The Economics of Legalized Corruption and the Consolidation of Power: Some Historical and Critical Realities Behind the Bail-Out

for Adeeb and his fellow classmates, and others who live these ideas and topics in our troubled times

I often cite Napoleon’s famous words to my students, “Dress me slowly I’m in a hurry.” Students, particularly American students, often look puzzled. What does that mean? How can you go fast by moving slowly? How does approaching the world by proceeding with little or less than usual speed or velocity, requiring a comparatively long time for completion and contemplation, enable better solutions to immediate problems?

American culture is addicted to many things but mainly to sugar and speed, anything labeled “new” and deception. William Burrough’s Naked Lunch was viewed as obscene and censored not because of wild pictures of dark characters shooting up but because it demonstrated American’s obsessive compulsive addiction to anything. Power, sugar, horror, violence and destruction, speed, the “new” as well as the decadent, and corruption.

The current attempts by the US Government to bail-out our banking system have all the markings of an addicted culture that in fact enables corruption through laws meant to protect only the wealthiest–the property of the wealthiest. “Corruption is why we win.

We are now rushing into yet another scheme laid out by those that raced into Iraq and who left Afghanistan in the dust; these are the same folks that can’t work to make our education and healthcare systems stronger and better for all Americans; the same people that can’t run Amtrak.

This is perhaps the reason why the Paulson and Bernanke proposal to stem the financial crisis is a plan “that everyone can find something in it to dislike. The left accuses it of ripping off taxpayers to save Well Street, the right damns it as socialism; economists disparage its technicalities, political scientists its sweeping powers” (The Economist, Sept 27th, 2008; 17).

The truth of the matter is that it’s none of the above. We have to add another condition: The human condition has entered into the mix and no one, but no one trusts “the other.” “In economics and in the remainder of the social sciences as well, the translation from individual aggregate behavior is the key analytic problem. Yet in these disciplines the exact nature and sources of individual behavior are rarely considered. Instead, the knowledge used by the modelers is that of folk psychology, based mostly on common perception and unaided intuition, and folk psychology has already been pushed way past its limits” (Edward O. Wilson, Consilience, 1998; 202).

Money is not the root of all evil, but our perception of money is. When wealth is involved, we Americans are addicted to outdoing “the other” by any means necessary. Long term repercussions are not in our plans. Immediate short term and costly gain–derivatives and predatory lending–is all we see. The devastation and suffering we leave behind is for others. Even when Paulson and Bernanke unveiled their plan before Congress, callous indifference reared its ugly head when they never even mentioned a word about the middle class, the working class that’s going to carry the burden imposed on it by greed.

Working Americans are going to pay more for greed and corruption because it’s permissible.

Globally there is money. Markets are not standing still–it’s the law of survival. Stand still and you die. Warren Buffett and Japan’s Mitsubishi-UFJ agreed to buy stakes in Goldman Sachs and Morgan Stanley. There are more enterprises–and governments–with money to bail-out corruption in Wall Street. We can’t be nervous that foreign capital is buying up America. This has been going on for quite some time since foreign capital knows that when push comes to shove, we will make the mistake of rushing towards immediate gratification. America is fat and now we got caught, one too many times, with our hand in the cookie jar. One bad apple can spoil the bunch. Many rotten apples, supported by laws that enable graft, deceit and corruption, have brought us to where we now are.

But where are we?

Historically, we can argue that this is the culmination of vituperative actions that began at the dawn of World War I, the War to End All Wars, which was the sure sign that it was the war to begin all notions of modern warfare. This is the war that was dominated by an aggressive attempt to control power, which is another way of saying that we sought to control wealth by a very few. There are many obvious reasons why we went to war–Mexico potentially allying with Germany, sabotage, and more–but none is more poignant than “a movement on behalf of Big Government in all walks of the economy and society, in a fusion or coalition between various groups of big businessmen, led by the House of Morgan, and rising groups of technocratic and statist intellectuals. In this fusion, the values and interests of both groups would be pursued through government” (World War I as Fulfillment: Power and the Intellectuals).

