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Saturday, June 23, 2012

Corruption and capitalism

Sorry for the lack of posting. We had a blackout on the hottest day of the year -- what fun fun fun, that was! -- after which I had to help a friend with a major computer rebuild.

I urge you to take a look at the indefatigable Matt Taibbi's excellent expose of a new Wall Street corruption scandal: Rippin' off the munis. (See here for the all-at-once print version.) Taibbi's great talent is his ability to translate complex financial shennanigans into argot that we Average Joes can comprehend.

In this case, the scam involves municipal bonds -- money raised by cities for various construction projects. Until all the contractors get paid, the money is invested in a bank account. Big banks vie to get those accounts. Those banks are supposed to get the city's business through a "blind and fair" auction process, in which the bank offering the best interest rate wins.

Alas, a recent trial -- little-noticed by the mainstream media, but scrupulously studied by Matt Taibbi -- has revealed that the Wall Streeters figured out ways to rig the auctions. The taxpayers have no idea that their money isn't earning the kind of interest it ought to.

The same scam has been run all over the country, year after year. The banks rip off the cities to the tune of billions and billions and billions of dollars. Some politicians may be ignorant of the scamming; others are purchased. 
So a mere $10,000 bribe to a politician – a couple of Super Bowl tickets and a limo – scored CDR a total of $665,000 of the public's money. If you want to know why Wall Street has been enjoying record profits, here's your answer: Corruption is a business model that brings in $66 for every dollar you invest.

Even more startling was the way that a notorious incident involving former New Mexico governor and presidential candidate Bill Richardson resurfaced during the trial. Barack Obama, you may recall, had nominated Richardson to be commerce secretary – only to have the move blow up in his face when tales of Richardson accepting bribes began to make the rounds. Federal prosecutors never brought a case against Richardson: In 2009, an inside source told the AP that the investigation had been "killed in Washington." Obama himself, after Richardson bowed out, praised the former governor as an "outstanding public servant."

Now, in the Carollo trial, defense counsel got Doug Goldberg, the CDR broker, to admit that his boss, Stewart Wolmark, had handed him an envelope containing a check for $25,000. The check was payable to none other than Moving America Forward – Bill Richardson's political action committee. Goldberg then went to a Richardson fundraiser and handed the politician the envelope. Richardson, pleased, told Goldberg, "Tell the big guy I'm going to hire you guys."
The following passage has implications that go beyond the muni scandal. Study it well, my friends:
Capitalism is a system for determining objective value. What these Wall Street criminals have created is an opposite system of value by fiat. Prices are not objectively determined by collisions of price information from all over the market, but instead are collectively negotiated in secret, then dictated from above.

"One of the biggest lies in capitalism," says Eliot Spitzer, "is that companies like competition. They don't. Nobody likes competition."
(Emphases added.) I think Spitzer's point is incredibly important.

Whatever happened to competition? The very word seems to have disappeared from our discourse. You may have noticed that some modern libertarians no longer make the Adam Smith-ian argument that competition results in the lowest prices. When Milton Friedman got older and crustier, he would actually mount defenses of monopoly.

Nowadays, we don't hear much about the virtues of competition. We are simply told that private profit is the only alternative to socialism.

My responses:

1. Monopoly capitalism ultimately is a form of socialism -- arguably the worst form. (An expansive definition of "monopoly" might include the sort of secretive collusion seen in the muni scam.)

2. Finance capitalism -- unless tethered by regulation -- has an inherent tendency toward monopoly, or at least toward non-creative destruction. Hence, Bain.
No need to pin this on Bain. Democrat politicians in cahoots with union heads, overpromised returns on their pension benefits which are now bankrupting cities all over the country.

State pension money should have stayed local.

Isn't the real issue why don't states have their own banks for local investing?
I didn't pin the scamming of the munis on Bain. I mentioned Bain, at the very, as an example of the predatory instincts of finance capitalism.

Neither did I talk about pension benefits. I talked about rigging auctions.

Sandro, you seem to have read a very different article from the one I wrote.
What can I say. Nailed on right.

The problem isnt capitalism - although Im not 100% in favour of it. The problem in America is that there is no capitalism. Its been gotten rid of in favour of cronyism and corruption. And amazingly at almost every level of goverment.

I think Taibbi's time in Russia, with his side-kick Ames, must have helped clarify this for him. It certainly clarified it for me.

You wanna know the difference between Russian corruption and American? It costs a lot more to bribe a politician in Russia than in America. They sell themselves real cheap over here.

66:1 return. Smacks of a politician not knowing how to do arithmetic.

This article probes the history of the "lefts" abandonment of working class families in the early 70's, it documents the rapprochement to the ruling .01% and "liberals" advocating a return to 19th century economic structures. It helps explain why Eisenhower, Nixon, Ford and even Reagan would be too liberal for today's DNC Democrats. Liberals in the middle class should not have been surprised to find that when the financial oligarchs came for them, there was nobody left to turn to...

One juicy bit about the ACLU's activities.

"Most people don’t know Neier’s role in moving the ACLU against labor and against socio-economic justice, [Neier supported the Nazi's in Skokie during his expungement of workers rights]...Leaked tobacco documents in the 1990s exposed the ACLU working out explicit deals with the tobacco industry to take their money in exchange for advocating their interests...the ACLU also vigorously supported the disastrous Citizens United decision; [taking] $20 million dollars from the Koch brothers."
For another clear explanation of capitalism, read Mario Puzo's "The Godfather" for a primer on management and capitalism. All the movies missed the corruption points of the book.

Nice entry. I was particularly interested to read that the mahatma of neo-liberalism, Milton Freidman, was a defender of monopoly. I wonder if you could point me in the direction of books, interviews where he does this? Thanks.

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