Monday, October 10, 2011

Who are the real plutocrats?

In his most recent column, Paul Krugman praises the Wall Street protesters and claims that Republican politicians are in a panic over them.

For example, he paraphrases a quote from Rand Paul. First, this is what Krugman writes:
My favorite, however, is Senator Rand Paul, who for some reason worries that the protesters will start seizing iPads, because they believe rich people don’t deserve to have them.
This is the article from which he got it:
Sen. Rand Paul (R-Ky.) said Friday that he believes the Occupy Wall Street protests stem from divisive rhetoric from President Obama, who has called for the richest Americans to pay increased taxes to help close the budget deficit.

"I see the president's rhetoric of envy inflaming the public and saying, 'Go get yours because rich people don't deserve it,'" Paul said on Fox Business.

Paul said he was worried that the president would stoke the protestors' passions to the point that they could become violent.

"I see it as inflaming this Paris mob that I hope doesn't result in a lawlessness where they say, 'Well, gosh, those nice iPads through the window should be mine and why don't I throw a brick through the window to get them because rich people don't deserve to have them when I can't have them,'" Paul said.
(Actually, Rand Paul does not have to worry, as a lot of the protesters are carrying Macbooks, iPhones, iPads, and other instruments of technology that apparently they are simultaneously claiming are evil. No doubt, these people really would riot if their demands were brought to fruition and they no longer could purchase -- or even steal -- them.)

Indeed, with all of his own anti-enterprise rhetoric, what Krugman has been claiming is that a new war against capital formation somehow would help bring recovery. I don't know how that would happen, but Krugman has been saying that if the government were to sharply raise the capital gains taxes and then replace the coming dearth of private capital investment with government "investment" in things like "green energy," that we then would have a robust recovery.

Let us travel down memory lane to why we had the financial panics in the first place. The government was strongly encouraging banks and financial houses to "invest" in the housing market, and and said that Alan Greenspan needed a "housing bubble" to offset a dearth of private capital spending. And we got it.

This was unsustainable, and the Austrians got it early. Heck, even Krugman understood that this bubble would burst before it happened. (I told Allegany County's property tax board in 2006 that the bubble would collapse and that they should not base future financial predictions on the current situation. They laughed at me and one woman replied, "We don't see that happening.")

There would have been a solution to the financial crisis, and that would have been for the banks and financial entities to submit to market discipline. Don't forget that Krugman has parroted the usual line of "the panic happened because the Bush administration let Lehman Brothers fail."

No, Paul, Lehman Brothers failed because the banks -- operating under the infamous "Greenspan and Bernanke Put" -- were holding securitized mortgage paper that could not hold its value. The government bailed out a lot of the firms that drank the Kool-Aide, and Krugman endorsed the bailouts, which meant that some CEOs could hold onto their mansions in Connecticut.

Furthermore, let us remember that government housing policies drove this bubble and that the easy credit regime from the Fed -- again, done with Krugman's blessings and encouragement -- along with numerous government programs to push people into home ownership and, ultimately, into homes that were too costly for their incomes. For that matter, if Krugman really were against the creation of financial bubbles, then why has he endorsed Ben Bernanke's policies of spreading dollars around the globe to prop up both private malinvestments AND government bonds?

Let us be honest. When the entirety of the housing bubble was exposed in 2008, the banks got their bailouts (and Democratic politicians, and especially Obama, who was financed in part by Goldman Sachs, got their campaign contributions), and the Fed and the European Central Bank responded by creating an even BIGGER set of financial bubbles.

The situation is obvious: the combination of private mortgage AND government debt is unpayable and must be restructured. Krugman's "solution" is for governments and central banks to inflate currency in order to "deleverage" the unpayable debt and to repudiate debt through inflation. (One is reminded of debtors in Weimar Germany paying their debts with wagonloads of paper -- the ultimate Krugman "deleveraging solution.")

In the end, the banks pretty much have become the playthings of American politicians and labor unions, who have become the real plutocrats. We now have a president who declares that HE is the law, and that he can assassinate whomever he wishes, and if the target is an American citizen, the Constitutional right of "due process of law" means nothing. If that is not plutocracy, I don't know what is.