Since WWI, the agenda has been the consolidation of power. Government’s role is to protect the few with the most power–the extreme form of John Locke’s economic theories. It’s not surprising that Goldman Sachs, as it becomes “a bank,” will be one of the two firms who will benefit most from the bail-out. Hank Paulson, “the hammer,” as he was called at Dartmouth College, was Staff Assistant to the Assistant Secretary of Defense at The Pentagon from 1970 to 1972. He then worked for the administration of U.S. President Richard Nixon, serving as assistant to John Ehrlichman from 1972 to 1973. Finally he became Chairman and Chief Executive Officer of Goldman Sachs. Is this former eagle scout operating with our best interests in mind, given his uncanny allegiance to the most powerful in society? Or is Paulson finalizing the work that began during WWI, the complete consolidation of all power in the hands of the smallest number of powerful men? Our laws show the history and evolution of this crisis to these ends.

Much as we did in WWI, we could be headed towards the illusion of victory (illusion is the prodigal son of avarice, greed and corruption; we can’t see these and live these as real solutions unless we believe illusions as truth). But if we don’t want to go as far back as WWI, we can look at more recent events.

John Kenneth Galbraith pointed out one of the causes of the Great Depression was “The large-scale corporate thimblerigging that was going on. This took a variety of forms, of which by far the most common was the organization of corporations to hold stock in yet other corporations, which in turn held stock in yet other corporations.” Galbraith tells us that, “during 1929 one investment house, Goldman, Sachs & Company, organized and sold nearly a billion dollars’ worth of securities in three interconnected investment trusts—Goldman Sachs Trading Corporation; Shenandoah Corporation; and Blue Ridge Corporation. All eventually depreciated virtually to nothing.”

When Franklin Roosevelt took office, both the President and Congress knew the banking crisis demanded immediate action. The result was one of the crown jewels of the New Deal: the Glass-Steagall Act, officially known as the Banking Act of 1933.

A Frontline report on the repeal of Glass-Steagall shows how those with money end up with pens from the President of the United States on their walls:

Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.

Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill’s chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, “You’re buying the government?”

When Bill Clinton gave that pen to Sanford Weill, it symbolized the ending of the twentieth century Democratic Party that had created the New Deal. Although the 1999 law did not repeal all of the banking Act of 1933, retaining the FDIC, it did once again allow banks to enter the securities business, becoming what some term “whole banks” (Bill Clinton’s Role in the Mortgage Crisis).

The house of cards begins to topple, the inevitable fate of coalitions fused by greed and avarice.

In “Experts Predict Money Crisis,” Christopher Ruddy (August 2007) writes that “there is evidence that this global boom is anything but natural and sustainable, but is really the artificial result of a global liquidity bubble, a bubble that could now be on the verge of bursting. In this global bubble, literally hundreds of trillions of dollars in leveraged debt are at risk. It’s no secret that in today’s society, everyone from the family next door, to major corporations, to the U.S. government is deeply in debt. But while some debt statistics are widely reported, such as our $8 trillion national debt, other debt figures are never mentioned.”

Everyone knew. The US Government–and the White House–knew. The candidates knew. Banks knew. And, most importantly, media knew. Why didn’t anyone act? When silence of this magnitude ensues, something is indeed rotten somewhere.

The role of modern day government is to ensure enough instability to maintain levels of power in the hands of few. This is how it works. (See also: The Conservative Origins of the Sub-Prime Mortgage Crisis: Everything you ever wanted to know about the mortgage meltdown but were afraid to ask.) We can see evidence of this in Dick Cheney who, we can argue, has moved vice-presidential powers beyond what we have known in the past.

