Limbic or Cortical?

As someone who never succumbed to the audacity of hope, I have a hard time deciding how to respond to the anti-Obama alarmism of the post-stimulus week. Since Obama caved on FISA back in July, I was not that surprised to see his administration similarly cave on the secrecy issues raised by the British High Court a week ago, and I am glad to see The New York Times waste no words to tell him this was not acceptable. Similarly, I thought Tim Geithner's bailout plan was almost as lame as Paulson's. Sources inside the White House say he didn't want to over-upset the banking executives, yet as Congress learned Feb. 11, there's simply no nice way to tell someone they need to have their asshole reamed. Punishment implies cruelty.

And yet, it's hard to start taking apart the stimulus package without running into the tin-foil types who seriously believe that Obama is ushering in a socialist dynasty of scary proportions. I consistently set up a rule for those with whom I would engage on debating points: use your cortex, not your limbic system. Apparently, for many people this is hard. Hard for arch-conservatives, of course, but hard for some Obamaniacs as well. Most people do not respond to facts assembled in a linear and logical way, but to emotional appeals to myth. Often, this myth is supporting and covering up a set of deeply racist fears. But even among those who have no subconscious racial blocks in dealing with the new president, there is this narrative from the Hannity-O'Reilly-Limbaugh camp that assumes all financial planning is socialism. At least Mitch McConnell was intelligent enough to say that Obama's stimulus plan could take us further toward a European Union-style economy. Flash news for frantic anti-Obama-ites: There are no socialist nations in Western Europe. McConnell may be right or wrong, but at least he doesn't uphold myths.

There are dangerous potholes ahead as we talk about financial recovery, the U.S. place in a new multipolar world, and even simple things like the 200th anniversary of Darwin. We can't remove the influence of our limbic system, but we can choose to relegate our emotions to a second order, beneath the cortex. The more the emotions or the hormones speak first regarding complex topics like economics, the more we sound like primates - and ones not very highly evolved.

Distressed Assets and Bodies on the Line

Three cheers for the workers at Republic Windows and Doors in Chicago! They knew they were being laid off, but had been promised 60 days' severance pay by their employer. Republic later told the workers that the company creditor, Bank of America, would not allow them to make good on the severance package. So the employees just moved in and made themselves comfortable. They pledge not to budge until Congress makes a stipulation in the $25 billion bailout of BoA that the bank make good on any pledges its debtors may have made to employees or the community.

This should be our model for 2009! Creditors do not own distressed corporate assets, and neither do corporate shareholders. They are owned by the people that work there. Let's bring back some 1930s power and make nonviolent occupations of the billions of dollars worth of hard assets in the U.S. and other companies. Hell, UAW could use this as a model for Detroit. The way to insure that bailouts go to middle-class people, and not to banks or corporate shareholders, is to grab the freakin' football and not let anyone else play. If the big shots call the cops or National Guard, they end up looking like thugs. This way, we force fairness and everyone wins.

WEIRD-ASS UPDATE OF THE WEEK: On Monday night, Illinois Gov. Rod Blagojevich announced that the state would halt all business with BofA, because the bank would not sit in on talks with the union and Republic. On Tuesday morning, Dec. 9, Blagojevich was arrested by Bush Justice Department officials on charges of corruption related to the replacement senator for the seat vacated by Barack Obama. None dare call it coincidence.

It's All Fake

Credit-debt swaps. Collateralized Debt Obligations. I thought I had a partial grasp on this whole mess that sent most of the nation's largest financial institutions into bankruptcy. But the excellent Gretchen Morgensen, financial reporter for The New York Times, made her third or fourth appearance on Terry Gross's Fresh Air Nov. 13, and knocked me for a loop once again. She talked a lot about Synthetic CDOs - CDOs that are not based on bundled combinations of mortgages, but on bundled swaps and insurance policies written for mortgage CDOs. This explains why the taxpayer had to bail out AIG - it was an insurance company writing policies that were not used to ameliorate risk, but as fake assets that could be assembled into CDOs. By the end of the sub-prime craze, mortgage holders and external investors were betting on the futures of CDOs based on no assets whatsoever. Everything underlying the Synthetic CDO was entirely imaginary.