Furthermore, the unions were able to force taxpayers to pony up to bail out General Motors and Chrysler, and then to force bondholders for these companies to stand at the back of the line during bankruptcy proceedings, despite what the law actually said. In other words, Obama and his union allies were able to be their own law, which really is the definition of plutocracy.

Don't forget that a lot of the money funding this "Occupy Wall Street" movement comes from the plutocrat George Soros, along with unions and other organizations tied to the Obama administration. And don't you know that in the upcoming political season, a lot of the firms that presently are being targeted are going to pony up and send millions of dollars to Obama and his fellow Democrats in the guise of "campaign contributions"?

Furthermore, the list of "demands" coming from the "Occupy" movement seem a bit suspicious. The immediate end to use of ALL fossil fuels? Hmmm. Sounds like something that might benefit Archer Daniels Midland and all of the "alternative energy" outfits. Gee, maybe the government could force up energy prices so high that even Obama's favorite company, Solyndra, could become solvent again.

No doubt, the president and his friends would not be facing hardships, but those of us who don't have limousines and drivers to take us where we want to go might find it difficult to get to work or even to eat. What better way to empower the state than to turn everyone into outright serfs who would be totally dependent upon the whims of politicians?

Had the banks been forced to liquidate their toxic holdings three years ago, we would not be seeing these "Occupy" demonstrations. Yes, the recession would have been sharp, but not as destructive as Krugman and others claim, and then we would be in a real recovery now. Instead, we are going to have years and years of high unemployment and social unrest.

Somehow, I think that is what the plutocrat in the White House wants.


Alex said...

Wow, if you look up "Flip Flopper" in the dictionary you would see Krugman's face.
First he supports creating a housing bubble, than he supports the bailouts and now he supports the wall street hippies!
His only consistent sentiment is Rich people are bad, Government is good and the only solution is for the rich people to give up their wealth for government, and then mister Obama will have enough dough to spend us out of trouble.

ayassos said...

You make some good points, and one of Krugman's latest blog posts on "Romanticizing" the response to bank failure confirms your position. Krugman came out with a full-throated support of bailouts because of a fear of "bank runs." He's covering up his blown call in 2008, when Roubini was arguing for taking the Big Banks into receivership and Krugman lacked the comprehension to see that was the only course - let them fail. He's always trying to do that delicate dance that allows himself to feel "Liberal" while simultaneously shilling for the Powers That Be. He thinks no one will notice. However, I think you have a couple of points backwards in this post. In your zeal to condemn unions, you have inverted what Sheldon Wolin has called "inverted democracy," where the bankers and oligarchs call the tune and the politicians dance. I think Senator Richard Durbin has this one about right - the banks "frankly own the place," meaning the Senate. Obama is simply running errands for Wall Street, making sure that a specific set of corrupt of tycoons gets through this long, long downturn with their wealth intact. Obama will be an "oligarch" later, when he's rewarded for a job well done, which he performed at the expense of the people he ostensibly represented.

Mike Cheel said...

@Prof Anderson: I agree with ayassos that the banks rule the politicans, not the other way around.

He also nailed it when he said:

He's always trying to do that delicate dance that allows himself to feel "Liberal" while simultaneously shilling for the Powers That Be. He thinks no one will notice.

As I have said plenty of times, things are working as intended (which I think Prof Anderson is suggesting at the end of this post).

William L. Anderson said...

I would defer to the work that Fred McChesney did on this subject in which he points out that politicians are running what essentially is a "protection racket." There is a symbiotic relationship between banks and politicians that we should not forget, and that it has been going on for a long time.

Who owns whom is something I really cannot answer. I tend to look at the behavior of politicians and "experts" from the executive branch first, since they hold the power of the gun.

I will do a piece on Krugman's "Financial Romanticism" post.

Anonymous said...

Do you have ANY evidence that ANY of this is funded by George Soros, or are you just making shit up?

William L. Anderson said...

George Soros is a major funder of Moveon, and Moveon is one of the organizations behind this.

No, I'm not making it up.

ekeyra said...

