire-sale of distressed assets. The structure of the credit default swap component of the derivatives market makes this very much more likely.
The CDS market allowed large bets to be placed on certain prices falling, and by entities which did not have to own those assets. This creates a perverse incentive for some parties to cause others to fail for profit (akin to me being able to take out fire insurance on your house and thereby give me an incentive to burn it down).
An added complication is the extreme degree of counterparty risk that resulted from a complete lack of capital adequacy regulation. Many parties with winning bets will not be able to collect, so they may cause financial mayhem for nothing. The CDS market is worth some $62 trillion, and a meltdown is very likely in my opinion.
A large-scale mark-to-market event of banks illiquid ‘assets’ would reprice entire asset classes across the board, probably at pennies on the dollar. This would amount to a very rapid destruction of staggering amounts of putative value. This is the essence of deflation.
Euan Mearns: I have for a long time argued and believed that there are so many interests vested in protecting our current system that national governments, the IMF and institutions working together would keep the market flooded with liquidity in order to ward off the threat of deflation.
In fact, it seems that a prolonged period of inflation is the only way to diminish our debts. I sensed at ASPO International in Denver that this was the majority view. Do you agree that inflation is the most likely near term outcome of current monetary policy?
Stoneleigh: Absolutely not. I agree that this is the consensus opinion, but I see it as fundamentally mistaken. The debt monetization that is going on has done nothing to increase the supply of money and credit relative to available goods and services, which is the definition of inflation.
Credit contraction dwarfs debt monetization, leaving us in a state of net contraction, even though we have just experienced a large rally lasting months, which should have been the most favourable condition for reigniting lending if such a thing were in fact possible. I would argue that it is simply not possible and that deflation is inevitable.
Credit bubbles always end this way, with the mass extinguishing of the excess claims debt represents. They are essentially Ponzi schemes, crucially dependent on the continued buy-in of new entrants. Globalized finance brought a flood of new entrants following the liberalization of the early 1980s, but there are now no more new sources of wealth to tap.
Deregulation allowed the reckless to gamble away virtually everything, including bank deposits and pension funds. Globalized finance has created a giant Enron, which while appearing robust is actually almost completely hollowed out. Such structures implode, often without much notice.
In my opinion, deflationary deleveraging will continue until the (small amount of) remaining debt is acceptably collateralized to the (few) remaining creditors. Until that point, there can be no lasting return of the confidence required to rebuild shattered credit markets.
Deflation is ultimately psychological. Without trust we will see hoarding of the cash which will be very scarce in the absence of the credit that currently comprises the vast majority of the effective money supply. The combination of scarce cash and a very low velocity of money will be toxic.
Money is the lubricant in the economic engine and without enough of it that engine will seize up as it did in the 1930s, when farmers dumped milk they couldn’t sell into ditches while others were starving for want of the money to buy food. There was plenty of everything except money, and without money, one cannot connect buyers and sellers.
Potential buyers will have no purchasing power as they will have lost access to credit and their ability to earn an income will be hit by spiking unemployment. Those who still have jobs will find that they have no bargaining power and there is therefore no wage support.
Sellers and producers will have no market and will themselves lose the means to purchase supplies or raw materials for the things they would like to produce.
If conditions remain frozen for any length of time, they will go out of business. The deeper the collapse, the more protracted the trough and the more difficult the eventual recovery.
I would argue that we have no need to fear inflation until we have reached a trough - until the deleveraging impulse is spent. We can expect to spend a long time in the liquidity trap, where real interest rates will be much higher than nominal rates, leaving central bankers “pushing on a string”.
Euan Mearns: Some would argue that faced with the unimaginable specter of deflation that governments will seize control of interest rates from the bond market. Why do you think this may not happen?
Stoneleigh: The bond market is far more powerful than governments at this point. While the international debt financing model remains, the bond market will retain its power to prevent money printing. Even though governments are not succeeding in increasing the effective money supply for reasons already discussed, they are nevertheless increasing systemic risk with their activities.
This is a recipe for very much higher interest rates as a risk premium. Governments do not set interest rates, they decide what rate to defend, but if that rate is substantially different from what the bond market requires, then defending it would be ruinous.
I think we are headed (not imminently but eventually) for a bond market dislocation, with nominal interest rates on government debt spiking into the double digits. This will amount to hitting the emergency stop button on the economy, especially since real interest rates will be substantially higher (the nominal rate minus negative inflation).
I am in fact expecting interest rates on private debt to rise before we see problems in the market for government debt, as the latter should benefit substantially in the shorter term from a flight to safety. The risk premium on private debt is already rising, which is a serious danger signal for such thoroughly indebted societies as we see in the developed world.
Euan Mearns: But stock markets are booming again, several OECD economies are emerging from recession, unemployment has stabilized, there are green shoots everywhere. Surely the current QE strategy is working?
Stoneleigh: The green shoots are gangrenous. Some of the largest market rallies on record happened during the course of the Great Depression, as depressions are associated with very high volatility. Look for instance at the great sucker rally of 1930. There are always rallies of all different sizes in any bear market, just as there are pullbacks of all sizes in bull markets. No market ever moves in only one direction.
People tend to extrapolate recent trends forward, but this amounts to stepping on the gas while looking only in the rearview mirror. This is one reason why major trend changes are so rarely anticipated. Another is that the prevailing view of markets is fundamentally wrong. There is no perfect information, perfect competition, stabilizing negative feedback, rational utility maximization or efficient markets.
Markets are irrational, driven by swings of optimism and pessimism, or greed and fear, in an endless tug of war, and largely in an information vacuum. Investors chase momentum by jumping on passing bandwagons, hence demand for financial assets increases when prices are rising and falls when prices are falling, in classic positive feedback loops.
We have just lived through a period of several months when greed and complacency were in the ascendancy, but that trend is about to reverse in my opinion. Looking at markets as constructs of human herding behaviour allows them to be probabilistically predictable, permitting the forecasting of trend changes. For anyone who is interested in pursuing this idea further, I suggest looking into Bob Prechter’s socionomics - a fascinating subject which delves into the many effects of changes in collective mood.
For instance, as pessimism deepens, driving economic contraction, one would expect to see many manifestations of collective anger and mistrust. As this progresses it is likely to lead to xenophobia and a blame-game, with skillful manipulators (such as the fascist BNP leader Nick Griffin in the UK) poised to direct the anger of the herd towards their own chosen targets.
The potential for serious social fragmentation is very high when expectations have been dashed and there is not enough to go around. Having lived through a very long period of manic optimism and increasing inclusion, we in the developed world are not used to expressions of the dark side of human nature, except for entertainment purposes in popular television programmes. It will come as a considerable shock.
Euan Mearns: Would you care to give your opinion on where the Dow Jones Industrial Average is headed in the near (1 year) and medium terms (2 to 5 years)?
Stoneleigh: I think the market will fall hard (intervening short rallies notwithstanding) for perhaps 18 months. This was the length of the first leg down (October 2007-March 2009) and so represents a reasonable first guess at how long the next leg at the same degree of trend might last.
I think we will see falls of thousands of points in a series of cascades. I don’t see the markets reaching a lasting bottom until probably the middle of the next decade, and even then I don’t expect it to be a final bottom. This has been the largest credit bubble in history, and the aftermath of a major bubble always undershoots where it began before any kind of recovery begins.
The aftermath of the last major mania - the South Sea Bubble in the 1720s - lasted decades and culminated in a series of revolutions. We are still relatively near the beginning of our own crisis, but already it compares with the Great Depression.
Euan Mearns: How do you see the US$, gold and oil trading in the same time frame?
Stoneleigh: I think almost all assets will fall as price support is knocked out from underneath them, but the dollar should rise initially on a flight to safety. Scarce cash will be king for a long time, and the value of one’s currency relative to available goods and services domestically will matter much more for most people than its value relative to other currencies internationally.
In a deflationary scenario, prices fall, but purchasing power typically falls even faster, meaning that everything becomes less affordable despite the lower nominal prices. Prices in real terms, adjusted for changes in the supply of money and credit, are what matter.
In a world where almost everything is becoming rapidly less affordable, the essentials will be the least affordable of all, as a much larger percentage of a much smaller money supply will be chasing them. This will confer relative price support.
Although we could initially see a large glut in energy supply as demand falls off a cliff, this is likely to lead to supply collapse as investment dries up, hence I expect energy prices to bottom early in this depression.