Gretchen had a few other important things to say. In 90 percent of the cases of consumers that took out sub-prime mortgages, the mortgages cannot be re-negotiated even if the government ordered the banks to do so, because no accurate record has been kept of the way they were sliced and diced into CDOs. Thus, no one knows who owns these mortgages, and how approval could be granted for re-negotiation. Also, she said that Paulson had little choice but to change the Troubled Asset Relief Program into a strategy for putting investment into banks, rather than in buying up bad loans. No one knew how to assign any sort of value to the toxic assets, thus the government had no idea what portion of the $700 billion to put into which mortgage packages. Well, at least the shift to investing in banks leaves the government with no philosophical reason for denying the same type of bailout to the Big Three in Detroit. Here's to Gretchen Morgensen, one of the few people on this planet who understands how completely and utterly fucked we are right now.

Involuntary Servitude for the Financial Industry?

It was wonderful to see CNN's Situation Room do a short clip Oct. 23 featuring Dennis Kucinich, who wants to launch new legislation preventing those banks who were helped in the bailouts from granting bonuses to key executives. CNN interviewed some asshole economics professor who said that leading financial barons needed to be provided some sort of incentives to stay at distressed banks, or they'd go work for hedge funds or sovereign wealth funds (SWFs). Well, that's assuming that we don't place them in a position of involuntary servitude.

Why not modify the Thirteenth Amendment to say that slavery is abhorrent except when applied to key investment-banking executives, hedge-fund managers, and Nobel laureates in mathematics who work in the financial field? We lock in the financial services industry today, forcing everyone currently working in the industry to remain in place, working for minimum wage. They will be forbidden to switch to SWFs or hedges. Their $40 million apartments on the Upper West Side will be provided rent-free to community non-profits, and they will be given seedy apartments in Alphabet City, which they will be forced to travel to using mass transit. Weekend chain gangs will be led, not by Ben Bernanke, but by Saint Greenspan himself, for continuing to hew to the Ayn Rand/Milton Friedman school, while giving only the mildest of mea culpas. Time for slavery! And no reparations in a century for financial robber barons!

Yeah, but then who overthrows OUR Jacobo Arbenz?

Thanks to Ruth Mowry for pointing me to Paul Krugman's blog today, filed as Congress failed to pass bailout and the Dow dropped 778, reminding us that we're already a banana republic. At least that means that in a precipitous drop, you don't have quite as far to fall.

Criminalizing Excess Profit Margins

Before we spend too much time in the bank-bailout hearings arguing about CEO salary caps and the types of hedge funds to be banned, let's think about root causes, shall we? How about banning any sustained profit margins above some arbitrary cap like 12 percent? Socialism, you say? No more so than nationalizing an insurance giant like AIG. And something tells me even Adam Smith might understand the point. Bear with me.

Before the S&L shell games and leveraged buyouts of the mid-1980s, investors were happy with regular profit margins for goods and services in the 5 to 8 percent range, with occasional surges into double digits when a buying craze hit anything from tulips to Teenage Mutant Ninja Turtles. The important thing was, the surges were related to specific goods and services over which the public at large went temporarily mad.

The common thread in short-sells, derivatives, collateralized debt obligations, hedge funds, vendor-financed Internet infrastructure, commodities speculation, et. al., is that investors seek and expect continuous profits in the 12 to 20 percent range. These kind of expectations killed the media industry. And in the case of financial instruments, they are seeking profits from bets waged on future market behavior, not on tangible goods and services. Excess profits are being conjured out of thin air. Sounds like a RICO violation to me!

Wait a minute, you say, how can excess greed be criminalized? Doesn't that destroy capitalism? Hell, no. Regulating externalities like labor rights and environmental factors not only has a long history, it has been critical to controlling capitalism to prevent it from being self-destructive. China's recent experience with losing control over additives in its food supply shows that early efforts like the Pure Food and Drug Act of 1906 were key to taming the capitalist beast.

When I was out walking the dog at 5 a.m. this morning, I was dreaming up advertising campaigns. Haul some Jenny Craig slim-down pictures out and say, "Wall Street: Slim down your profit footprint!" -- thereby linking the notion of excess profits to the carbon-footprint ideas of the environmental movement. And, of course, use the Monopoly symbols of the angry cop to insist: "Profit margins over 12 percent? Go directly to jail!"