About The Next Great Crash

Aggregate private household debt, 1990-2014. Consumer debt is measured on the left-hand scale; mortgage debt on the right-hand scale (source).

by Gaius Publius

"In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way [money is created] is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's bank account, thereby creating new money."

—Bank of England ("Money creation in the modern economy")

Governments create money and banks create money. Governments create money by spending. They send you $100 for, say, several cartons of paper from your small paper supply store, after which you have $100 and they have paper. Where did the $100 come from? The government "printed it," perhaps literally. Nevertheless, you have $100 to spend and are in debt to no one.

Banks create money by lending. You go to a bank for a $100 loan. They add $100 to your side of the ledger as an asset they've given you, and add $100 to their side as a debt you own them. You walk out with $100 you can spend, and they look forward to collecting interest until you pay it back.

(No, banks don't take money from reserves or deposits to lend you money. If the government had a rule that said banks had to hold no reserves, they could still lend you money. Read the quote at the top again from a Bank of England paper, or consider this Forbes article, "Banks Don't Lend Out Reserves," which says essentially the same thing: "[W]hen a bank creates a new loan, it also creates a new balancing deposit. It creates this 'from thin air', not from existing money: banks do not 'lend out' existing deposits, as is commonly thought.")

Those are in fact almost the only ways that money — the thing in your wallet and the number in your bank account — come to exist. (A third way of money-creation is for governments to issue treasury bonds — also a form of "printing it" — but that way is entirely optional and doesn't pertain to this discussion. They could still just print the money directly, as money, if they wanted, and use that money to buy things. Treasury bonds are created for an entirely different purpose. Paying taxes, of course, uses money already created.)

Both of these ways of creating money — by governments and by banks — create an asset. But when governments create money by spending, people own the asset. When banks create money by lending, they own the asset, which they lend, and people own a debt — the obligation to pay it back with interest.

This is a Great Truth and should be memorized. In general, government-created money puts an asset in your hands. Bank-created money puts an asset in their hands.

Obviously, bankers would always prefer the economy to be supplied with new money by banks than by the government. Which is why governments are always being forced by bankers, to the greatest extent possible, into austerity budgets. It means more business, more profit, for them.

Bank-Created Money Competes with Government-Created Money

Banks — and the bankers who grow rich running them — love it when governments run budget surpluses, which means the government takes more money out of the economy than it puts into it. (A government budget surplus means that at the end of the year, the government spent less money than it took in. In other words, budget surpluses shrink the supply of money, making money less available to the public)

When governments run surpluses (which is sold to the public as enacting "responsible" budget policies), the economy is relatively starved of government-created money. Every dollar that the government does not spend is a dollar that's not available to anyone. So to get additional dollars — to make up the difference between what the public needs and what they have — the public has to go to banks and other lending institutions and put themselves in debt.

It should be obvious from this that banks will always favor "responsible" pro-austerity government policies, and will always work to enact them. When bankers succeed at enacting austerity budgets, they increase their take from loans and make out like bandits.

That's where we are now. Bankers have captured the political process and staffed the government with its own ex- and future employees. On the Democratic Party side, this practice of bankers running government budget policy goes back through Barack Obama to Bill Clinton, his banker-turned-Treasury Secretary Robert Rubin, and their proud budget surpluses. (Rubin went from Goldman Sachs to Treasury Secretary to Citigroup. He even gave his name to this set of policies: "Rubinomics.")

Bankers like Rubin and their Democratic Party acolytes preach austerity for government, try to run budget surpluses instead of deficits (i.e., take money out of the economy instead of supplying it), and the whole rest of the nation goes into debt to bankers when people need what the government failed to provide.

(Republicans preach austerity too, but run budget deficits when they have power. Deficits do create an asset, the money itself, but the money doesn't go to the general public. Most of it goes straight to their friends, often in the military-industrial-security industry. This time a lot of it will also go to the climate-change-creating fossil fuel industry.)

The Goal of Both Parties Is to Keep Household Debt High

While the total private debt — commercial or business debt and household debt — affects the whole economy as we'll see shortly, the household debt now drives our politics. And maintaining high household debt has been a goal of both parties.

When Democrats hold power, the government directly starves the economy of money (strives for "responsible" budgets) and bankers get rich creating debt. That's why households are so debt-ridden today, with mortgage debt, student debt, credit card debt and the like. It's why the whole rest of the country, the bottom 90% whose voices are never heard, no matter who they vote for, are feeling so fatally crushed, so ... pre-revolutionary, if you will.

When Republicans hold power, the government enacts deficit-creating budgets, but still keeps the giant mass of private debt in place so commercial banks and other lenders can continue extract interest.

Where does this leave the public? Drowning in debt by design, under either party.

Where does this leave the country (in addition to poised on the verge of revolt)? Poised on the precipice, the edge, of the next Great Crash, because unrestrained debt-creation drives boom-and-bust cycles.

The Structural Problem With Debt-Driven Economies

Earlier I wrote about the current U.S. debt overhang (the large amount of debt that businesses and the public are suffering under) and said, "No U.S. economic recovery is possible until the government stops protecting creditors at all costs and starts making it possible (or mandatory) for personal debt to be forgiven." I'm not alone in saying that.

That statement is still true, but the situation is actually worse than I said. It's not just that a recovery is impossible; it's that the crash part of the boom-and-bust cycle is on its way as well. The mass of private debt — household debt and business debt — is now so great that it will cause the next economic collapse, just as debt caused the last one in 2008. This is a global problem, since major economies around the world have refused to put the brakes on debt creation. (One of the worst offenders, by the way, is China, but they're certainly not alone. Economic growth in almost all Western nations is strangled by the overhang of private debt.)

Michael Hudson explains this in a review of a new book by Steve Keen called "Can We Avoid Another Financial Crisis" (h/t Naked Capitalism for the link; emphasis mine). Hudson starts with Keen's view of debt growth as systemic to unregulated banking activity. First, debt growth creates an economic boom, when the new money acts as a stimulus. But later, bankers become "exuberant," lend far, wide and recklessly to increase their own income, and debt repayment comes to dominate the economy, strangling it. This puts the economy in a downward spiral, leading to a crash. In a society that does not restrain bankers, rinse and repeat.

Hudson puts it this way:

It is simple enough to show that the mathematics of compound interest lead the volume of debt [both household and commercial debt] to exceed the rate of GDP growth, thereby diverting more and more income to the financial sector as debt service. Keen traces this view back to Irving Fisher’s famous 1933 article on debt deflation – the residue from unpaid debt. Such payments to creditors leave less available to spend on goods and services.

In explaining the mathematical dynamics underlying his “Minsky” model, Keen links financial dynamics to employment. If private debt grows faster than GDP, the debt/GDP ratio will rise. This stifles markets, and hence employment. Wages fall as a share of GDP.

This is precisely what is happening [today].

Mainstream (neoliberal) economics has no way to take this debt-driven boom-bust cycle into account, or even to see it for what it is, since neoliberal economics doesn't see debt as a driver of the economy at all. As Hudson says below, for them it's the old logic that "debt doesn't matter, because 'we' owe the debt to 'ourselves.'"

But mainstream models ignore the overgrowth of debt, as if the economy operates on a barter basis. Keen calls this “the barter illusion,” and reviews his wonderful exchange with Paul Krugman (who plays the role of an intellectual Bambi to Keen’s Godzilla). Krugman insists that banks do not create credit but merely recycle savings – as if they are savings banks, not commercial banks. It is the old logic that debt doesn’t matter because “we” owe the debt to “ourselves.”

[But the] “We” are the 99%, the “ourselves” are the 1%. Krugman calls them “patient” savers vs “impatient” borrowers, blaming the malstructured economy on personal psychology of indebted victims having to work for a living and spend their working lives paying off the debt needed to obtain debt-leveraged homes of their own, debt-leveraged education and other basic living costs.