Both financial and physical risks to energy exploration are likely to increase substantially in a destabilized and capital constrained world, and even maintaining existing assets could become very difficult. This is a recipe for much greater state involvement in ownership and exploitation of (probably deteriorating) energy assets, with increasing conflict over those assets as supply gets dramatically tighter with lack of investment.
As for gold, I expect it to fall initially as people sell not what they would like to, but what they can, in order to raise the cash they need for living expenses and debt servicing. Owning gold is likely to become illegal again (as it did in the Great Depression) in my opinion.
This wouldn’t necessarily stop you owning it, but would stop you trading it (at least without taking major risks) for other things you might need. Owning gold now therefore only makes sense if one is confident of being able to sit on it for a very long time, as it will hold its value over the long term as it has for thousands of years.
Euan Mearns: What will be the consequences for unemployment levels and services provided by government?
Stoneleigh: Unemployment will go through the roof as the prospects for selling most goods and services decline dramatically. In the developed world we are nations of middle men - generally service economies where we make a living figuratively taking in each other’s laundry.
Most of us produce relatively little. Even those who do will find almost no market for their exports, and those who could find buyers may not be able to send shipments as credit contraction prevents shippers from getting the letters of credit they need to ship goods. A glance at what has happened to the Baltic Dry Index (below) indicates the difficulties already facing shipping companies.
Unfortunately middlemen are almost completely expendable, and the services of others are likely to become unaffordable for the majority very quickly. While there will be a huge surplus of labour, and the few who retain purchasing power will be able to hire anyone they want for very little, most people will have to do everything for themselves, as poor people have done throughout history and as most of the population of the world does now.
Not only will we lose access to the paid labour of others, but we will lose our virtual energy slaves as well. This will represent an enormous fall in the standard of living for the vast majority.
Whereas inflation can conceal a fall in purchasing power, so that people may not even realize it is happening, deflation brutally exposes it. Wages would have to fall just to keep purchasing power the same, but keeping it the same will not be an option for cash-strapped employers. In addition, with a large surplus of labour, workers will have no bargaining power.
This is a recipe for exploitation the like of which we have not seen for a very long time, but in the intervening adjustment period it is likely to lead first to war in the labour markets.
I would expect general strikes and a breakdown in the reliability of centralized services such as healthcare, education, power systems, water treatment, garbage (and snow) removal etc. This will be exacerbated by plunging tax revenues for all levels of government, which governments will try to compensate for by raising taxes, on anyone still capable of paying, to punitive levels. We would thus expect rapidly deteriorating services at much higher cost.
Many people are at risk of being eventually priced out of the market for goods and services, and particularly the essential ones, entirely.
In my opinion, we stand on the brink of truly tragic circumstances.
maandag 12 oktober 2009
Gore Vidal's United States of fury
In Russian, the phrase "gore vidal" means "he has seen grief". As Gore Vidal is wheeled towards me across an empty London hotel lobby, it seems for the first time like an apt translation. In the eight years since I saw him last, he has lost his partner of 50 years, most of his friends, most of his enemies, and the use of his legs. The man I met then – bristling with his own brilliance, scattering witticisms around like confetti – has withered. His skin is like parchment, but the famous cheekbones are still sharp beneath the crags. "It is so cold in here," he says, by way of introduction. "So fucking cold."
Gore Vidal is not only grieving for his own dead circle and his fading life, but for his country. At 83, he has lived through one third of the lifespan of the United States. If anyone incarnates the American century that has ended, it is him. He was America's greatest essayist, one of its best-selling novelists and the wit at every party. He holidayed with the Kennedys, cruised for men with Tennessee Williams, was urged to run for Congress by Eleanor Roosevelt, co-wrote some of the most iconic Hollywood films, damned US foreign policy from within, sued Truman Capote, got fellated by Jack Kerouac, watched his cousin Al Gore get elected President and still lose the White House, and – finally, bizarrely – befriended and championed the Oklahoma bomber, Timothy McVeigh.
Yet now, he says, it is clear the American experiment has been "a failure". It was all for nothing. Soon the country will be ranked "somewhere between Brazil and Argentina, where it belongs." The Empire will collapse militarily in Afghanistan; the nation will collapse internally when Obama is broken "by the madhouse" and the Chinese call in the country's debts. A ruined United States will then be "the Yellow Man's Burden", and "they'll have us running the coolie cars, or whatever it is they have in the way of transport".
A Scotch is fetched for him as he is wheeled into the corner of the bar. "I was like everyone else when Obama was elected – optimistic. Everything we had been saying about racial integration was vindicated," he says, "but he's incompetent. He will be defeated for re-election. It's a pity because he's the first intellectual president we've had in many years, but he can't hack it. He's not up to it. He's overwhelmed. And who wouldn't be? The United States is a madhouse. The country should be put away – and we're being told to go away. Nothing makes any sense." The President "wants to be liked by everybody, and he thought all he had to do was talk reason. But remember – the Republican Party is not a political party. It's a mindset, like Hitler Youth. It's full of hatred. You're not going to get them aboard. Don't even try. The only way to handle them is to terrify them. He's too delicate for that."
When he compares Obama to his old friend Jack Kennedy, he shakes his head. "He's twice the intellectual that Jack was, but Jack knew the great world. Remember he spent a long time in the navy, losing ships. This kid [Obama] has never heard a gun fired in anger. He's absolutely bowled over by generals, who tell him lies and he believes them. He hasn't done anything. If you were faced with great problems in chemistry – to find the perfect gas, to gas a population – you won't know for a long time whether it works. You have to go by what people tell you. He's like that. He's not ready for prime time and he's getting a lot of prime time on his plate at once."
Is there any hope? "Every sign I see is doom. But then people say" – he adopts a whiny, nasal voice – "'Oh Mr Vidal, you're so negative, can't you say something nice about America? It's a wonderful country, everybody wants to live here.' Oh yes? When was the last time you saw a Norwegian with a green card who wanted to come here because of the health service? I'll pay you if you can find one."
But there is, he says with sudden perkiness, some "good news. Afghanistan will be terminal for the American empire, yes. Which is a happy way of looking at it. We'll be out of the empire game, rapidly. But it's too late for the country and the constitution." He raises his drink, and smiles ironically. "To a better republic," he says, and drinks in one long gulp.
I. The death of America
The current spasming death of America was foretold at its birth, Vidal says, and it can only be understood by whirling back there. It has been his mission to explain the past to the "United States of Amnesia," through his novels and essays. When he speaks, he sweeps over two millennia of history – from Caesar to Obama – as if he was there, forever spraying one-liners from the back row. Today, he was stopped time in Philadelphia, at the birth of the republic. "Benjamin Franklin saw all this coming," he says. "I quote him because most Americans don't even know who he was now. You'll have to explain to your readers." Franklin was a writer, scientist and soldier who became one of the founding fathers of the United States. "In Philadelphia in 1781, when the constitution was being put together, he was an observer. He didn't want to have any part of it, and as he was leaving the Constitution Hall in Philadelphia a couple of old ladies said, 'Ah, Mr Franklin, what is going to happen?' He told them: 'Well, you're going to get a Republic, if you can keep it. But every constitution of this sort has failed since the beginning of time due to the corruption of the people.'"
So the American people are corrupt? Americans weren't good enough for America? "Precisely. They were only good enough to be a restive colonial power – or the dregs of one."
Vidal's politics began here – almost. He was born at the United States Military Academy in West Point to a wealthy family at the apex of American power. His grandfather was Thomas Pryor Gore, the Senator for Oklahoma. He was blind, so from the age of five, little Gore was reading letters and books for big Gore and guiding him discreetly through Washington DC parties. The Senator was a populist, fighting to rally the people against the concentrated power of Wall Street and Big Finance. He represented the cotton farmers who emerged battered from the Civil War, only to be destroyed by Wall Street financiers playing roulette with the global cotton price. Yet there was always a strange contradiction to his life: "My grandfather couldn't stand his constituents," Vidal says. "And they loved him for it. Figure that one out."