In journalist Barton Gellman’s Angler, (Cheney’s CIA cover name is “Angler”) we learn the details of Cheney’s forty-year political career that gives evidence of subterfuge for the sake of power and mission. His first act, according to Gellman, is Cheney’s self-selection to vice-president. Prior, Cheney, from 1979 to 1982, voted “yes” on all bills for oil tax breaks and for indexing income tax (H.R. 1176, H.R. 2225, H.R. 5318); between 1984 to 1986, he voted to keep mortgage bonds and loosen capital gains rules; he brought in Paul O’Neill, for instance; he mislead Congress and the American people about Iraq; and, to support our discussion, here, Cheney was behind tax cuts for the rich and the reduction of capital gains (see more about Cheney the economist). Cheney believed very strongly that there should be a capital gains cut to unleash producers, which has never worked but has indeed made the wealthy wealthier.

Furthering the irony that by enabling a loosening of rules and regulations–and taxes–for the rich is healthy for the economy, we learned that McCain, for instance, defended the “Enron loophole” and “oppose(d) the $307 billion farm bill because it would dole out wasteful subsidies, but his chief economic adviser Phil Gramm also want(ed) to stop its proposed regulation of energy futures trading, a market that was famously abused when Enron Corp. manipulated California’s electricity prices in 2001.” In fact, “Gramm, as a powerful Texas senator in 2000, slipped an Enron-backed provision into the Commodities Futures Modernization Act that exempted from regulation energy trading on electronic platforms.”

We can see, therefore, how carefully and in ways that may seem complex to the general public, we have politicians as front men for powerful corporations that are looking to consolidate power. The fusion of power at the highest levels is the aim. In September, for instance, McCain said that he thought “deregulation in banking worked well (what is he smoking?) and wants to borrow from Wall Street’s brilliant success to help reform healthcare.” (more on how the Wall Street crisis has been helped by the McCain – Gramm team, here) Any changes in McCain’s rhetoric are merely means by which to soften his image to voters; he is beholding to the most powerful men and their corporations and he’s evolved his political life, not as a maverick, but as a bold advocate–and mouthpiece–for the extraordinarily wealthy. John McCain is a scam artist, applying media-rich extravaganza, like parachuting into Washington the other day to save the day and to continue the pursuit of the fusion of power that began long ago. In fact, John McCain is the most influential supporter of gambling, as reported by The New York Times.

What are we then to expect from Obama? He has not been tested on this yet given his short term in the Senate; however, real estate, Wall Street financiers, and lawyers, all support Obama. In their first debate, when Obama had ample room to really attack–and address–McCain on this, he did not, which raises suspicions, of course. Or is it the continued Obama problem that he may be too cerebral for the American public?

I also often say to some of my “econ majors” to practice the following: “Would you like french fries with that?” They laugh nervously. But suffice to say that “the econ major” is such, not because s/he is trying to work out strange and interesting theories about future markets, but rather, s/he studies economics in a rush to gain a foothold, to have “the good life,” which more often than not means luxury and enough money to buy leisure–the most expensive commodity today.

The only hope I have in Obama is that, perhaps, given that he seems to enjoy deliberation, he’ll be able to speak across differences–our own and those we have with aggressive nations; that he might be able to begin to quell our thirst for more and more and more; and that he may begin to at least entertain a dialog, among us, about who we might want to be when we grow up. This is romantic, of course, but given the signs of the times–the aggressive push to consolidate and fuse centers of power–it’s the only thing I have left. Can you imagine Sarah Palin in this world?

6 thoughts on “The Economics of Legalized Corruption and the Consolidation of Power: Some Historical and Critical Realities Behind the Bail-Out

  1. It’s nice “chattin’ with ya” too…thanks…I’m left wondering where all the other “suspects” you say are out there may be, those with “our romantic-idealist yearnings”? Or are these yearnings just simply unable to fit this world today?

    It’s awfully lonely way out here? 😉

  2. Yes, it is, hector. 😉

    Luckily I do know a few other members of the romantic-idealist yearnings club, but always nice to find a new kindred spirit. One of the greatest challenges we face is trying to find out how to fit in this world and still retain those wonderful qualities…as well as a sense of humor!


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