Yes, anon


While I would not disuade anyone from trying to impart knowledge to anyone else, but I have to take issue with some of the freedom movement feeling a sense of comraderie with these people because they are protesting banks and wall street. While that may be true as far as location goes, every piece of information i have received about them seems to indicate prof anderson is spot on about their true intentions. They may want to shut down banks, but only to hand their operations over the feds. In other words, before you agree with their sentinments to shut down wall street, which I would actually agree with, scrutinize exactly what it is they plan to replace it with. So far the only answer i've heard from them is "more government", and considering government is the root problem i fail to see how that will make the situation any better.

Testudo said...


See, I interpreted that blog post totally differntly. Here's the actual text:

"One line I’ve been seeing in various places, including comments here, is the claim that the real way to deal with Wall Street is laissez-faire economics: no more bailouts! On this view, policy makers should raise their right hand in the air, place their left hand on a copy of Atlas Shrugged, and swear in the name of A is A that they will never again step in to rescue failing banks. And all will be well with the world.

Sorry, but that’s a fantasy....
Even if you persuade yourself that the moral hazard created by financial firefighting outweighs the benefits of avoiding a 1931-style cascading crisis, the fact is that policy makers will intervene. Hank Paulson set out to make Lehman an example; two days later he was staring into the abyss."

Krugman's point is that even if the people at the wheel know that letting the banks collapse is the best strategy, the political and financial pressure will be so great that they will eventually give in and bail out the banks. Maybe if Rand Paul was president he wouldn't, but practically speaking there's no way a bailout won't follow a financial collapse.

ekeyra said...


Or it could be that without the government legitamizing the cartelizing of finance and the counterfeiting of currency that banks practice, there would be noone to lend the government the astronomical sums of money it burns through at a pace not seen in human history. Even if that was krugman's argument, he's either an idiot or a liar. Take your pick.

Its the same exact reason there is no distinction to be made between bankers and politicians. The only term that can adequately describe it is "incestuous", and even that fails to ecapsulate the revolving door of sociopaths and psychopaths who presume themselves our betters.

William L. Anderson said...

Testudo is making the point that few if any politicians have the courage to stand up to the banks and no one wants to be called "Herbert Hoover."

Ironically, Hoover intervened more than any previous president and we see the results. However, Obama is dealing with the myth, not the reality.

I understand Krugman's point in his post and want to give it a fair shake, but that will be later this week....

ayassos said...

@Testudo: My problem with Krugman's argument that bailouts during a financial crisis are "inevitable" is that it's completely circular. He's criticizing those who argue that this particular set of bank tycoons should have been allowed to (a) fail and (b) go to jail on the basis of a completely irrelevant argument about "bank runs," which have nothing to do with the problem. If Krugman begins his argument about "policy" by concluding that Hank Paulson decided to bail out his buddies on Wall Street in 2008, ergo, it's "romantic" to argue otherwise - well, then of course Krugman "wins" the argument because he's already assumed that nothing else is possible. But the approach of receivership is in fact possible, and that's what Roubini argued at the time. The depositors could be protected to FDIC limits (thus avoiding the specious "bank run" argument), but the shareholders, bond investors and management wiped out. Then you clear the market and avoid the "mark to fantasy" accounting of FASB 157, which is the real "romanticizing." Cheers, thanks for your comment on mine.

Tel said...

OK, how about this for a suggestion?

We simply don't allow Pty Ltd corporations to operate in the finance industry. All banks, and insurance companies must be full liability and full recourse back to the shareholders (just like they were in the 19th century).

Then we have a system where the taxpayer does step in with a bailout, but ONLY after all bank shareholders have been made *PERSONALLY* liable for the shortfall... and they can then choose to declare bankruptcy or pay back what they owe to the taxpayer.

Surely even Krugman couldn't have a problem with this suggestion, after all he hates rick people and bank shareholders are mostly fairly wealthy.

Tel said...

Oh yeah and I forgot to say, also make sure all the senior executives at the bank are required to be partners/shareholders so that they too are *PERSONALLY* liable for any debts should a taxpayer bailout be necessary.