He was a populist with no faith in the populace – precisely what his grandson has turned into. Gore Vidal shares the populist belief that the people are being shafted by the rich – but he thinks the population is too cretinous and drugged by television and fast food to figure it out. "It is always to be hoped that the people will mysteriously be educated, somehow. Well, that's the link. But the people don't know anything. As soon as we became an empire, we stopped teaching geography in the schools, so nobody would know where anything is. It's not the people's fault – they have been perverted them into imperial ways of thinking so that they would be docile workers and loyal consumers. That was the dream and it has come true."
As a child, Vidal loved spending time with his Senator-grandfather, not least because it meant he could escape for a time from his alcoholic mother Nina. When I raise the topic, he adopts the nasal whine of a mock-interviewer again and says: "'Oh Mr Vidal, your poor mother can't have been as awful as you say [in your memoirs].' She was a lot worse. I don't go after other people's mothers, but my own was quite enough to attack."
She was constantly drunk, and when she wasn't savaging him or threatening suicide, she would tell her son the full details of her life in an obsessive angry blather. When he was 10, "she told me that rage made her orgasmic. I didn't think to ask her if sex did the same." When he appeared on the cover of Time magazine years later, she wrote a long letter to the magazine denouncing him. The magazine headlined it: "A Mother's Love." Vidal seems to have inherited his bitter wit from her. Asked why she didn't marry for a fourth time, she said: "My first husband had three balls, my second two, my third one. Even I know enough not to press my luck." Does he think of her often? "No." He gives me an icy stare. After all these years, can he feel any compassion for her? "No." The ice becomes a glacier.
Does he think, at least, that she shaped his personality? His old friend Kenneth Tynan, the theatre critic, wrote in his diaries: "What superb and seamless armour he wears, as befits one for whom life is a permanent battle for (social and intellectual) supremacy ... Gore could never surrender (ie, expose) himself to anyone." Could his mother's cruelty explain his lifelong sweeping dismissal of everything around him – the constant goring by Gore? As soon as I ask this, I realise how Vidal has changed since I last saw him. Then, he would have responded with a witty put-down, or reasserted his supremacy with an obscure classical reference, quoted in the original Greek. Now he looks a little hurt – his eyes flicker sadly – and he says: "Well, it's the last thing I'd like to think about." Then he is silent. I suddenly feel rude and cruel.
His grandfather became increasingly furious that Franklin Roosevelt was – he believed – dragging the United States into an unnecessary war against Germany and Japan. He was opposed to all foreign wars, which he believed were drummed up by big business to serve their interests. "He thought that no foreign war was worth the life of any American," Vidal says, with a smile of pride. But this – combined with his opposition to the New Deal – meant he was voted out of office. As a little act of revenge, Vidal says he has never visited Oklahoma.
He joined the army at the age of 17, glad to escape his mother. He spent the war posted in Italy and, for three years, Alaska. He is not surprised that this "frozen hell" has produced Sarah Palin, "the latest idol in America's long cult of stupidity". Alaska was, he says, "the place where all the crooks in America went to hide. And they produced her."
He says he realises now that he was part of an army sent to build a global empire by "America's Augustus, Roosevelt". The old America was replaced by a military octopus with a metal arm on every continent, and the old constitution was replaced by a "National Security State. I wouldn't have enlisted if I knew where it was going to lead", he says. "But there it was, and we ended [the war as] an empire and slammed the door behind us. Then we fucked it up."
He left the army with no money. "My father and grandfather, as self-made men, were not going to make any other man. I knew that," he says. So he sat down and wrote a novel about the war called Williwaw. At the age of 20, he was suddenly a hard-boiled realist bestseller. He was lauded as a tough young soldier, and his grandfather talked of setting him up with a Congressional seat – but Vidal wanted to write another, bolder novel, based on the only person he had ever loved. It pulled any hope of a political career down behind him – but made him a defining figure in American life.
II. An Interrupted Love Story
When Vidal was 14, a boy called Jimmy Trimble moved into Vidal's dorm at his Washington boarding school. He was a blond, built jock; Vidal was a bookish intellectual. "His sweat smelled of honey, like that of Alexander the Great," he wrote years later in his memoir, Palimpsest. They fell in lust and perhaps in love, and had sex in the forest at the edge of the school grounds. "It was the first human happiness I had ever encountered," Vidal wrote. He saw Trimble as his other half, the person who finally made him complete. Then Trimble was, at the age of 19, blown up by a hand grenade on the beaches of Iwo Jima.
For years, thoughts of Trimble still made Vidal tremble. I think they still do: his eyes turn distant and a little watery when we talk about him. So he wrote a novel – The City and The Pillar – imagining what would have happened if they had met again after the war. It's a dark, bitter book: the sex is a failure and one kills the other. But in 1950s America, to show two all-American boys – manly, self-assured – having sex was wildly bold. He was subject to a blackout in the "respectable" press and any hope of elected office died, but the book became a best-seller.
Vidal resolved that he would never again find what he had lost with Jimmy: "It would be greedy to expect a repetition. I was aware of my once-perfect luck, and left it at that." He says he had sex with more than a thousand "anonymous youths" by the age of 25. He never saw them twice; he never pretended there was any affection there. He was what they labelled "trade" – he did nothing (deliberately, at least) to please them. He was pleasured; that was all. "When I got too old, I paid for it gladly." After the death of Trimble, he seems to have emotionally cauterised himself. Even his closest friends have said there is an isolation at the core of his character. He once said: "I have known so many people, but it seems I have known nobody at all."
Strangely, though, Vidal has always resisted the idea that he is a "gay" champion. "I never said I was gay, because I don't think anyone is." He says he finds "these restrictions tiresome. In the centuries of Rome's great military and political success, there was no differentiation between same-sexers and other-sexers; there was also a lot of crossing back and forth. Of the first 12 Roman emperors, only one was exclusively heterosexual." The US today is, for all the fussing, full of sodomy, he says. "Did you see [Colonel] Gaddafi [at the UN] complaining that American soldiers have been sodomising Arab boys? I thought, well that's been the case since the very beginning of the republic. They blamed the sodomy on those great forests out there which they said made them horny. There was nothing else to do but bugger boys, they said."
So homosexuality and heterosexuality are fictions? "Yes, of course." He adopts a camp voice and adds: "But it makes a lot of girls happy." Why do so many people believe it to be true about themselves if it's false? "They believe in Jesus, and that's a much bigger fiction, with more money spent on it. Prettier clothes too."
When he was 25, Vidal met a younger man called Howard Austen, and they settled down together, on one condition – they agreed to never have sex, nor be romantic in any way. He and Austen were together for 50 years. He died last year in a hospital in the Hollywood Hills. "He had lung cancer and he wouldn't stop smoking and then it went to his brain and he had brain cancer. That's ... that's what happened," he says. Once, in an essay, he quoted the critic Edmund Wilson, who said of his dead wife: "After she was dead, I loved her." Can he say that of Howard? He affects not to hear. "Now I'm a gimp. I can't walk. I need hospitals. You know I have a knee made out of titanium." He taps his knee. "So you see, I need hospitals." And he looks away, a little absently, as if thinking of something else.
III. Isolation
By his mid-20s, Vidal was a best-selling author, and rich. He rented a property in Guatemala – far from his mother – and settled down to write his next novel. But in that small tropical central American country, he found he was going to have to dramatically reassess the country he had just fought for – and pull his grandfather's abandoned philosophy from the gutter of history.
Just before Vidal arrived, the poverty-wreathed Guatemalan people had elected a left-wing president called Jacobo Árbenz Guzmán. They wanted him to introduce a minimum wage and start taxing the US mega-corporation, the United Fruit Company, that dominated the country's only industry, banana-growing. The outraged United Fruit Company acted to preserve its profits – by getting Washington to topple Árbenz and install a dictator. The phrase "banana republic" entered the language.
"I was astonished," Vidal says. "I had known vaguely about our numerous past interventions in Central America. But that was the past." He discovered that Senator Henry Cabot Lodge was leading the charge, and "I didn't believe it. Lodge was a family friend; as a boy I had discussed poetry with him". He says he realised then he had been fighting "for an Empire, not a republic". His grandfather, he resolved, had been right all along: wars only serve elites.
He rapidly became the leading left-wing critic of American foreign policy. He warned against every war from Vietnam to Iraq, often with extraordinary prescience. At the height of George W Bush's post-9/11 popularity, he said: "Mark my words – he will leave office the most unpopular President in history." His essays on this subject are often great flares of truth and anger. His horror at US foreign policy can be summarised in one little scene. In the 1980s, the Sistine Chapel was being restored, and some VIPs were invited to view it on an elevated platform. He spotted that old serial killer Henry Kissinger inspecting the section depicting Hell, and said: "Look, he's apartment hunting."