For Keen, Hudson, Minsky and a number of others, this kind of economy — depending on unrestrained debt for stimulus, leading to debt-driven crashes — is malstructured and the boom-bust cycles are inevitable, built in. The only long-term solution, of course, is a restructured, debt-restrained economy, which implies quite a lot of government intervention — anathema to free market, neoliberal, Rubinomics true believers (and the bankers who keep them in power).

Barring that restructuring, economies entering bust cycles have only two choices — pop the bubble now, or keep the party going a little longer — and they generally take the worse one:

Keen explains why, mathematically, the Great Moderation leading up to the 2008 crash was not an anomaly, but is inherent in a basic principle: Economies can prolong the debt-financed boom and delay a crash simply by providing more and more credit, Australia-style. The effect is to make the ensuing crash worse, more long-lasting and more difficult to extricate. [...]

Again, this is where we are now. The U.S. economy and the world economy are both limping along at almost no growth, and have been since the 2008 crash. No one has seen a recovery except the very wealthy, the upper 1%, plus the upper 10% who run things for them. Banks are doing fine, better than fine in fact, because government policy both here and in Europe is to let no debt go unpaid. You can see the result. I hope you can also now see where this is leading.

"Irrationality" and Bank Lending

Classic, neoliberal economics sees the world as made up of "individuals" making rational decisions. Here's Keen quoting Ben Bernanke, a classic neoclassical economist (source here; my emphasis):

"Hyman Minsky (1977) and Charles Kindleberger (1978) have in several places argued for the inherent instability of the financial system but in doing so have had to depart from the assumption of rational economic behavior. [A footnote adds] 'I do not deny the possible importance of irrationality in economic life; however it seems that the best research strategy is to push the rationality postulate as far as it will go.' (Bernanke, 2000, p. 43)"

But the irrational often rules us all, especially hyper-wealthy bankers driven mad with greed, what Alan Greenspan, another classic neoliberal economist, quaintly called "irrational exuberance." Pathological monomania is another characterization, and it's not an anomaly, but a characteristic of this part of the cycle. (Even economist Jeffrey Sachs labeled as "pathological" the Wall Street bankers he had to personally deal with, a surprising statement coming from someone who used to work at the IMF.)

According to Hudson, Keen's solution to this failure of vision is to see the economic world as populated, not with individuals like "prudent savers" (banks) and "spendthrift" borrowers (their customers)," but with "basic economic categories – creditors, wage earners, employers, [and] governments [who are] running deficits (to provide the economy with money) or surpluses (to suck out money and force reliance on commercial banks)."

A Choice — "Modern Debt Jubilee" or the Next Great Crash

Keen does have a solution to the problem of avoiding the next great crash. He calls it a "modern debt jubilee," a massive conversion of debt into equity. Hudson describes this as essentially a swap of equity for debt. About this, Hudson writes, "The intellectual pedigree for this policy to keep debt within the ability to pay was laid two centuries ago by Saint-Simon in France. ... As a transition from [today's] debt stagnation, [Keen] suggests that the central banks create a lump sum to put into everyone’s account. Debtors would be required to use their gift to pay down the debt. Non-debtors would keep the transfer payment – so as not to let demagogic political opponents accuse this plan of rewarding the profligate."

That is, everyone gets a gift of money in their bank account from the central bank — the government's bank, which again creates new money. Debtors are required to apply the gift to their debt. Non-debtors get the gift as well to avoid the inevitable political attack that, if only debtors got the gift, we'd be rewarding only the "undeserving."

Pretty slick idea. Some wealth rebalancing (though not much), considerable debt destruction, with a side of economic stimulus. That would keep the next crash at bay.

When Pigs Fly, or Sanders is Senate Majority Leader

Keen's suggestion will also, my realistic socialist mind tells me, never happen. If it did, we'd be living in a world in which the Democratic Party chooses Bernie Sanders to replace Chuck Schumer as Democratic leader of the Senate, and chooses to win elections again by standing with the people instead of big money donors, many of them bankers, who now provide most Party funding.

This could occur, of course, but look what happened to Sanders the last time he challenged the Party — every part of its ecosystem, including its media, worked to defeat him. And if Democrats won't stand for the people — and save the nation from the debt that's drowning it — who will? In our deliberately constricted political system, there's only one other alternative, and they'll always be no help at all.

Our Debt Is Their Income Stream

A final note — the newsy part of this piece, about the coming crash, is not the most important part. The paragraphs leading up to the news — my opening sections prior the discussion of Steve Keen's book — is much more significant, since it explains all you need to know about why banker-captured Western governments are so in love with austerity economics; why austerity guarantees your indebtedness; and why that's entirely by design.

Again: Government-created money puts an asset in your hands. Bank-created money puts an asset in their hands.

Our debt is their "income stream," and they will always stop at nothing to keep it that way, including inducing the first black president to destroy the wealth of his own community for their benefit (see "Obama's Other Legacy").

This austerity-created income stream must be interrupted and reversed, or we really will get that revolution I've been alluding to, and not just at the ballot box. (More on that problem in a later piece.)

GP
 

Reflections on an Election Year When It Finally Hit the Fan

Part of Last Conversation Piece by Juan Munoz, by the Hirshhorn Museum. Its conspiratorial feel, with panicked outsiders, seems apt for Washington.

- by Skip Kaltenheuser

Frustrations on the coverage of the Democratic primaries have been slow-cooking quite awhile. Not just with the networks, I’m also looking at you, National Public Radio. Does NPR have a clue as to how badly it's damaged its brand from reporters and commentators chirping regurgitations of Hillary talking points from the outset? For that matter do the NY Times and the Washington Post? They’ve sounded so long like self-appointed gatekeepers, queen-makers, charges of media malpractice now abound. Now brace for articles, already appearing, on how Bernie blew it, too little too late. Never mind media putting him in a box and for so long paying scant attention beyond socialist snowball in hell status.

We can take solace that the public’s collective tin ear to media fixes is well on its way to repair, but that doesn’t cure the frustration. I listened to NPR’s Scott Simon Saturday, interviewing (lecturing) RoseAnn DeMoro, executive director of National Nurses United, over her group’s support of Bernie Sanders.

Ms. DeMoro acquitted herself well, plowing past Simon’s condescending entreaties to party unity, to getting the inevitability of math, to what’s really practical for health care in the political system, and to every other point he could squeeze in to call the game before the clock runs out. In his mindset there's only one game in town. Never mind pushing the party where it needs to go, never mind concern over game-changers that might wait in the wings. But I assure you in Washington there’s ample trepidation over what might next waltz out of the wings, and on its impact on voter turnout for down-ballot races.

Simon’s comments typify the drumbeat to make Bernie the fall guy for Hilary’s troubles. Apparently it’s now against the law to point out that occasionally the empress strolls buck-naked. And the commentariat now infuses Bernie with mystical powers to demand his supporters rise up for Hillary. If not, Bernie’s fault Hillary loses.

I don’t recall that loud a media pile-on when Ted Kennedy challenged Jimmy Carter, didn’t hear it as a major mutter when walking about the convention floor of the ’80 Democratic convention in NYC. Sure, it didn’t turn out so well, perhaps someone might have had a Dutch uncle talk with Ted early on. But Jimmy was a real incumbent, not the illusion of one.

Democrats are trying hard to find the soul of their party, and many may drift if they don’t. Independents are already the largest identification out there. More people get that with the skyrocketing wealth gap, Hillary’s specialty-- incremental change-- only locks in a status quo that speeds that gap.

Here’s a thought. If you want Bernie’s supporters to come around for Hillary, quit trying to stifle their voice at every opportunity, quit telling them from the outset their aspirations are hopeless, their efforts pointless, that they’re naive as to what’s possible, that if we end up in Trumpville it’s their fault for not folding early.

By the way, who told Chuck Todd of Meet the Press to play that corny triumph music when he breathlessly shows the latest transient polls? I keep waiting for Rocky to come out punching, demanding Todd change the tune. Todd landed the perfect theme music to go with Calvin Trillin’s description of Sunday talk shows, the Sabbath Gasbags.

