Edge of Chaos

Thoughtful Review of the Bankruptcy of Neoliberal Capitalism

2010-06-19T16:45:00.003-05:00

Here's a nice recap of how we got here (from prosperity to bankruptcy), from a rare Marxist perspective:

"The first intellectual consequence of the economic crisis was to undermine neoliberalism—or the belief in the sufficiency of markets to secure human welfare—as the age’s default ideology.

The second was to prompt a hasty resurrection of Keynes. “We are all Keynesians again!” the ghost of Richard Nixon might have declared as Gordon Brown and Barack Obama, leaders of the nations most squarely behind the neoliberal push of the last thirty years, changed the Anglo-American tune and, this past winter, begged their European colleagues to stimulate the Continental economy with borrowed money. The crisis also made the economists Paul Krugman and Nouriel Roubini into the ﬁrst Keynesian superstars since John Kenneth Galbraith. Their recommendations, on their invaluable blogs, of still vaster countercyclical spending and the temporary nationalization of banks were not taken up by the Obama administration, but they did confer new respectability on the idea of close state involvement in the economy.

But the Keynesian revival, so far, is partial and expedient rather than thorough-going. Keynes’s “somewhat comprehensive socialization of investment” remains taboo, and when Hyman Minsky’s famous reinterpretation of Keynes was rushed back into print last year (Minsky developed through Keynes a theory of bubbles and their bursting), the author of the preface to the new edition assured readers that Minsky’s own advocacy of public-led investment could be ignored. There are at least two Keyneses: the tinkering inspiration for the so-called neo-classical synthesis, who demonstrates the ultimate viability of capitalism in spite of bouts of crisis; and the suave radical whose call for the “the euthanasia of the rentier” doesn’t stop far short of taking the rentier out to be shot. This second Keynes lives next door to the Marx who in the Manifesto insisted on the “centralization of credit in the banks of the state,” and hasn’t been heard from much lately.

For the moment, the neo-Keynesian blog posts bear the same relationship to the crisis as cognitive behavioral therapy does to a patient’s troubles. Here is something insightful, helpful; listen carefully and it might save your life. But when the acute pain passes you will be left with the chronic problem of who and what you are. The suffering individual has psychoanalysis to turn to. In economics, the analogous route is Marxism, which like psychoanalysis has a dubious reputation—and an explanatory power and long-term perspective that its rivals can’t touch. With luck, the next intellectual consequence of the crisis will be to pry the lid off Marx’s tomb, since it is only from a Marxian standpoint that the recent credit bubble can be understood in terms of the structural problems it affected to solve as well as those it has created.

From the first there were confused signs of a hunger for Marxist thought. Back in the clammy depths of the market’s autumn plunge, Robert Kuttner of the determinedly liberal American Prospect acknowledged that in light of Treasury’s rescue plan the “Marxian cant” designating the government as “the executive committee of the ruling class” sounded perfectly just. And John Lanchester in the New Yorker wanted to know, “Are there any unreconstructed Marxists left, anywhere in the wild? (Universities don’t count.) If there are, now would be a good moment for one of them to publish a book saying that the man in the beard would regard himself as having been proved right.” Here was a call for Marxist ideas that simultaneously reimposed their ban. We might require authors of Marxist tomes—but professors don’t count, only freelancers. (Such a guy would be worth a New Yorker profile: for instance, who loans him his shoes?)

Of course there are reasons for being suspicious of Marxism. During the Third International and in the scattered sectarian life it has led outside the universities since the Second World War, Marxism has shown a susceptibility to dogma hardly equaled outside of American economics departments. But the ideological rout that Marxism began to suffer in the ’70s did what periods in the wilderness are supposed to do: it discouraged bandwagon-jumpers and enforced a new seriousness on those who stuck around. The truth is that since the neoliberal era began thirty years ago, Marxism has yielded some of its most formidable monuments of economic thought. Two in particular are David Harvey’s abstract and categorical Limits to Capital (1982), which as the restatement and completion of a great thinker’s project easily outclasses Minsky’s John Maynard Keynes (1975), and Robert Brenner’s narrative and empirical Economics of Global Turbulence (2006), which barely mentions Marx while vindicating, through an analysis of the postwar American, German, and Japanese economies, the idea Marx took from David Ricardo and made his own: the tendency of the rate of profit to fall in a situation of free competition.

The need for a Marxist macroeconomics is patent in one small line from Paul Krugman’s Return of Depression Economics: “In the early 1970s, for reasons that are still somewhat mysterious, growth slowed throughout the advanced world” (our italics). And growth had stayed slow, for reasons that to a mainstream economics confessedly “shy of the grandest themes” (as the founder of general equilibrium theory once put it) remain a baffling mystery.