Vidal started preaching his grandfather's gospel of isolationism. "I am a patriot of the old republic that has slowly vanished during the expansionist years and disappeared completely in 1950 when the National Security State replaced it," he says. "I want us to go from a wartime economy to a peacetime economy, and restore the constitution. We should leave the world alone, before they make us."
The US is only menaced, he says, because it menaces others. "In geopolitics as in physics, there is no action without reaction." He stirs his Scotch and says: "There was no 9/11. I mean – our policies were such that we were going to have a lot of crazy people out there in the Arab world who were going to try to blow us up, because of crimes they feel we committed against them. Any fool could see it coming. And I'm sufficiently a fool to have seen it."
He sees his job as expressing "the unacceptable obvious", and says he is always ready to "turn the other fist". I tell him that while I agree with many of his criticisms of US foreign policy, it seems that to keep his isolationism pristine and pure, he has to go further than the truth. He has to imply every attack on the United States' power was provoked, and therefore justified – when some were not. He looks coldly at me. "Okay – name one." Pearl Harbour, I say. If the US can be an expansionist empire, so can other countries. The Japanese empire attacked the US, just as the US expansionists attacked Guatemala, Vietnam and others. It was unprovoked aggression.
His face tightens into a scowl. "Roosevelt saw to it that we got that war!" he snaps. "He taunted the Japanese so they would have to hit us, at Pearl Harbour, and they did ... We have conveniently forgotten because we don't teach American history to anybody, but he sent an ultimatum to the Japanese telling them to get out of China, which they'd been trying to conquer for years. He was laying down the law to them, [saying they had to] surrender their rather proud nation's empire. And they said fuck you. And the next thing we knew the fleet was moving towards Pearl Harbour."
That's not how most historians read it – but I move on to an even more contested example. He says the Soviet Empire was "purely reactive" to American power, and only committed atrocities and invasions because the US "goaded them". Can that be true? Couldn't they be independently cruel, just as the US sometimes was? "They had a whole continent to play with, they didn't need any more space," he says, and changes the subject, rather oddly, to talk about the Dutch.
I try to pull him back. Yes, it's clearly the case that 9/11 was in part a blow-back response to US crimes in the Middle East, but he goes much further, and says the Bush administration was "probably" in on it. Where is the evidence for this huge claim? "It would certainly fit them to a T, so you can't blame the rest of us for starting to think on slightly conspiratorial grounds. They did steal the great election of the year 2000 and they somehow fixed the Supreme Court of the United States, that sacred place, and got them to go along with it, with the selection, not the election, the selection of George W Bush as president. He wasn't voted for, people didn't want him. And were somewhat mystified that he ended up with it."
But there was an earlier attack on America that he wants to discuss now – one he says was carried out by a "sane" and "noble" man.
IV. A Noble Boy
On 19 April 1995, a former US soldier called Timothy McVeigh planted a massive truck bomb outside a government building in Oklahoma City, at the heart of Vidal's grandfather's old constituency. Some 168 people died, including a kindergarten full of children. McVeigh wrote to Vidal, saying he had been motivated, in part, by studying his work. He said he believed the US Constitution had been usurped by a National Security State that had to be defeated by force. Vidal wrote back – and they became friends. He started mounting passionate defences of the bomber in public. He says he was not crazy, but "too sane for his place and time".
"He was a dedicated student of the American way, of the Constitution itself," he says. "You should read his writings – they're very good. Particularly on the Posse Comitatus Act of 1876, which forbids the Federal government ever to use its troops against the American people – but which they proceeded to do at Waco [a compound used by a religious cult that was attacked by federal troops in 1993]. They killed more people than he managed to kill when he blew up that building in Oklahoma City. He was a noble boy."
Noble? The man who consorted with far right militia groups and blew up all those children? Vidal scowls again, and almost hisses: "He didn't kill them deliberately! But the American government killed all those people at Waco, men, women and children deliberately! It was his gesture against the government he loathed. You know, he swore to me he had no idea there were children there. He said, 'How would I know? I walked by the place once and I knew that there was some kind of dining room, families might be there, or they might not be there,' and he wasn't counting, he wasn't out for a big count. But he was trying to tell the government – look, you have done this arbitrarily, contrary to the Posse Comitatus Act, contrary to American law, you've killed American citizens. Remember he was an army boy, and he loved it, and he was longing to get back in the army and the army was longing to get him back, he was the best sharpshooter they'd seen in years. But it was not meant to be."
But he knew he would kill scores of innocent people: that was the point. Doesn't that show a callous disrespect for human life? "So did Patton, so did Eisenhower!" he says angrily. "Everybody's rather careless about it once you start getting involved in wars. He saw this as a war to preserve the Constitution! You know what he said? But you don't, so I'm going to tell you. The judge [at his trial] quite liked him, and he was intrigued by the fact that this rather talkative kid who wrote tons of pieces for the press had not defended himself. So he said – Mr McVeigh, could we hear more from you? [McVeigh] said, 'Well, your honour, I will base my case on Justice Brandeis, one of our most brilliant jurists, in his opinion in Olmstead. There, he writes that when government ceases to lead by example and actually provides a bad example, anything can happen. Government is the last teacher. Everything I did, I learned from my government."
When did this happen to Gore Vidal? When did he go from righteous – and right – opposition to atrocities carried out by his own government, to justifying any atrocity against it, no matter how extreme? When I ask him, his scowl turns to a sneer, and he says I am ignorant and clearly haven't read anything. I decide to try a different approach. I ask him – if there were more people like McVeigh, would that be a good thing? There is a crack in his hauteur, and he says: "It strikes me as a perfect nightmare. Of course I don't want more people like McVeigh. Since Americans refuse to think about anything, being incapable I suspect of thought, then they're not going to come to any conclusions except mistaken ones."
I don't understand. I try again and again to tug him back and get him to say whether this means he thinks McVeigh was wrong to plant the bomb. He won't. Finally, he jeers: "You are trying my patience," and defies me – with a long stare – to change the subject.
V. Pale Moonlight
Vidal is one of the last of his generation of American intellectuals standing (or, at least, sitting). I ask him about some of his rivals who have died recently – John Updike, William Buckley, Norman Mailer – and he interrupts. "Updike was nothing. Buckley was nothing with a flair for publicity. Mailer was a flawed publicist, too, but at least there were signs every now and then of a working brain." Then he smiles to himself: "You know, he used the word 'existential' all the time, to the end of his life, and never even learned what it meant. I heard Iris Murdoch once at dinner explain to Norman what existential meant, philosophically. He was stunned."
There is a vulnerability to Vidal now that didn't exist eight years ago. Before, I felt like I was shouting questions up Mount Olympus: he conducted the interview from above and beyond me, impervious to anything I said. Now, when I laugh at his jokes, he looks pleased, and laughs too. When we argue, he looks genuinely thrown, and hurt, and angry. He seems keen to return to the calmer waters of his memories, and we paddle together in his Kennedy anecdotes. Jackie was really secretly in love with Bobby, he says. He used to call Jack the President-erect. Jack once had sex with an actress friend of his in a bath, and suddenly rammed her head underwater, so she would have a vaginal spasm, and he would have an orgasm. "She hates him still," he says. But when I ask him what he made of the late Teddy Kennedy as a person, he snaps: "Who cares what they were like as people? That's just show business."
He has had to abandon his second home in the high hills of Italy, and says he misses it. "Italy is such a civilised country. Unlike America." But is the gap so great? Is Silvio Berlusconi better than Barack Obama? He snaps again: "Who cares? This is showbiz you're worried about. I don't care who's on television telling jokes on the Late Show."
Vidal seems exhausted and alone, living out his days in the Hollywood Hills. After an amazingly full life – "I have tried everything but incest and folk-dancing," he says – he has no more books gestating. He has travelled to London to receive applause on stage for providing the recorded narration for the new production of Mother Courage at the National Theatre, but all his old London friends – Tynan, Tom Driberg, Princess Margaret – are dead. I ask what it's like to be here, and he says: "This isn't a country, it's an American aircraft carrier." He starts to talk about his old friends again. He is swimming with ghosts now – from Jimmy Trimble to Jack Kennedy to his drunken, scolding mother. As he declines, he announces that everything around him is declining – America, literacy, humanity itself.