So, plenty of resentment leftover from the death of a thousand slice-and-dice talking points directed at Bernie by Hillary’s minions. They’re well-placed in the media echo-chamber, including pundits financially tied to Hillary’s campaign and to super-pacs supporting her.

Most critiques boiled down to “single issue candidate,” “how does he pay for it?,” and “the Republican Congress will pour molasses on him.”

They’ll pour molasses on Hillary, too, as they do on President Obama. But if Bernie actually won, a number of seats would likely change in Congress, despite the gerrymandered districts that give the Republicans the House despite their losing the collective popular vote. We dream of a corrective algorithm that fairly redraws districts based on the census, letting the chips fall where they may. But that dream requires courageous state legislators. In any case, if Bernie triumphs, a sea-change cometh. Regardless, odds of Republicans losing the US Senate are decent, at least until the following midterm elections. Voter turnout takes the prize.

How does Bernie pay for it? C’mon. We’re way beyond flirting with the Roaring Twenties wealth gap. Adjustments are in order. That’s how to pay for needed infrastructure projcts, public college tuition, further improving health care and other investments in our future. According to the Institute for Policy Studies, the twenty (!!!) richest Americans own more wealth than the bottom half of all Americans-- the bottom 152 million in 57 million households. The wealthiest tenth of one percent owns more than a fifth of US household wealth, triple the percentage that rarified crowd owned in the 1970’s. Put differently, that top one-thousandth of Americans owns about what the bottom 90 percent of Americans own together.

An article in Scientific American notes that contrary to what most Americans think, America is the most unequal of Western nations, with far less social mobility than Canada and Europe. The Walton family is richer than 42% of American families combined. The bottom 40% of Americans have three tenths of one percent of US wealth. Not a misprint. Three tenths. Of one percent.

Many believe this disparity is greatly understated, that a tremendous amount of top tier wealth is not accounted for, that it’s hidden in off-shore holdings or shell companies, undervalued, etc…

Peel off some of this distortion, and reorient priorities, shucking waste like the F-35 fighter. We can find some money for Bernie. He might have to modify some plans as he goes along, everyone must, but there’s money.

Meanwhile, in the last fifty years the CEO/worker pay ratio has gone from 20-to-1 to 354-to-1. Maybe some CEO’s could take a haircut and put that money into apprenticeship programs.

Bernie’s a single issue candidate? Bull. The rigging of our country by our campaign finance system, flaming democracy long before the Citizens United accelerant was poured on, is far and away the biggest issue. Because it affects every other issue. It distorts every market, every decision on priorities. And it fertilizes a mindset attracting public servant “temps” aiming to flee Congress and government for big money in lobbying and legal jobs as soon as they’ve staked claim on an influence niche.

Here’s a column from the last election considering what the well-heeled want as they practice the low art of the thinly-disguised bribe. Nothing’s changed.

Side effects of this rigging even extend into state courts, where the lion’s share of court decisions affecting our lives take place, in states that have some aspect of judicial elections-- a majority of states. The result of the election money grab is that decisions are increasingly tilting against individuals in favor of corporations and their lawyers. You don’t think that widens the wealth gap? Also impacted are issues ranging from environmental regulation enforcement to drawing legislative districts. Here’s a column on equal justice slipping away.

Fundraising is big business in Washington, a vested interest in many quarters including media advertising. It takes on a life of its own as much as the military-industrial complex. Indeed, there’s ample crossover to that complex.

In 2016, the cost of the presidential election alone is expected to exceed $5 billion, doubling that of 2012. The cost of Federal campaigns together may reach $9 billion. That $27 dollar average contribution for Sanders is remarkable for the dent it’s made. But the big money and the dark money aren’t going away, any more than are the politicians raffling off their favors with a quiet wink.

If you believe, as I do, that the biggest threat to this country’s stability is the rapidly growing political clout of the finance sector, then steps must be taken to fracture that political power. Here’s a bit on finance sector influence, also written the last presidential campaign cycle. Again, nothing’s changed except it’s worse.

If you’d permit another digression, I interviewed Ralph Nader in 1999, for Bank Director magazine. Consider how prescient Nader was as to where the unshackled finance sector was taking us. Here’s the text.

When Hillary was First Lady, I wrote admiringly of her after watching her in the basement of a row house in the Adams-Morgan neighborhood of Washington, DC. She gave awards and a thoughtful talk to excited microfinance entrepreneurs. They’d been brought in for an international microcredit conference, and Hillary’s support was touching. Someone who gets it, I thought, who knows what reasonable access to capital means to the underprivileged.

But Hillary also gets what access to policy levers means to the finance sector, and what that means to candidates. The Clintons have always gotten that.

In one 16 month period ending last May, the Clintons earned 25 million dollars for 100 speeches, half of them by Hillary, according to FEC filings.

Why would Goldman Sachs or anyone pay Hillary five thousand or more beans per minute for speaking to them? Nothing new or insightful a politician can say is worth that amount of money, nothing riveting and novel in subsequent speeches. That kind of money is paid for only a few reasons, primarily thanking someone for past actions and influencing someone’s future actions. Maybe greasing revolving doors between the finance sector and key government positions. There’s limited value to bragging rights on hearing what everyone knows is a kowtow speech run once more through a speechwriter’s grinder, other than showing off the implicit influence and largess of paymasters that others might covet.

Never mind the political tone-deafness of giving speeches for such largess to an industry Bill Clinton gave the country’s car keys to, and which ran into a tree.

I wish Hillary would share those emerald-embedded platinum words. I doubt there’s a Romney-esque 47% sinker there, but I’ll bet there’s plenty to make Hillary’s recent Wall Street comments sound like lip service is all that’s moved toward Bernie. According to Politico, Hillary’s comments in one speech to Goldman Sachs included calling “banker-bashing” “foolish” as she defused Wall Streets role in the economic meltdown, saying “we all got into this mess together.”

Come to think of it, they did all get into this mess together. Rubinomics. Bill Clinton’s Secretary of the Treasury, Robert Rubin was kindly donated by Goldman Sachs. After deregulating the finance industry, Rubin returned to Wall Street, earning $126 million from Citigroup in the decade that included the financial meltdown and the taxpayer bailout of Citigroup. Thank you. Thank you very much.

We’ll always be indebted to Matt Taibbi of Rolling Stone for knifing through public relations gauze with his graphic imagery of Goldman Sachs as a vampire squid.

Taibbi is among those who’ve written on how Goldman Sachs successfully uses the revolving door to salt the upper tiers of government(s). And if you want to drill deep, Money and Power… by William Cohan reveals in detail Goldman’s style and influence, and the scandal of what’s legal.

Goldman Sachs did get dinged recently for five billion dollars to resolve serious questions from Federal and state authorities over its sale of mortgage-backed securities. Sound like a real comeuppance? In 2010 alone, Goldman gave out over three times that much in bonuses. After all, they had to retain the talent that destroyed many trillions in assets of the little guy. Any jail time for those deceptions that garnered the ding? Nope. But the large-sounding number is a big PR splash for DOJ.

That’s a holdover from Eric Holder’s real legacy, kid gloves for banks. Hands-off Holder is now back making millions as a partner at Covington & Burling, a law firm servicing the biggest cheeses in the finance industry. Basically, Holder is part of a DOJ firm within a firm, as a half dozen other top officials at DOJ have also landed there.

Ever wonder what happened with the deadline Holder announced a year ago at the National Press Club as he packed up to migrate to a corner office in the the law firm he always knew he’d return to? Responding in part to a question I’d submitted on the lack of prosecutions, including of small banks, he announced a deadline for US Attorneys to submit potential cases against banks responsible for the economic crisis. That deadline came and went in mid-April of 2015. Forget specific cases, DOJ won’t even say if a significant number was submitted, or if any significant number will go forward. Any bets on how many are in the pipeline as the statutes of limitation roll on?