The global rate of economic growth has declined from about 3.5 percent annually in the ’60s, to 2.4 percent in the ’70s, to 1.4 percent and 1 percent in the ’80s and ’90s, to 1 percent in this decade—much of which single paltry percentage turns out to have been illusory. Meanwhile, financial services, starting in the early ’80s, took a larger and larger share of total income and total profits in the world’s largest economy, until finally finance had become, by last fall, the largest American industry, accruing to itself a quarter of all US profits. This combination of declining overall growth with burgeoning finance suggests that the connection between finance and investment can’t have been the alleged one: the direction of capital to its most productive uses. So there must be a better way to characterize a situation—that of the last decades—in which vast quantities of overaccumulated capital (the neo-Keynesian’s “excess of desired savings”) circle the globe in search of profits, while the vitality of capitalism as a whole steadily diminishes.

Marxists differ in the details of their accounts of the postwar economy, but the story, which ends for now in the cliffhanger of the first contraction of the world economy since 1945, goes something like this: The so-called Golden Age of postwar capitalism from 1950–70—a time of rising wages, profits, and investment—was the product of special and perishable circumstances. The wartime destruction of the Japanese and German productive base meant that, with the resumption of peace and renewed growth in demand for non-military goods, all the major industrial economies could for a time thrive without threat to one another. But the maturation of European and Japanese industry toward the end of the ’60s spelled the return of mutually destructive competition. Firms producing internationally tradable goods (cars, electronics, et cetera) could only survive by reducing prices, which in turn reduced profitability. And yet the capital sunk in manufacturing plants was enough to make capitalists reluctant to exit a given product line in spite of reduced profitability. Besides, governments don’t like to see big firms fail even when they can’t compete. (The Obama administration has lately proved almost as indulgent of GM as the state-directed Japanese banks have always been of Japanese industry.) And the more recent advent of China as a manufacturing power only exacerbated the situation, as the Chinese (to quote Brenner) “continued to expand capacity faster than it could be scrapped system-wide and to rain down torrents of redundant, increasingly high-tech goods upon the world market.”

The orthodox story blames declining profitability (and price inflation) during the ’70s on the excessive demands of labor—a plausible enough explanation until you consider that the worldwide defeat of labor since the ’80s has failed to restore prior levels of growth. The high wages of the early ’70s are long gone. What has endured and intensified since then is a systemic bias in favor of short-term financial speculation over longer-term productive investment. The replacement of the gold standard by floating currencies encouraged capital to flit from country to country in search of returns magnified by any temporary overvaluation of this or that national fiat money. At the same time, information technology sped transactions along at a new rate and volume. What in 1983 was a daily mass of $2.3 billion in international financial transactions had become $130 billion by 2001. Only about 2 percent of the same sum would be necessary to maintain international trade and productive investment.

Meanwhile production is guided by the search for low wages. The export-led growth of first Germany and Japan, then the “Asian Tigers,” then China with its endless reserve army of labor has flooded the world with cheapening goods; and between 1985 and 1995 the US itself staged a manufacturing revival through the exporter’s proven formula of cowed labor and an undervalued currency. But this is supply: what about demand? The fundamental problem with workers (to whom as much money as possible should be denied if commodities are to be affordable) is that they are also consumers (to whom as much money as possible should be supplied if they are to buy commodities). Marxists aren’t kidding when they talk about the contradictions of capitalism. In the end, as Marx wrote, “the ultimate reason for all real crises always remains the poverty and restricted consumption of the masses.” The result of declining or stagnant real wages since the ’80s has been global industrial overcapacity: too much plant turning out too much stuff for not enough buyers.

The structural solution to this dilemma was as ingenious as it was unsustainable. If the global wage-bill couldn’t cover all the world’s gimcrack goods and coastal vacation properties, then consumers—especially American, but also European—had to be extended a new line of credit. They would borrow money to buy houses, and then borrow more money, to buy other stuff, against the rising value of these houses! Of course many new home-buyers plainly couldn’t pay their mortgages; the mortgages were granted on the assumption that someone else ultimately could and would. So present consumer demand was leveraged against a future demand for which there was no plausible source. For mortgage brokers operating under the originate-and-distribute model this didn’t matter; they had already pocketed their commissions. And those bundling iffy mortgages into securities comforted themselves with a rhetorical question: What was the likelihood of homeowners defaulting en masse?