In one essay, Vidal said the author William Dean Howells at 84 "lived far too long". He quoted a line Howells wrote to Henry James: "I am comparatively a dead cult with my statues cut down and the grass growing over me in pale moonlight." Does he feel this about himself? I stare at him and don't have the heart to ask. He tells me he is unafraid of death. "I'm the least primitive American you're going to meet, and you have to be pretty primitive to believe in hell. To me hell is the United States of today."
After two hours, his carer – a beautiful long-haired French boy who has been reading Céline in the corner of the hotel bar – indicates that our time is up. I tell Vidal I hope I will interview him in another eight years' time. "Another eight years? Oh, the monotony!" he exclaims, and begins to be wheeled away. The last thing I hear him say as he vanishes across the marble lobby is a curse to his carer: "It's still so fucking cold in here!"
Gore Vidal is not only grieving for his own dead circle and his fading life, but for his country. At 83, he has lived through one third of the lifespan of the United States. If anyone incarnates the American century that has ended, it is him. He was America's greatest essayist, one of its best-selling novelists and the wit at every party. He holidayed with the Kennedys, cruised for men with Tennessee Williams, was urged to run for Congress by Eleanor Roosevelt, co-wrote some of the most iconic Hollywood films, damned US foreign policy from within, sued Truman Capote, got fellated by Jack Kerouac, watched his cousin Al Gore get elected President and still lose the White House, and – finally, bizarrely – befriended and championed the Oklahoma bomber, Timothy McVeigh.
Yet now, he says, it is clear the American experiment has been "a failure". It was all for nothing. Soon the country will be ranked "somewhere between Brazil and Argentina, where it belongs." The Empire will collapse militarily in Afghanistan; the nation will collapse internally when Obama is broken "by the madhouse" and the Chinese call in the country's debts. A ruined United States will then be "the Yellow Man's Burden", and "they'll have us running the coolie cars, or whatever it is they have in the way of transport".
A Scotch is fetched for him as he is wheeled into the corner of the bar. "I was like everyone else when Obama was elected – optimistic. Everything we had been saying about racial integration was vindicated," he says, "but he's incompetent. He will be defeated for re-election. It's a pity because he's the first intellectual president we've had in many years, but he can't hack it. He's not up to it. He's overwhelmed. And who wouldn't be? The United States is a madhouse. The country should be put away – and we're being told to go away. Nothing makes any sense." The President "wants to be liked by everybody, and he thought all he had to do was talk reason. But remember – the Republican Party is not a political party. It's a mindset, like Hitler Youth. It's full of hatred. You're not going to get them aboard. Don't even try. The only way to handle them is to terrify them. He's too delicate for that."
When he compares Obama to his old friend Jack Kennedy, he shakes his head. "He's twice the intellectual that Jack was, but Jack knew the great world. Remember he spent a long time in the navy, losing ships. This kid [Obama] has never heard a gun fired in anger. He's absolutely bowled over by generals, who tell him lies and he believes them. He hasn't done anything. If you were faced with great problems in chemistry – to find the perfect gas, to gas a population – you won't know for a long time whether it works. You have to go by what people tell you. He's like that. He's not ready for prime time and he's getting a lot of prime time on his plate at once."
Is there any hope? "Every sign I see is doom. But then people say" – he adopts a whiny, nasal voice – "'Oh Mr Vidal, you're so negative, can't you say something nice about America? It's a wonderful country, everybody wants to live here.' Oh yes? When was the last time you saw a Norwegian with a green card who wanted to come here because of the health service? I'll pay you if you can find one."
But there is, he says with sudden perkiness, some "good news. Afghanistan will be terminal for the American empire, yes. Which is a happy way of looking at it. We'll be out of the empire game, rapidly. But it's too late for the country and the constitution." He raises his drink, and smiles ironically. "To a better republic," he says, and drinks in one long gulp.
I. The death of America
The current spasming death of America was foretold at its birth, Vidal says, and it can only be understood by whirling back there. It has been his mission to explain the past to the "United States of Amnesia," through his novels and essays. When he speaks, he sweeps over two millennia of history – from Caesar to Obama – as if he was there, forever spraying one-liners from the back row. Today, he was stopped time in Philadelphia, at the birth of the republic. "Benjamin Franklin saw all this coming," he says. "I quote him because most Americans don't even know who he was now. You'll have to explain to your readers." Franklin was a writer, scientist and soldier who became one of the founding fathers of the United States. "In Philadelphia in 1781, when the constitution was being put together, he was an observer. He didn't want to have any part of it, and as he was leaving the Constitution Hall in Philadelphia a couple of old ladies said, 'Ah, Mr Franklin, what is going to happen?' He told them: 'Well, you're going to get a Republic, if you can keep it. But every constitution of this sort has failed since the beginning of time due to the corruption of the people.'"
So the American people are corrupt? Americans weren't good enough for America? "Precisely. They were only good enough to be a restive colonial power – or the dregs of one."
Vidal's politics began here – almost. He was born at the United States Military Academy in West Point to a wealthy family at the apex of American power. His grandfather was Thomas Pryor Gore, the Senator for Oklahoma. He was blind, so from the age of five, little Gore was reading letters and books for big Gore and guiding him discreetly through Washington DC parties. The Senator was a populist, fighting to rally the people against the concentrated power of Wall Street and Big Finance. He represented the cotton farmers who emerged battered from the Civil War, only to be destroyed by Wall Street financiers playing roulette with the global cotton price. Yet there was always a strange contradiction to his life: "My grandfather couldn't stand his constituents," Vidal says. "And they loved him for it. Figure that one out."
He was a populist with no faith in the populace – precisely what his grandson has turned into. Gore Vidal shares the populist belief that the people are being shafted by the rich – but he thinks the population is too cretinous and drugged by television and fast food to figure it out. "It is always to be hoped that the people will mysteriously be educated, somehow. Well, that's the link. But the people don't know anything. As soon as we became an empire, we stopped teaching geography in the schools, so nobody would know where anything is. It's not the people's fault – they have been perverted them into imperial ways of thinking so that they would be docile workers and loyal consumers. That was the dream and it has come true."
As a child, Vidal loved spending time with his Senator-grandfather, not least because it meant he could escape for a time from his alcoholic mother Nina. When I raise the topic, he adopts the nasal whine of a mock-interviewer again and says: "'Oh Mr Vidal, your poor mother can't have been as awful as you say [in your memoirs].' She was a lot worse. I don't go after other people's mothers, but my own was quite enough to attack."
She was constantly drunk, and when she wasn't savaging him or threatening suicide, she would tell her son the full details of her life in an obsessive angry blather. When he was 10, "she told me that rage made her orgasmic. I didn't think to ask her if sex did the same." When he appeared on the cover of Time magazine years later, she wrote a long letter to the magazine denouncing him. The magazine headlined it: "A Mother's Love." Vidal seems to have inherited his bitter wit from her. Asked why she didn't marry for a fourth time, she said: "My first husband had three balls, my second two, my third one. Even I know enough not to press my luck." Does he think of her often? "No." He gives me an icy stare. After all these years, can he feel any compassion for her? "No." The ice becomes a glacier.
Does he think, at least, that she shaped his personality? His old friend Kenneth Tynan, the theatre critic, wrote in his diaries: "What superb and seamless armour he wears, as befits one for whom life is a permanent battle for (social and intellectual) supremacy ... Gore could never surrender (ie, expose) himself to anyone." Could his mother's cruelty explain his lifelong sweeping dismissal of everything around him – the constant goring by Gore? As soon as I ask this, I realise how Vidal has changed since I last saw him. Then, he would have responded with a witty put-down, or reasserted his supremacy with an obscure classical reference, quoted in the original Greek. Now he looks a little hurt – his eyes flicker sadly – and he says: "Well, it's the last thing I'd like to think about." Then he is silent. I suddenly feel rude and cruel.
His grandfather became increasingly furious that Franklin Roosevelt was – he believed – dragging the United States into an unnecessary war against Germany and Japan. He was opposed to all foreign wars, which he believed were drummed up by big business to serve their interests. "He thought that no foreign war was worth the life of any American," Vidal says, with a smile of pride. But this – combined with his opposition to the New Deal – meant he was voted out of office. As a little act of revenge, Vidal says he has never visited Oklahoma.