It’s not just banks. DOJ prosecutions of all white-collar crimes are the lowest in two decades. Who else tasked with financial enforcement is looking ahead to their post-public servant riches?

The Breadline by sculptor Georg Segal, part of the expansive FDR Memorial.
One of FDR’s quotes there, “THEY WHO SEEK TO ESTABLISH SYSTEMS OF GOVERNMENT BASED ON THE REGIMENTATION OF ALL HUMAN BEINGS BY A HANDFUL OF INDIVIDUAL RULERS… CALL THIS A NEW ORDER. IT IS NOT NEW AND IT IS NOT ORDER.”

Catch an insightful NY Times essay by Senator Elizabeth Warren explaining how enforcement of all kinds can be gutted by putting the insincere and self-serving in key roles in federal agencies.

Here’s Senator Warren’s new report, Rigged Justice, backing her essay with the twenty worst enforcement failures last year.

Remember, a hands-off tone is set entirely within the executive branch. No Congressional molasses need be poured. Consider the revolving door payback for fundraising, for speaking fees, for foundation contributions. The favor machine.

By the way, a year ago a Washington Post analysis showed the largest chunk of corporate donors to the Clinton Foundation was the financial services industry. Single issue, indeed.

Dwelling on payback, if you want to grasp the number of favors awaiting Bill and Hillary’s thank-you notes, read Inside the Clinton Donor Network, a Washington Post investigative piece last fall. It details the billions fundraised by the Clintons over four decades, for elections and for their foundation.

The range leaves one in awe. Foreign interests and those who advocate for them are thick in the donor mix.

Consider Haim Saban, Israeli and American billionaire who rose from the Mighty Morphin Power Rangers to owner of Univision and loads more. He’s been the Clintons' largest contributor over the years, donating and raising many millions for Bill and Hillary, and millions more for the Clinton Foundation.

Some months ago, Saban called for the US government to racially profile Muslims. He did all he could to oppose President Obama’s nuclear deal with Iran. Saban founded the Center of Middle East Policy, which should say something about its honest broker credibility. As it should about the Saban Center for Middle East Policy he founded at the Brookings Institute. Saban served on President Clinton’s Export Council, advising on trade issues. He and his wife had several sleepovers in the White House. Read up on Saban’s past efforts to derail investigations of pro-Israel lobbyists for espionage and to get a preferred congresswoman to head the House Intelligence Committee.

Donors at Saban’s level know how to play Washington like a violin. How does one escape worry that this highly lucrative pro-Likud bird chirping for decades in Bill’s and Hillary’s ears impedes cutting square deals in the Middle East peace process? That it might dampen efforts in a Hillary presidency? There are many elements to past failures of the Middle East peace process, I’m not accusing Bill Clinton of throwing the fight because of Saban or others.

But the will to succeed is everything in really tough challenges. It isn’t hard to undermine pushing boulders up a hill. Think what damage a perpetually failing peace process has done to Middle East stability and to this country’s image, and what that has cost.

Perhaps Diogenes was really seeking an honest broker.

Here’s a couple digressions in the foreign policy realm, on the future of US influence abroad and on corruption in Afghanistan, both sadly with evergreen shelf life.

At least we know Hillary would never turn to the likes of Kissinger for advice. Wait, what’s that?…

If you’d like an excellent summery of why Hillary’s embrace of Kissinger should give pause, here’s a piece by Greg Grandin, detailing a long relationship and what it wrought. NAFTA’s included, a side effect of which was the fracture of union bargaining power.

But what the hey, the White House recently gave Kissinger the Distinguished Public Service Award. Can the rest of us do less? Here’s my tribute.

Hillary’s African-American firewall confuses me. Plenty have written on the Clintons’ roll in ham-handed welfare reform and overkill legislation on crime. And thanks to a clever young protester, Ashley Williams, attention’s been paid to the ultimate dog whistle, bringing young “super-predators” “to heel.” Political personas seeking to look tough on crime and tough on welfare have played havoc with lives in a host of ways. Kind of like looking tough on foreign policy.

But what creeped me out early was was the execution of Ricky Ray Rector just before the 1992 New Hampshire Primary. To signal how tough he’d be on crime, then Governor Clinton returned to Arkansas to preside over the execution. Rector’s murder of a white policeman was horrific, but after the mentally-ill Rector tried and failed to completely blow his brains out, he was so mentally feeble that he put aside the pecan pie in his last meal so he could finish it later.

Now read up on Marc Rich, and consider a different quality of Bill Clinton’s mercy. And a bellwether of Holder’s legacy.

Meanwhile Bernie, who in the early sixties was a Chicago organizer for the Congress of Racial Equality (CORE) and the Student Nonviolent Coordinating Committee (SNCC), gets snide comments from Hillary surrogates that they never met him in the South. Yeah, there was no segregation up North. Getting arrested in Chicago is always a ticket to fun and games.

Or that his non-southern African-American backers are “a remove” from the South. Dissing Harry Belafonte? Spike Lee?

Mo’ money and prisons. Until last fall, and waves of criticism, Hillary was taking money from bundlers from the private prison industry, an industry that recently got notice for shoddy treatment of warehoused undocumented immigrants. Here’s a column tangential to those with vested interests in expanding prison populations.

A couple memories of different views on fundraising.

When I started scribbling, one of the first politicians I interviewed was Bill Proxmire of Wisconsin, then chair of the Senate banking committee. Few positions have more potential for fundraising. I asked him how he dealt with money in politics. He said in his last election he spent two hundred bucks, mostly on stamps mailing back contributions. His constituents knew he was like The Untouchables. Proxmire couldn’t be bought. And he always won by big margins.

I once asked the chief of staff of Senator Alan Cranston how his boss dealt with fundraising. He deadpanned, People think if they give you a lot of money, they’re buying influence, but all they really buy is access. Cranston was later damaged in an influence scandal involving a bank.

I think Bernie’s running a little closer in spirit to the Proxy model. Hillary, not so much.

Here’s a fine read from the New York Review of Books on how the Clintons prime the pump for the Clinton Foundation, and in turn how the foundation primes the pump for the campaign.

Bernie’s been more than a tilt at the windmill. Polls seem to indicate that Bernie will garner more independents than Trump. And more than Hillary would pick up against Trump. After Trump exhausts calling Bernie a socialist, Trump’s low on ammo.

Modern elections usually usher a different party into the White House when a two-term lessee departs. That’s not a vulnerability for Bernie. However you view him, he’s not more of the same. He’d be heading a new and improved party.

Think back to the two-for-one Clinton presidential offering in 1992. People forget that the Clintons ought to call third-party candidate Ross Perot “Uncle Ross.” It was Perot’s distaste for George Herbert Walker Bush, a former CIA Director who claimed to be “out of the loop” on Iran-Contra, that determined where Perot trained his sizable firepower. In 1996, Bill’s opponent was Bob Dole, who has a great class smart-ass sense of humor but at his core was Nixon’s hatchet man. After moving to DC I kept my Kansas voter registration for years so I could vote against him. Hillary is skilled and smart, but there is not a proven legacy of Clinton campaign juggernauts. 2008, not so great. At times her campaign seemed a Tower of Babel of advisors, consultants and contributors.

For those nostalgic for the Clinton administration’s golden era, Thomas Frank has a few words that bring that era up to date, connecting past glories to ongoing impacts.

Apologies to Gloria Steinem, but most folk, millennial women in particular, instinctively know voting for someone primarily because of gender, race, creed, ethnicity or sexual preference is the flip-side of voting against someone primarily for the same reasons. When I voted for President Obama twice, his being mixed-race was a non-factor. Despite disappointments like Holder, despite the unfulfilled promises of transparency and of journalistic access, despite the disgraceful treatment of whistleblowers, I thought and still think Obama was the best choice. I believe that’s how a growing majority of Americans ultimately choose who gets the top job.

As Bernie channels Teddy Roosevelt in the bully pulpit, his voice rings true against The Big Money.