He joined the army at the age of 17, glad to escape his mother. He spent the war posted in Italy and, for three years, Alaska. He is not surprised that this "frozen hell" has produced Sarah Palin, "the latest idol in America's long cult of stupidity". Alaska was, he says, "the place where all the crooks in America went to hide. And they produced her."
He says he realises now that he was part of an army sent to build a global empire by "America's Augustus, Roosevelt". The old America was replaced by a military octopus with a metal arm on every continent, and the old constitution was replaced by a "National Security State. I wouldn't have enlisted if I knew where it was going to lead", he says. "But there it was, and we ended [the war as] an empire and slammed the door behind us. Then we fucked it up."
He left the army with no money. "My father and grandfather, as self-made men, were not going to make any other man. I knew that," he says. So he sat down and wrote a novel about the war called Williwaw. At the age of 20, he was suddenly a hard-boiled realist bestseller. He was lauded as a tough young soldier, and his grandfather talked of setting him up with a Congressional seat – but Vidal wanted to write another, bolder novel, based on the only person he had ever loved. It pulled any hope of a political career down behind him – but made him a defining figure in American life.
II. An Interrupted Love Story
When Vidal was 14, a boy called Jimmy Trimble moved into Vidal's dorm at his Washington boarding school. He was a blond, built jock; Vidal was a bookish intellectual. "His sweat smelled of honey, like that of Alexander the Great," he wrote years later in his memoir, Palimpsest. They fell in lust and perhaps in love, and had sex in the forest at the edge of the school grounds. "It was the first human happiness I had ever encountered," Vidal wrote. He saw Trimble as his other half, the person who finally made him complete. Then Trimble was, at the age of 19, blown up by a hand grenade on the beaches of Iwo Jima.
For years, thoughts of Trimble still made Vidal tremble. I think they still do: his eyes turn distant and a little watery when we talk about him. So he wrote a novel – The City and The Pillar – imagining what would have happened if they had met again after the war. It's a dark, bitter book: the sex is a failure and one kills the other. But in 1950s America, to show two all-American boys – manly, self-assured – having sex was wildly bold. He was subject to a blackout in the "respectable" press and any hope of elected office died, but the book became a best-seller.
Vidal resolved that he would never again find what he had lost with Jimmy: "It would be greedy to expect a repetition. I was aware of my once-perfect luck, and left it at that." He says he had sex with more than a thousand "anonymous youths" by the age of 25. He never saw them twice; he never pretended there was any affection there. He was what they labelled "trade" – he did nothing (deliberately, at least) to please them. He was pleasured; that was all. "When I got too old, I paid for it gladly." After the death of Trimble, he seems to have emotionally cauterised himself. Even his closest friends have said there is an isolation at the core of his character. He once said: "I have known so many people, but it seems I have known nobody at all."
Strangely, though, Vidal has always resisted the idea that he is a "gay" champion. "I never said I was gay, because I don't think anyone is." He says he finds "these restrictions tiresome. In the centuries of Rome's great military and political success, there was no differentiation between same-sexers and other-sexers; there was also a lot of crossing back and forth. Of the first 12 Roman emperors, only one was exclusively heterosexual." The US today is, for all the fussing, full of sodomy, he says. "Did you see [Colonel] Gaddafi [at the UN] complaining that American soldiers have been sodomising Arab boys? I thought, well that's been the case since the very beginning of the republic. They blamed the sodomy on those great forests out there which they said made them horny. There was nothing else to do but bugger boys, they said."
So homosexuality and heterosexuality are fictions? "Yes, of course." He adopts a camp voice and adds: "But it makes a lot of girls happy." Why do so many people believe it to be true about themselves if it's false? "They believe in Jesus, and that's a much bigger fiction, with more money spent on it. Prettier clothes too."
When he was 25, Vidal met a younger man called Howard Austen, and they settled down together, on one condition – they agreed to never have sex, nor be romantic in any way. He and Austen were together for 50 years. He died last year in a hospital in the Hollywood Hills. "He had lung cancer and he wouldn't stop smoking and then it went to his brain and he had brain cancer. That's ... that's what happened," he says. Once, in an essay, he quoted the critic Edmund Wilson, who said of his dead wife: "After she was dead, I loved her." Can he say that of Howard? He affects not to hear. "Now I'm a gimp. I can't walk. I need hospitals. You know I have a knee made out of titanium." He taps his knee. "So you see, I need hospitals." And he looks away, a little absently, as if thinking of something else.
III. Isolation
By his mid-20s, Vidal was a best-selling author, and rich. He rented a property in Guatemala – far from his mother – and settled down to write his next novel. But in that small tropical central American country, he found he was going to have to dramatically reassess the country he had just fought for – and pull his grandfather's abandoned philosophy from the gutter of history.
Just before Vidal arrived, the poverty-wreathed Guatemalan people had elected a left-wing president called Jacobo Árbenz Guzmán. They wanted him to introduce a minimum wage and start taxing the US mega-corporation, the United Fruit Company, that dominated the country's only industry, banana-growing. The outraged United Fruit Company acted to preserve its profits – by getting Washington to topple Árbenz and install a dictator. The phrase "banana republic" entered the language.
"I was astonished," Vidal says. "I had known vaguely about our numerous past interventions in Central America. But that was the past." He discovered that Senator Henry Cabot Lodge was leading the charge, and "I didn't believe it. Lodge was a family friend; as a boy I had discussed poetry with him". He says he realised then he had been fighting "for an Empire, not a republic". His grandfather, he resolved, had been right all along: wars only serve elites.
He rapidly became the leading left-wing critic of American foreign policy. He warned against every war from Vietnam to Iraq, often with extraordinary prescience. At the height of George W Bush's post-9/11 popularity, he said: "Mark my words – he will leave office the most unpopular President in history." His essays on this subject are often great flares of truth and anger. His horror at US foreign policy can be summarised in one little scene. In the 1980s, the Sistine Chapel was being restored, and some VIPs were invited to view it on an elevated platform. He spotted that old serial killer Henry Kissinger inspecting the section depicting Hell, and said: "Look, he's apartment hunting."
Vidal started preaching his grandfather's gospel of isolationism. "I am a patriot of the old republic that has slowly vanished during the expansionist years and disappeared completely in 1950 when the National Security State replaced it," he says. "I want us to go from a wartime economy to a peacetime economy, and restore the constitution. We should leave the world alone, before they make us."
The US is only menaced, he says, because it menaces others. "In geopolitics as in physics, there is no action without reaction." He stirs his Scotch and says: "There was no 9/11. I mean – our policies were such that we were going to have a lot of crazy people out there in the Arab world who were going to try to blow us up, because of crimes they feel we committed against them. Any fool could see it coming. And I'm sufficiently a fool to have seen it."
He sees his job as expressing "the unacceptable obvious", and says he is always ready to "turn the other fist". I tell him that while I agree with many of his criticisms of US foreign policy, it seems that to keep his isolationism pristine and pure, he has to go further than the truth. He has to imply every attack on the United States' power was provoked, and therefore justified – when some were not. He looks coldly at me. "Okay – name one." Pearl Harbour, I say. If the US can be an expansionist empire, so can other countries. The Japanese empire attacked the US, just as the US expansionists attacked Guatemala, Vietnam and others. It was unprovoked aggression.
His face tightens into a scowl. "Roosevelt saw to it that we got that war!" he snaps. "He taunted the Japanese so they would have to hit us, at Pearl Harbour, and they did ... We have conveniently forgotten because we don't teach American history to anybody, but he sent an ultimatum to the Japanese telling them to get out of China, which they'd been trying to conquer for years. He was laying down the law to them, [saying they had to] surrender their rather proud nation's empire. And they said fuck you. And the next thing we knew the fleet was moving towards Pearl Harbour."
That's not how most historians read it – but I move on to an even more contested example. He says the Soviet Empire was "purely reactive" to American power, and only committed atrocities and invasions because the US "goaded them". Can that be true? Couldn't they be independently cruel, just as the US sometimes was? "They had a whole continent to play with, they didn't need any more space," he says, and changes the subject, rather oddly, to talk about the Dutch.
I try to pull him back. Yes, it's clearly the case that 9/11 was in part a blow-back response to US crimes in the Middle East, but he goes much further, and says the Bush administration was "probably" in on it. Where is the evidence for this huge claim? "It would certainly fit them to a T, so you can't blame the rest of us for starting to think on slightly conspiratorial grounds. They did steal the great election of the year 2000 and they somehow fixed the Supreme Court of the United States, that sacred place, and got them to go along with it, with the selection, not the election, the selection of George W Bush as president. He wasn't voted for, people didn't want him. And were somewhat mystified that he ended up with it."
But there was an earlier attack on America that he wants to discuss now – one he says was carried out by a "sane" and "noble" man.
IV. A Noble Boy
On 19 April 1995, a former US soldier called Timothy McVeigh planted a massive truck bomb outside a government building in Oklahoma City, at the heart of Vidal's grandfather's old constituency. Some 168 people died, including a kindergarten full of children. McVeigh wrote to Vidal, saying he had been motivated, in part, by studying his work. He said he believed the US Constitution had been usurped by a National Security State that had to be defeated by force. Vidal wrote back – and they became friends. He started mounting passionate defences of the bomber in public. He says he was not crazy, but "too sane for his place and time".
"He was a dedicated student of the American way, of the Constitution itself," he says. "You should read his writings – they're very good. Particularly on the Posse Comitatus Act of 1876, which forbids the Federal government ever to use its troops against the American people – but which they proceeded to do at Waco [a compound used by a religious cult that was attacked by federal troops in 1993]. They killed more people than he managed to kill when he blew up that building in Oklahoma City. He was a noble boy."
Noble? The man who consorted with far right militia groups and blew up all those children? Vidal scowls again, and almost hisses: "He didn't kill them deliberately! But the American government killed all those people at Waco, men, women and children deliberately! It was his gesture against the government he loathed. You know, he swore to me he had no idea there were children there. He said, 'How would I know? I walked by the place once and I knew that there was some kind of dining room, families might be there, or they might not be there,' and he wasn't counting, he wasn't out for a big count. But he was trying to tell the government – look, you have done this arbitrarily, contrary to the Posse Comitatus Act, contrary to American law, you've killed American citizens. Remember he was an army boy, and he loved it, and he was longing to get back in the army and the army was longing to get him back, he was the best sharpshooter they'd seen in years. But it was not meant to be."
But he knew he would kill scores of innocent people: that was the point. Doesn't that show a callous disrespect for human life? "So did Patton, so did Eisenhower!" he says angrily. "Everybody's rather careless about it once you start getting involved in wars. He saw this as a war to preserve the Constitution! You know what he said? But you don't, so I'm going to tell you. The judge [at his trial] quite liked him, and he was intrigued by the fact that this rather talkative kid who wrote tons of pieces for the press had not defended himself. So he said – Mr McVeigh, could we hear more from you? [McVeigh] said, 'Well, your honour, I will base my case on Justice Brandeis, one of our most brilliant jurists, in his opinion in Olmstead. There, he writes that when government ceases to lead by example and actually provides a bad example, anything can happen. Government is the last teacher. Everything I did, I learned from my government."
When did this happen to Gore Vidal? When did he go from righteous – and right – opposition to atrocities carried out by his own government, to justifying any atrocity against it, no matter how extreme? When I ask him, his scowl turns to a sneer, and he says I am ignorant and clearly haven't read anything. I decide to try a different approach. I ask him – if there were more people like McVeigh, would that be a good thing? There is a crack in his hauteur, and he says: "It strikes me as a perfect nightmare. Of course I don't want more people like McVeigh. Since Americans refuse to think about anything, being incapable I suspect of thought, then they're not going to come to any conclusions except mistaken ones."
I don't understand. I try again and again to tug him back and get him to say whether this means he thinks McVeigh was wrong to plant the bomb. He won't. Finally, he jeers: "You are trying my patience," and defies me – with a long stare – to change the subject.
V. Pale Moonlight
Vidal is one of the last of his generation of American intellectuals standing (or, at least, sitting). I ask him about some of his rivals who have died recently – John Updike, William Buckley, Norman Mailer – and he interrupts. "Updike was nothing. Buckley was nothing with a flair for publicity. Mailer was a flawed publicist, too, but at least there were signs every now and then of a working brain." Then he smiles to himself: "You know, he used the word 'existential' all the time, to the end of his life, and never even learned what it meant. I heard Iris Murdoch once at dinner explain to Norman what existential meant, philosophically. He was stunned."
There is a vulnerability to Vidal now that didn't exist eight years ago. Before, I felt like I was shouting questions up Mount Olympus: he conducted the interview from above and beyond me, impervious to anything I said. Now, when I laugh at his jokes, he looks pleased, and laughs too. When we argue, he looks genuinely thrown, and hurt, and angry. He seems keen to return to the calmer waters of his memories, and we paddle together in his Kennedy anecdotes. Jackie was really secretly in love with Bobby, he says. He used to call Jack the President-erect. Jack once had sex with an actress friend of his in a bath, and suddenly rammed her head underwater, so she would have a vaginal spasm, and he would have an orgasm. "She hates him still," he says. But when I ask him what he made of the late Teddy Kennedy as a person, he snaps: "Who cares what they were like as people? That's just show business."
He has had to abandon his second home in the high hills of Italy, and says he misses it. "Italy is such a civilised country. Unlike America." But is the gap so great? Is Silvio Berlusconi better than Barack Obama? He snaps again: "Who cares? This is showbiz you're worried about. I don't care who's on television telling jokes on the Late Show."
Vidal seems exhausted and alone, living out his days in the Hollywood Hills. After an amazingly full life – "I have tried everything but incest and folk-dancing," he says – he has no more books gestating. He has travelled to London to receive applause on stage for providing the recorded narration for the new production of Mother Courage at the National Theatre, but all his old London friends – Tynan, Tom Driberg, Princess Margaret – are dead. I ask what it's like to be here, and he says: "This isn't a country, it's an American aircraft carrier." He starts to talk about his old friends again. He is swimming with ghosts now – from Jimmy Trimble to Jack Kennedy to his drunken, scolding mother. As he declines, he announces that everything around him is declining – America, literacy, humanity itself.
In one essay, Vidal said the author William Dean Howells at 84 "lived far too long". He quoted a line Howells wrote to Henry James: "I am comparatively a dead cult with my statues cut down and the grass growing over me in pale moonlight." Does he feel this about himself? I stare at him and don't have the heart to ask. He tells me he is unafraid of death. "I'm the least primitive American you're going to meet, and you have to be pretty primitive to believe in hell. To me hell is the United States of today."
After two hours, his carer – a beautiful long-haired French boy who has been reading Céline in the corner of the hotel bar – indicates that our time is up. I tell Vidal I hope I will interview him in another eight years' time. "Another eight years? Oh, the monotony!" he exclaims, and begins to be wheeled away. The last thing I hear him say as he vanishes across the marble lobby is a curse to his carer: "It's still so fucking cold in here!"
zaterdag 10 oktober 2009
A Soldier's Warning
More than 160 years ago Søren Kierkegaard declared that "truth is a power." But it's a power that is rarely acknowledged beforehand because it entails suffering, and most people reject suffering. Eventually, however, the truth proves victorious, and the majority accepts it. "Why?" asked Kierkegaard. Not because it is truth. "They join it," he explained, "because everyone else is joining."
Twenty years ago the socialist bloc supposedly collapsed. But who is honestly celebrating this event? Some people imagined at the time, quite erroneously, that truth had proven victorious against history's most vicious lie. Russian dissident and former political prisoner Vladimir Bukovsky, speaking at the Oslo Freedom Forum last May 19th, said that the socialist empire of the East continues. It has somehow survived. According to Bukovsky, "Those who perpetrated all those horrible crimes in the communist countries are safely in power again. These people have never said sorry. Those and those of their accomplices in the West who were apologists and sympathizers of the Soviet oppression throughout all these decades ... never said [they were] sorry, and never gave us a chance to forgive them."
Bukovsky also warned that totalitarian socialism is on the march. Not only has it revived in the East. It is spreading throughout Europe and Latin America. Bukovsky said that "twenty years down the road all we can do is repeat the famous phrase of Mark Twain that the rumors of its death are greatly exaggerated." One only has to consider the situation in the United States, where socialists dominate the educational system and control the government. The idea that communism died in 1989 is farcical. "So far," Bukovsky explained, "no former communist country has managed to transcend its experience of the past.... Democratic institutions are systematically destroyed ... elections are turned into farce, political oppressions are everyday reality again, and even some new countries have joined that sad list of tyrannies and repressive societies such a Venezuela."