It’s a precarious leap of faith to envision the Clintons biting the hands that lifted them into the oligarchy.
Torrents will pour forth on Trump realities. Some of those realities are plenty ugly. But people will also learn more of those pulling levers behind Hillary’s curtain. And of their resemblance to the heavies in The Big Short and 99 Homes.

If Hillary takes the nomination, her slogan might be Lie back, close your eyes, and think of the Supreme Court.

Critically important, but I’m not sure that’s the stuff of revolution. Or of voter turnout if cynicism flies off the charts.

My comments neglected the 800 pound orangutan in the room. I don’t want to hurt his feelers so one brief drive-by: Trump’s speech patterns will sound familiar to anyone ever hit hard by a con artist. His jumble of slip and slide phrases allow his marks to hear whatever they want. Until Trump’s responses to the crowd fervor of his base pull him past the point of no return once too often, he’s a better contender than Trump Plaza. Charlie Sheen, you could have been a contender. Winning!



Here’s a thought. If you want Bernie’s supporters to come around for Hillary, quit trying to stifle their voice at every opportunity, quit telling them from the outset their aspirations are hopeless, their efforts pointless, that they’re naive as to what’s possible, that if we end up in Trumpville it’s their fault for not folding early. Cynics might be forgiven for detecting a whiff of efforts to suppress Bernie supporter turnout. Earlier, when his supporters raised a legit question as to why southern primaries, in a region no Democrat will sweep in the general election, should be such an early determinant as to brand the primaries a done deal, some of the commentariat even tried to raise the specter of prejudice. That’s not a path to capture Bernie supporters' hearts and minds.

Now I’ll wait for my musings to implode as the race progresses, with the sudden twist of an economic cool-off.

Thanks for your indulgence and best luck to the country.

Why Do Catastrophically Failed Economists Keep Getting Recycled By Establishment Politicians?

I was happy for the U.K. last week when I read that the newly elected leader of the Labour Party, Jeremy Corbyn, had selected two of the world's most brilliant economists as advisers, Thomas Piketty and Joseph Stiglitz. Corbyn's comment to the media on his selections: "I was elected on a clear mandate to oppose austerity and to set out an economic strategy based on investment in skills, jobs and infrastructure. Our economy must deliver security for all, not just riches for a few."

How different from that are the grotesquely failed economic advisers most of the U.S. presidential candidates are recycling, self-serving garbage like Glenn Hubbard, Robert Rubin, Lawrence Summers, Kevin Warsh, Tim Geithner, Alan Greenspan, Ben Bernanke (oh, this is convenient), Arthur Laffer, Stephen Moore...?

I have no doubt Jeb, Rubio, Trump and Fiorina would try to bring back Andrew Mellon, clueless Treasury secretary from 1921 to 1932 under Warren G. Harding and Calvin Coolidge, if they could. Cruz, on the other hand, might opt to resuscitate Roger Taney, who was Treasury Secretary-- also the first nominee to any Cabinet position to be rejected by the Senate when his recess appointment failed-- before becoming the worst Chief Justice of the Supreme Court in 1836.

Let's start with an excerpt from NY Times economics columnist Jeff Madrick's book Seven Bad Ideas: How Mainstream Economists Have Damaged America and the World:

Economists were indeed set back on their heels by the financial crisis of 2008 and by the depth of the recession and the levels of unemployment that followed. Though not well implemented, the aggressive financial rescue efforts of the government in 2008 nevertheless kept matters from getting far worse that year. Were it not for the social programs started in the New Deal of the 1930s and expanded in the 1960s, including Social Security, unemployment insurance, and Medicare, and those adopted later, including the earned income tax credit and food stamps—the great embrace of government, not its denigration—the nation would likely have entered a full-fledged depression by 2009. For all the criticism, President Obama’s roughly $800 billion stimulus package of government spending and tax cuts was also a vital contributor to a softer landing for the economy in 2009. Non-laissez-faire economics saved the day.

... In 2001, after the Clinton administration had left office, Lawrence Summers, a Harvard professor and Bill Clinton’s third Treasury secretary, endorsed this new faith in free markets and opposition to government intervention as a victory of new ideas. By contrast, in the 1930s John Maynard Keynes had advocated aggressive government spending—outright budget deficits—to stop recessions and support vigorous recoveries. “The political debates take place within a universe that is shaped by the development of new ideas,” Summers told an interviewer, attributing the change to good, fresh thinking, not merely the return of an old laissez-faire ideology in a more politically conservative time. “Of those new ideas, none is more important than the rediscovery of Adam Smith and the idea that a decentralized system relying on price signals collects information and provides much more insurance than any kind of centrally planned or directed type of system.” Summers, a onetime Keynesian, had for the moment changed his tune, and in this he represented economists generally.

Economists basically discarded Keynesian policy and relied on a narrow version of monetary policy: the manipulation of interest rates by the Federal Reserve, the nation’s central banking system. “We thought of monetary policy as having one target, inflation, and one instrument, the policy rate,” conceded Blanchard. “So long as inflation was stable, the output gap [the difference between potential and actual GDP] was likely to be small and stable and monetary policy did its job.” He noted that “old-style Keynesian stimulus,” by which he meant more government spending, was now “secondary.”

During this period, Clinton, the first Democratic president since 1981, chose to act on the advice of Summers and Robert Rubin, his second Treasury secretary and a former head of Goldman Sachs, and pay down the nation’s debt before seriously raising public investment. The federal deficit was widely thought to deter growth, limiting the money available to private businesses to distribute the nation’s savings. In Clinton’s last year in office, the level of federal public investment as a proportion of GDP was lower than in Ronald Reagan’s last year in office, especially for physical infrastructure and education spending. It was also substantially lower for research and development. The policy was part and parcel of the laissez-faire revolution.

Had economists been fully dedicated to their free-market views, they would also have been up in arms over the glaring lack of regulation of the new and deliberately opaque derivatives market on Wall Street. Based on securities that could be bought and traded with little down payment, these derivatives were at the heart of the financial crisis. If someone is selling a good or a security, competitors cannot offer it for less if they do not know the price asked. Yet the Clinton administration, following the new economic thinking, prevented regulators from setting federal standards of openness in this market.

The most damaging of the new financial derivatives were credit default swaps, a technical name for insurance sold by financial firms to protect investors against price declines of securities. The insurance to protect against losses on mortgage securities became especially popular as the housing boom progressed-- particularly insurance for securities based on subprime mortgages. Because the prices of these insurance-like derivatives were traded secretly, however, there was not adequate competition to keep prices sensible. Economists should have rallied in opposition to the lack of rules, but I could find no research papers done on the phenomenon until it was too late. Some investors and professional traders bought the insurance at high prices, some sold at low prices. Moreover, there were no legal requirements to hold a reserve to ensure that someone selling insurance could pay off—as is done with traditional life and property insurance. When the value of mortgages collapsed as the housing bubble burst, those who sold such insurance-- notably the insurance giant AIG-- could not pay off, making the crisis far worse. Investors who thought they were protected against falling mortgage securities were now losing fortunes, forcing them to sell other securities to meet their liabilities. This drove the prices of other securities still lower, and market prices fell further in a vicious spiral.

Economists also said little when they should have proverbially shouted about the obvious conflicts between those who issued securities and the agencies they hired to rate the securities they sold. These agencies, Standard & Poor’s and Moody’s, were inclined to make their clients happy and gave their securities high ratings, even those based on subprime mortgages. Giving unjustifiably high ratings to the securities of clients who were paying for them seems, well, almost inevitable. After the collapse, the agencies sharply, and with at least temporary embarrassment, reduced their ratings for the large majority of securities they had previously given their highest ratings, the value of which had often fallen to zero.