How has this happened? How could totalitarian socialism regain so much lost ground, so rapidly, without any serious resistance? How has it managed to make so much progress in the United States? "Contrary to one's expectations," Bukovsky lamented, "the collapse of communist regimes in the East did not bring any sobriety to the West, to a reassessment of its values. Just as we speak, a new version of the Soviet Union is forced on a silent majority of European nations: the European Union. Admittedly it is a very pale copy, a very mild copy of the Soviet Union; and yet, a copy nonetheless. We are already told there will be a Europe police, Europol, some kind of version of [the] KGB in the European Union, which will police us on 32 counts of crimes, two of which are particularly interesting because they do not exist as a crime in the penal code of any nation: that is the crime of racism, and the crime of xenophobia. And they already explained that those of us who object to the immigration policies of the European Union are going to be charged with the crime of racism, and those of us who object to the European Union are going to be charged with the crime of Xenophobia. Well, it always pays to know the article under which you are going to serve in jail."
Political correctness appears to be irresistible. The truth does not belong to most human beings. They are not soldiers for the truth. Instead, they are victims of the lie. Only a minority resists, by a process of suffering - as the truth itself suffers. Bukovsky told the Oslo Freedom Forum that socialism's utopian program is a criminal enterprise. It cannot be otherwise. As such, he explained, it should have been put on trial in 1992. But there was no trial.
According to Bukovsky, " [In 1992] I ... had access to archives of the Central Committee and Politburo; and what I discovered there explained to me why the West was so adamantly against a Nuremberg trial in Moscow. To begin with, so many of the prominent figures of the Western political, business and cultural world were in secret collaboration with Moscow that it would have been a huge shock in the West if that was revealed. And no one wanted that shock. But much more importantly, it would have been an ideological shock. Throughout the end of the Soviet Union, according to the documents I've seen, numerous leaders of the West, particularly of the left wing spectrum, would come to Russia, to the Soviet Union, alarmed at the prospect of the collapse of the Soviet Union. Now think of that. We worked all our life to see that collapse, and in the crucial moment when it was about to collapse the entire world was trying to save it. And What was their explanation? Why were they so adamant to support this disintegrating regime? Oh, because, as they say, and I quote: 'The collapse of socialism in the East can bring the crisis to that idea in the West.' So what they were trying to save was their own illusion, their own utopia of socialism, by dooming our countries...."
The KGB and the Communist Party Soviet Union were not without allies in 1992, and they are not without allies today. Soviet socialists are part of a brotherhood that includes American and West European socialists. The crime of forcing a socialist utopia on the world is still their goal. Those who "force utopia on the people are committing a crime," Bukovsky declared. This is the legacy of socialism. If we cannot learn from this, then the gigantic tragedy of Soviet oppression "will have no meaning."
At the Oslo Freedom Forum Bukovsky demanded "unconditional surrender from our enemy...." And then, he said, we must put them on trial. "We were told [in 1992] that we were trying to mount a witch hunt," said Bukovsky. "Well, today the witches have returned and they are hunting us." The Kremlin is engaged in a massive rearmament program. At the same time, the United States is disarming. Those who would resist have been neutralized. A small minority of organizers, KGB officers, agents of influence, and fellow travelers, have effectively turned the tables on the Free World.
The final crisis awaits, and Bukovsky tells us that we have a choice: to be soldiers against socialism, or to be its victims.
- Jeffrey R. Nyquist
Twenty years ago the socialist bloc supposedly collapsed. But who is honestly celebrating this event? Some people imagined at the time, quite erroneously, that truth had proven victorious against history's most vicious lie. Russian dissident and former political prisoner Vladimir Bukovsky, speaking at the Oslo Freedom Forum last May 19th, said that the socialist empire of the East continues. It has somehow survived. According to Bukovsky, "Those who perpetrated all those horrible crimes in the communist countries are safely in power again. These people have never said sorry. Those and those of their accomplices in the West who were apologists and sympathizers of the Soviet oppression throughout all these decades ... never said [they were] sorry, and never gave us a chance to forgive them."
Bukovsky also warned that totalitarian socialism is on the march. Not only has it revived in the East. It is spreading throughout Europe and Latin America. Bukovsky said that "twenty years down the road all we can do is repeat the famous phrase of Mark Twain that the rumors of its death are greatly exaggerated." One only has to consider the situation in the United States, where socialists dominate the educational system and control the government. The idea that communism died in 1989 is farcical. "So far," Bukovsky explained, "no former communist country has managed to transcend its experience of the past.... Democratic institutions are systematically destroyed ... elections are turned into farce, political oppressions are everyday reality again, and even some new countries have joined that sad list of tyrannies and repressive societies such a Venezuela."
How has this happened? How could totalitarian socialism regain so much lost ground, so rapidly, without any serious resistance? How has it managed to make so much progress in the United States? "Contrary to one's expectations," Bukovsky lamented, "the collapse of communist regimes in the East did not bring any sobriety to the West, to a reassessment of its values. Just as we speak, a new version of the Soviet Union is forced on a silent majority of European nations: the European Union. Admittedly it is a very pale copy, a very mild copy of the Soviet Union; and yet, a copy nonetheless. We are already told there will be a Europe police, Europol, some kind of version of [the] KGB in the European Union, which will police us on 32 counts of crimes, two of which are particularly interesting because they do not exist as a crime in the penal code of any nation: that is the crime of racism, and the crime of xenophobia. And they already explained that those of us who object to the immigration policies of the European Union are going to be charged with the crime of racism, and those of us who object to the European Union are going to be charged with the crime of Xenophobia. Well, it always pays to know the article under which you are going to serve in jail."
Political correctness appears to be irresistible. The truth does not belong to most human beings. They are not soldiers for the truth. Instead, they are victims of the lie. Only a minority resists, by a process of suffering - as the truth itself suffers. Bukovsky told the Oslo Freedom Forum that socialism's utopian program is a criminal enterprise. It cannot be otherwise. As such, he explained, it should have been put on trial in 1992. But there was no trial.
According to Bukovsky, " [In 1992] I ... had access to archives of the Central Committee and Politburo; and what I discovered there explained to me why the West was so adamantly against a Nuremberg trial in Moscow. To begin with, so many of the prominent figures of the Western political, business and cultural world were in secret collaboration with Moscow that it would have been a huge shock in the West if that was revealed. And no one wanted that shock. But much more importantly, it would have been an ideological shock. Throughout the end of the Soviet Union, according to the documents I've seen, numerous leaders of the West, particularly of the left wing spectrum, would come to Russia, to the Soviet Union, alarmed at the prospect of the collapse of the Soviet Union. Now think of that. We worked all our life to see that collapse, and in the crucial moment when it was about to collapse the entire world was trying to save it. And What was their explanation? Why were they so adamant to support this disintegrating regime? Oh, because, as they say, and I quote: 'The collapse of socialism in the East can bring the crisis to that idea in the West.' So what they were trying to save was their own illusion, their own utopia of socialism, by dooming our countries...."
The KGB and the Communist Party Soviet Union were not without allies in 1992, and they are not without allies today. Soviet socialists are part of a brotherhood that includes American and West European socialists. The crime of forcing a socialist utopia on the world is still their goal. Those who "force utopia on the people are committing a crime," Bukovsky declared. This is the legacy of socialism. If we cannot learn from this, then the gigantic tragedy of Soviet oppression "will have no meaning."
At the Oslo Freedom Forum Bukovsky demanded "unconditional surrender from our enemy...." And then, he said, we must put them on trial. "We were told [in 1992] that we were trying to mount a witch hunt," said Bukovsky. "Well, today the witches have returned and they are hunting us." The Kremlin is engaged in a massive rearmament program. At the same time, the United States is disarming. Those who would resist have been neutralized. A small minority of organizers, KGB officers, agents of influence, and fellow travelers, have effectively turned the tables on the Free World.
The final crisis awaits, and Bukovsky tells us that we have a choice: to be soldiers against socialism, or to be its victims.
- Jeffrey R. Nyquist
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