“Get the incentives right” had become a cliché for economic reform, especially in poorer developing nations. But financial incentives were awry on Wall Street. Traders were paid lavishly when they were correct but were not penalized commensurately when they were wrong, thereby incentivizing them to take risks. Much of the profits earned on trading the new derivatives were kept secret from buyers and sellers so that customers could not seek a better deal elsewhere. It was said that the very high compensation of bankers and traders reflected their unusual talents and that high profits for financial institutions meant they were contributing ever more to the nation’s prosperity. Economists were barely disturbed by such implausible nonsense. Meanwhile, by contrast, laws to set higher minimum wages, it was argued by many economists, would only distort labor markets and result in lost jobs.

Wall Street itself exhibited the characteristics of a monopoly. Commissions were fixed at abnormally high levels for most financial transactions, suggesting the lack of true competition. Fees earned by bankers on transactions were always high but did not fall as a percentage of the soaring value of financial assets, which under normal competitive conditions should likely have been the case. Blanchard, looking back, wrote: “We thought of financial regulation as mostly outside the macroeconomic policy framework.” The silence of so many economists when even their most bedrock conservative principles were violated was disturbing. They had spoken up as a group before, sometimes vociferously, about the benefits of free trade, for example. Their current views on laissez-faire economics, including financial deregulation, were now markedly sympathetic to big business and Wall Street.

In the 1980s, 1990s, and 2000s, the prices of stocks, bonds, and housing rose to untenable levels on the watch of free-market economists who preached deregulation. During this period, over-speculation led to serious financial crises at home and abroad as free-market advocates successfully reduced controls on lending and investing around the world. A series of major financial crises affecting America began with a 1982 Mexican financing debacle involving U.S. banks and climaxed with the 2008 crisis. Mexico had borrowed significantly from U.S. banks in the 1970s and early 1980s, the careless banks essentially speculating on the future strength of the Mexican economy with loans to the government and for spurious industrial projects. With no guidelines from government or international institutions, the banks had recycled petrodollars through loans especially to Latin America; a favorite recipient was Mexico. When interest rates were pushed up sharply by Paul Volcker’s Federal Reserve in order to stanch U.S. inflation, interest rates on Mexican debt also rose sharply. At the same time, a resulting worldwide recession undercut Mexico’s oil exports. The nation declared that it could not pay its debts to American banks. The Fed and the International Monetary Fund, a world lending organization, helped bail out the banks.

Ensuing financial crises were variations on this theme. The investors in equity incurred huge losses because of overly optimistic speculative investments that initially earned a lot of money and then went bad, but banks were often bailed out. Economies typically slid into recessions when inflation rose and the prices of these financial assets fell. The 1982 recession in the United States, for example, was the worst since the Great Depression-- until the recession of 2008. Despite wide-eyed assertions by well-schooled economists that Americans were now enjoying the Great Moderation, the financial collapses and ensuing recessions had, as noted, cost Americans trillions of dollars in lost wealth and jobs, diminished investment, and failed companies. The U.S. housing crash that began in 2006, along with the accompanying collapse in stock prices, reduced the wealth of Americans by roughly $8 trillion by the time it hit bottom. This crash was also of course the result of overspeculation fueled by borrowing-- homebuyers and investors in complex and hard-to-understand mortgage securities kept buying at ever-higher and less sensible prices. While average wealth rose again in the years after the crash, the money essentially went to the wealthy. Banks had been rescued, stock prices came back, and the well-off held the large majority of stocks; housing prices rebounded only partially. The high-technology stock plunge that occurred in the early 2000s resulted in comparable losses for most Americans. Most high-technology stocks did not recover. Many economists insisted such speculation was necessary to encourage risk taking.

...The free-market economics that had been in vogue were now failing badly. The old remedy advocated by John Maynard Keynes to cure recession—federal spending that would lead to a temporary budget deficit-- had been accepted momentarily but was again soon disdained by many. Since the inflationary 1970s, a federal budget deficit was increasingly seen as the culprit, even among Democratic economists, and this view has been hard to shake completely even after the major recession. The thinking was that a deficit often, even usually, created too much demand for goods and services, thus pushing up prices. It created more demand than the wages and profits the economy itself was generating, requiring borrowing to do so. Once slack was taken up, it was believed, a deficit resulted in an overheated economy. Keynesians typically argued with the new free-market orthodoxy over whether full employment had been reached and whether the capacity of the economy was fully utilized. It was said that the debt financing that pushed up interest rates also left less room for businesses to borrow.

To call economists overconfident during the modern laissez-faire experiment understates their hubris. The susceptibility of economists to new fashions in thinking, their opportunistic catering to powerful interests, and their walking in lockstep with the rightward political drift of America are disturbing for a discipline that claims to be a science.

Larry Kudlow- renowned economist (and deranged drug addict)

The kind of advice Corbyn-- and presumably President Bernie-- will get from Stiglitz is entirely different and from an entirely different, people-oriented perspective. Friday Stieglitz and Adam Hersh, senior economist at the Roosevelt Institute, published a decidedly non-establishment piece on the TPP-- which is nearly negotiated now-- and "free trade" in general. Details are being ironed out in Atlanta. "The biggest regional trade and investment agreement in history," they wrote, "is not what it seems."

You will hear much about the importance of the TPP for “free trade.” The reality is that this is an agreement to manage its members’ trade and investment relations-- and to do so on behalf of each country’s most powerful business lobbies. Make no mistake: It is evident from the main outstanding issues, over which negotiators are still haggling, that the TPP is not about “free” trade.

New Zealand has threatened to walk away from the agreement over the way Canada and the US manage trade in dairy products. Australia is not happy with how the US and Mexico manage trade in sugar. And the US is not happy with how Japan manages trade in rice. These industries are backed by significant voting blocs in their respective countries. And they represent just the tip of the iceberg in terms of how the TPP would advance an agenda that actually runs counter to free trade.

For starters, consider what the agreement would do to expand intellectual property rights for big pharmaceutical companies, as we learned from leaked versions of the negotiating text. Economic research clearly shows the argument that such intellectual property rights promote research to be weak at best. In fact, there is evidence to the contrary: When the Supreme Court invalidated Myriad’s patent on the BRCA gene, it led to a burst of innovation that resulted in better tests at lower costs. Indeed, provisions in the TPP would restrain open competition and raise prices for consumers in the US and around the world – anathema to free trade.

The TPP would manage trade in pharmaceuticals through a variety of seemingly arcane rule changes on issues such as “patent linkage,” “data exclusivity,” and “biologics.” The upshot is that pharmaceutical companies would effectively be allowed to extend-- sometimes almost indefinitely-- their monopolies on patented medicines, keep cheaper generics off the market, and block “biosimilar” competitors from introducing new medicines for years. That is how the TPP will manage trade for the pharmaceutical industry if the US gets its way.

Similarly, consider how the US hopes to use the TPP to manage trade for the tobacco industry. For decades, US-based tobacco companies have used foreign investor adjudication mechanisms created by agreements like the TPP to fight regulations intended to curb the public-health scourge of smoking. Under these investor-state dispute settlement (ISDS) systems, foreign investors gain new rights to sue national governments in binding private arbitration for regulations they see as diminishing the expected profitability of their investments.

International corporate interests tout ISDS as necessary to protect property rights where the rule of law and credible courts are lacking. But that argument is nonsense. The US is seeking the same mechanism in a similar mega-deal with the European Union, the Transatlantic Trade and Investment Partnership, even though there is little question about the quality of Europe’s legal and judicial systems.

To be sure, investors-- wherever they call home-- deserve protection from expropriation or discriminatory regulations. But ISDS goes much further: The obligation to compensate investors for losses of expected profits can and has been applied even where rules are nondiscriminatory and profits are made from causing public harm.

Philip Morris International is currently prosecuting such cases against Australia and Uruguay (not a TPP partner) for requiring cigarettes to carry warning labels. Canada, under threat of a similar suit, backed down from introducing a similarly effective warning label a few years back.

Given the veil of secrecy surrounding the TPP negotiations, it is not clear whether tobacco will be excluded from some aspects of ISDS. Either way, the broader issue remains: Such provisions make it hard for governments to conduct their basic functions-- protecting their citizens’ health and safety, ensuring economic stability, and safeguarding the environment.

Imagine what would have happened if these provisions had been in place when the lethal effects of asbestos were discovered. Rather than shutting down manufacturers and forcing them to compensate those who had been harmed, under ISDS, governments would have had to pay the manufacturers not to kill their citizens. Taxpayers would have been hit twice-- first to pay for the health damage caused by asbestos, and then to compensate manufacturers for their lost profits when the government stepped in to regulate a dangerous product.

It should surprise no one that America’s international agreements produce managed rather than free trade. That is what happens when the policymaking process is closed to non-business stakeholders-- not to mention the people’s elected representatives in Congress.

But how could we do a post about economists and leave Paul Krugman out-- or Republican voodoo economics? On Friday, Krugman looked at the Trump-Jeb-Rubio tax plans in terms of Republican voodoo orthodoxy. They all passed with flying colors: "lavish huge cuts on the wealthy while blowing up the deficit."

[T]here’s the recent state-level evidence. Kansas slashed taxes, in what its right-wing governor described as a 'real live experiment' in economic policy; the state’s growth has lagged ever since. California moved in the opposite direction, raising taxes; it has recently led the nation in job growth.
True, you can find self-proclaimed economic experts claiming to find overall evidence that low tax rates spur economic growth, but such experts invariably turn out to be on the payroll of right-wing pressure groups (and have an interesting habit of getting their numbers wrong). Independent studies of the correlation between tax rates and economic growth, for example by the Congressional Research Service, consistently find no relationship at all. There is no serious economic case for the tax-cut obsession.

Except one:

Republicans support big tax cuts for the wealthy because that’s what wealthy donors want. No doubt most of those donors have managed to convince themselves that what’s good for them is good for America. But at root it’s about rich people supporting politicians who will make them richer. Everything else is just rationalization.

... [N]ever forget that what it’s really about is top-down class warfare. That may sound simplistic, but it’s the way the world works.

How About Real Change And Hope In Obama's Second Term-- Like Bob Reich For Treasury Secretary?

I was just watching President Obama speaking at UNLV. I'm not exactly an alumnus but I did take courses there-- and write for the student newspaper-- when my van broke down in Vegas and I couldn't afford to repair it and leave town. That was a lot of years ago. Today the President was saying so many of the right things-- things Romney will never say-- like "no one who fights for this country should ever have to fight for a job when they come home." I heard that while I was putting on my socks upstairs.

And earlier this week, on Air Force One, when a reporter pressed Jay Carney, the Press Secretary on whether Obama would support a temporary extension of the Bush tax cuts for the rich, Carney said: "He will not. Could I be more clear?"

But the problem is that while he talks like a real Franklin and Eleanor Roosevelt Democrat, he hasn't governed like one. Remember he once said he's a Blue Dog Democrat? That's what he governed as-- starting with his first absolutely horrendous appointments-- like Wall Street operatives Rahm Emanuel as Chief of Staff, Larry Summers as Director of the National Economic Council and Tiny Tim Geithner as Treasury Secretary. A high school teacher of mine once told the class that no matter who the president is, Wall Street always gets one of their own as Treasury Secretary. That started with Alexander Hamilton.

FDR's first Treasury Secretary was William Woodlin, a Republican hereditary industrialist who had served on the Fed starting in 1927. Henry Morgenthau, Jr. took over in 1933 when Woodlin resigned due to an illness than killed him within months-- and he served the whole time Roosevelt was president. He was born into wealth; his dad was a NY real estate mogul. Although conservatives were enraged that Roosevelt appointed him, Morgenthau was a vocal anti-Keynesian and was known for utterances like "We have tried spending money. We are spending more than we have ever spent before and it does not work. [...] After eight years of this administration we have just as much unemployment as when we started [...] and an enormous debt to boot!" He worked hard to persuade FDR to give up on deficit spending, although in 1937 he finally got Roosevelt to focus on balancing the budget through major spending cuts and tax increases... and brought on the 1937 Recession.

After Morgenthau, Truman appointed one of his closest friends, Fred Vinson-- who had served as head of the inflation-fighting Office of Economic Stabilization. He wasn't really a Wall Street person but he was soon kicked upstairs to serve as the Chief Justice of the Supreme Court and was followed by John Wesley Snyder, an Arkansas banker. He was the last Secretary of the Treasury that wasn't an actual Wall Street person.

Eisenhower's first Treasury Secretary, George Humphrey was a conservative steel industry tycoon was against aid to the poor and fought for a balanced budget, tight money, tax cuts to the rich that would "trickle down" and drastically curbing federal spending. Next came Robert Anderson, a Texas investment banker and alcoholic who was trial and convicted of tax evasion and of laundering huge sums of money for drug dealers in a typical Ayn Rand-like offshore banking scam that Republicans admire so much. He was disbarred and sentenced to prison.

The next president was JFK but he wasn't going up against Wall Street either-- quite the opposite. His Secretary of the Treasury was C. Douglas Dillon, another hereditary one-percenter and notorious Wall Street investment baker (Dillon, Read & Co.)... with pretensions towards Scottish nobility. He was close personal friends with every high end financial predator in New York. LBJ's first Treasury Secretary was Henry Fowler, a conservative who's primary interest was an immense tax cut, primarily for the rich. Upon leaving the cabinet he was rewarded with a partnership in Goldman Sachs. He was followed by Joseph Barr, who was serving as the Chairman of the FDIC and the Undersecretary of the Treasury before LBJ appointed him Treasury Secretary for the last month of his presidency. He went on to head the American Security and Trust Company and then the Federal Home Loan Bank of Atlanta.

After Barr, they could have just moved the Treasury Department to Wall Street itself. Nixon appointed Mormon bankster David Kennedy, followed by Texas con-man John Connally-- a paid shill for right-wing Texas oil tycoons Sid Richardson and Perry Bass-- and Bechtel CEO George Shultz, whose policies brought on one of the worst inflation spirals in contemporary American history. He was followed by William Simon (who Ford held onto once Nixon resigned in disgrace). Simon, a venture capital predator and Wall Street bankster with a series of shady companies, was an Ayn Rand fanatic, "free market" extremist and was responsible for the revitalization of the term "czar" in American politics (having been Nixon's "energy czar"). Carter had two Treasury secretaries, Michael Blumenthal, a NYC corporate guy, and William Miller, a former Textron CEO and Federal Reserve Chair.

The came the veritable bankster boardroom brought to you by the most Wall Street-centric series of presidents since the Roaring '20s: Reagan, Bush I, Clinton, Bush II and Obama. Reagan gave us Merrill Lynch chairman and CEO Donald Regan, the Carlyle Group's (and bin-Ladens') James Baker, and, briefly Peter McPherson, later Chairman of Dow Jones (and the man who made sure Rupert Murdoch could buy the Wall Street Journal). George H.W. Bush, from a Wall Street bankster clan himself, named Nicholas Brady (former Chairman of the Board of Dillon Read & Co.). Clinton found one of the most conservative Democratic taxcut fanatics around, ex-bankster, Senate Finance Committee Chair & all around Wall Street patsy Lloyd Bentsen. When Bentsen resigned, Clinton appointed an outrageous bankster, Frank Newman who had worked for (and still served) Citicorp, Wells Fargo, and BankAmerica. (After his turn at Treasury-- 4 weeks-- he went to work first for Bankers Trust and then as CEO of Shenzhen Development Bank.) Then can the really bad guys, Wall Street's dream boys, Robert Rubin (Chairman of Goldman Sachs before Treasury, Chairman of Citigroup after Treasury) and Lawrence Summers, an academic who has always groveled in the face of a few bucks held under his nose. His purely Wall Street-oriented deregulation policies were as key to the current worldwide economic meltdown as were Phil Gramm's.

Bush II gave us Alcoa Chairman Paul O'Neill, CSX Transportation's CEO and Chairman of the Business Roundtable John Snow, who later went on to head Cerberus Capital Management, and finally-- and worst of all-- notorious bankster Henry Paulson, CEO of Goldman Sachs. Obama couldn't have done worse than Paulson-- but Geithner, former President of the NY Federal Reserve Bank, isn't much better.

If the mistakes Obama made in his first term don't saddle us with Mitt Romney-- in other words, if Obama gets a second term-- he can do something really historic and become a real agent for Change (and Hope). That would be appointing former Labor Secretary Robert Reich Treasury Secretary. Wall Street might grumble a little commit mass suicide, but Reich, as you can see in the video above, would use the office in a way it has never been used before-- for the good of ordinary working American families. I bet the 18 Members of Congress who proposed raising the minimum wage from $7.50 to $10/hour this week would support the nomination!

In introducing a key chapter, "Tax Cuts Aren't A Solution To Every Problem" in his book, The Fifteen Biggest Lies About The Economy, Joshua Holland quotes Mitt Romney explaining a Republican alternative to stimulating the economy. Rather than the government spending money on public works and rather than putting money in consumers' pockets by increasing the minimum wage, the GOP wants to give more tax cuts to the wealthy. "There are two ways," says Willard, "you can put money into the economy, by spending more or by spending less. But if it's a stimulus you want, taxing less works best. That's why permanent tax cuts should be the centerpiece of the economic stimulus." As Holland points out, he's wrong, gigantically wrong. In fact, he writes, "it's difficult to know where to start deconstructing conservative rhetoric on taxing and spending. This is such a central part of their worldview, and it’s informed by a whole slew of falsehoods. In order to make sense of it all, it’s necessary to understand four key concepts behind the Right’s rhetoric." Here are Holland's 4 key concepts that unwind the basis of the Republican Party ideology of selfishness and greed:

1. Shrink the Government and Drown It in a Bathtub

Conservatives believe in small government as an ideological end unto itself. They believed Reagan when he said, “Government is the problem,” and they think that shrinking that problem down so that it becomes small enough, in the words of antitax activist Grover Norquist, to “drown in a bathtub,” is a virtue.

They naturally tend to assume that their political opponents must take the opposite view: that liberals want to expand government and raise taxes because they prefer bigger government and higher taxes. That’s a serious distortion; progressives see policy goals and aren’t afraid of pursuing solutions to problems through government, the private sector, or a combination of the two. When a real problem can’t be addressed by the private sector-- poor kids lacking health insurance is a perfect example-- then we look to the public sector for the answer.

And then we pay for it, rejecting the reckless “borrow-and-spend” approach that George W. Bush used to turn a tidy budget surplus left by Bill Clinton into a deep sea of red ink. The bottom line is that progressives and liberals couldn’t care less about how big or small the government may
be in the abstract, only whether it functions well and solves the problems we ask it to address.

2. Conservative Programs Don’t Count as Wasteful Spending

Despite conservatives’ ideological devotion to limited government, make no mistake that when they say “government,” they are talking about limiting corporate regulation and reducing the amount of money spent on the relatively meager social safety net that takes the hard edges off America’s brand of unbridled “turbo-capitalism.” In practice, almost everybody, from across the political spectrum, is happy to spend money and expand government in pursuit of his or her own objectives. Spending projects are wasteful “pork” only when they’re in another lawmaker’s district. Republicans rarely object to spending tax dollars on the military, our intelligence agencies, law enforcement, or border security, to name a few. To state the obvious: these things cost money, too-- a lot of it.

3. The Poor Don’t Pay Taxes

Contrary to the right-wing narrative, everyone pays taxes. Conservatives insist that the tax system is highly progressive and that anyone who suggests otherwise is just whining. Rush Limbaugh put it this way: “The bottom 50 percent is paying a tiny bit of the taxes, so you can’t give them much of a tax cut by definition. Yet these are the people to whom the Democrats claim to want to give tax cuts. Remember this the next time you hear the ‘tax cuts for the rich’ business. Understand that the so-called rich are about the only ones paying taxes anymore.”

That’s true, however, only when you do a little sleight of hand. You have to look at the federal income tax in isolation and then pretend that it represents the government’s entire take. It’s true that the bottom 40 percent of U.S. households don’t pay much in federal income taxes. And, according to a Congressional Budget Office (CBO) analysis, the wealthiest 1 percent do pay more in federal income taxes than the bottom 90 percent combined.

Yet that’s a far cry from the claim that the “poor don’t pay taxes.” Rushbo won’t tell you, but the CBO also said that if you look at state and local taxes, the top 1 percent of Americans paid 5 percent of their incomes, while the bottom 50 percent (many of them among those who paid no federal income taxes) shelled out 10 percent, twice as much proportionately. In addition, the CBO found that the bottom 80 percent of the pile paid around 9 percent of their incomes in Social Security taxes, while the top 1 percent paid only 1.6 percent of theirs. After the income tax, Social Security taxes represent the largest share of the federal take.

A 2009 study by the nonpartisan Institute on Taxation and Economic Policy looked at state taxes (including sales taxes) and concluded, “Nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy. That is, when all state and local income, sales, excise and property taxes are added up, most state tax systems are regressive [emphasis theirs].” The top 1 percent of earners paid around 5 percent of their incomes in state and local taxes, while the poorest fifth of the population paid almost 11 percent of theirs.

When the institute looked at excise taxes-- on gas, cigarettes, alcohol, and other goodies-- they found that the “average state’s consumption tax structure is equivalent to an income tax with a 7.1 percent rate for the poor, a 4.7 percent rate for the middle class, and a 0.9 percent rate for the wealthiest taxpayers.

When you add it all up-- state and local taxes, federal taxes, and excise fees-- it turns out that the rich, the poor, and those in between all end up with about the same tax rate. That’s the conclusion of a 2007 study by Boston University economists Laurence J. Kotlikoff and David Rapson. They summarized, “The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.”

That brings us to an important point: It wasn’t always that way. According to a 2010 study by Wealth for the Common Good, an organization of deep-pocketed progressives, “Over the last half-century, America’s wealthiest taxpayers have seen their tax outlays, as a share of income, drop by as much as two-thirds. During the same period, the tax outlay for middle-class Americans has not decreased.” The study found that the nation’s “highest earners-- the top 400-- have seen the share of their income paid in federal income tax plummet from 51.2 percent in 1955 to 16.6 percent in 2007, the most recent year with top 400 statistics available.” Between 2001 and 2008 alone, tax cuts for the wealthy cost the U.S. Treasury $700 billion.

4. Tax Cuts for the Rich Will Also Help the Rest of Us

Republicans use the lie that the poor don’t pay taxes to justify big cuts for the wealthy. The bad news is that those cuts raise taxes for everyone else. You won’t read that in the legislation, but it’s the real-world result of cutting taxes without taking on the politically unpopular task of identifying services to be cut.

Even when revenues drop, people expect the cops to come when called and the streetlights to burn. Budgets become stretched, and communities tighten their belts-- perhaps laying off some workers. But then-- and this is key-- state and local governments also make up much of the shortfall with higher fees for various services, higher tuition at public colleges, and increases in sales, excise, and property taxes, all of which fall disproportionately on the poor and the middle class.

Most government spending is locked in-- for Social Security and Medicare, the defense budget, and a host of other programs that would be politically unpopular to cut. The Right has done an excellent job of pushing the notion that they’re for tax cuts, but remember that they are talking about corporate taxes, capital gains taxes on investments, and taxes for the top earners. When those revenues dry up, the rest of us have to pick up the tab.

So keep in mind that the Right actually loves to raise taxes, just as long as they’re hiked on the backs of ordinary working people. Barack Obama’s first budget made the Bush tax cuts permanent for every couple making less than $250,000 and every individual taking in less than $200,000, while allowing those cuts targeted at the richest Americans to expire. This effectively cut the tax bills of about 98 percent of the population. The response from House Minority Leader John Boehner, a long-time advocate of tax cuts? “The era of big government is back, and Democrats are asking you to pay for it,” he told the Washington Post.