The venality and self-deception of the brokers, rating agencies, and bankers are now notorious. By comparison, David Harvey’s most audacious theoretical move, in Limits to Capital, seems sensible enough: How can Marx’s labor theory of value (which identifies value as “socially necessary labor time”) be reconciled with land prices, given that land is obviously not the product of human labor? Harvey’s answer was that under capitalism land becomes “a pure financial asset”; land price is a claim on future revenue treated as a present-day asset. “Mortgages,” Marx said, “are mere titles on future rent.” And Harvey completes his thought: “Land price must be realized as future rental appropriation, which rests on future labor” (our italics). The big risk, naturally, is that you will attribute to real estate far more present-day value than can later on be returned to it by labor (in the form of the portion of total income devoted to housing). A bubble occurs not when people pay for real estate with money they don’t yet have—as always happens, given the availabilty of credit—but when they pay with money they will never have, out of wages they will never receive—out of wages no one will ever receive. This past fall the papers were full of “analysts” wrapping their heads around a new idea: “Home prices,” said one, “are going to have to start reflecting people’s income.”

In the world at large, if not always in the bubble-addicted US, recessions have been deeper and longer and recoveries ever more feeble since 1973. Already the recovery after the recession of 2001–02 was the weakest on record, adding virtually no new jobs to the rolls. The main stimulus to consumption was the confection of fantastic, improbable, and finally fictitious paper assets. And as Brenner wrote in 2006—were he not a Marxist he would be counted among the prophets of the crash—“the US Fed’s continuing dependence on cheap credit and asset-price bubbles to provide the subsidy to demand to keep the economy turning over appears to have only delayed, but not really avoided, the economy’s obligatory responses to the over-capacity, fall in profitability, and asset-price crash of 2000–01.” In this way alone—alas—the Bush Administration never happened.

The motor of accumulation has been sputtering for nearly four decades, and its coughs can be heard again now that the roar of combusting paper wealth is dying down. This doesn’t mean capitalism or even growth is at an end. Economists of all kinds have pinned their hopes on the transformation of laboring and saving Chinese into hardy consumers. In any case, the US consumer—a ravening appetite in a paper house—appears to be finished as the world’s buyer of last resort. It would add a nice dialectical twist to the future history of our period if it could be said that, around the time the post-Maoist Chinese took up shopping, the post-bubble Americans turned to studying Marx."

Naomi Klein On GOM Geyser

2010-06-19T16:41:00.002-05:00

Naomi is one of our favorite writers, doing complete and total justice with The Shock Doctrine, spoken of here at length. Here she is on the Gulf of Mexico oil disaster (quoted in its entirety):

Gulf oil spill: A hole in the world

The Deepwater Horizon disaster is not just an industrial accident – it is a violent wound inflicted on the Earth itself. In this special report from the Gulf coast, a leading author and activist shows how it lays bare the hubris at the heart of capitalism

Everyone gathered for the town hall meeting had been repeatedly instructed to show civility to the gentlemen from BP and the federal government. These fine folks had made time in their busy schedules to come to a high school gymnasium on a Tuesday night in Plaquemines Parish, Louisiana, one of many coastal communities where brown poison was slithering through the marshes, part of what has come to be described as the largest environmental disaster in US history.

"Speak to others the way you would want to be spoken to," the chair of the meeting pleaded one last time before opening the floor for questions.

And for a while the crowd, mostly made up of fishing families, showed remarkable restraint. They listened patiently to Larry Thomas, a genial BP public relations flack, as he told them that he was committed to "doing better" to process their claims for lost revenue – then passed all the details off to a markedly less friendly subcontractor. They heard out the suit from the Environmental Protection Agency as he informed them that, contrary to what they have read about the lack of testing and the product being banned in Britain, the chemical dispersant being sprayed on the oil in massive quantities was really perfectly safe.

But patience started running out by the third time Ed Stanton, a coast guard captain, took to the podium to reassure them that "the coast guard intends to make sure that BP cleans it up".

"Put it in writing!" someone shouted out. By now the air conditioning had shut itself off and the coolers of Budweiser were running low. A shrimper named Matt O'Brien approached the mic. "We don't need to hear this anymore," he declared, hands on hips. It didn't matter what assurances they were offered because, he explained, "we just don't trust you guys!" And with that, such a loud cheer rose up from the floor you'd have thought the Oilers (the unfortunately named school football team) had scored a touchdown.

The showdown was cathartic, if nothing else. For weeks residents had been subjected to a barrage of pep talks and extravagant promises coming from Washington, Houston and London. Every time they turned on their TVs, there was the BP boss, Tony Hayward, offering his solemn word that he would "make it right". Or else it was President Barack Obama expressing his absolute confidence that his administration would "leave the Gulf coast in better shape than it was before", that he was "making sure" it "comes back even stronger than it was before this crisis".

It all sounded great. But for people whose livelihoods put them in intimate contact with the delicate chemistry of the wetlands, it also sounded completely ridiculous, painfully so. Once the oil coats the base of the marsh grass, as it had already done just a few miles from here, no miracle machine or chemical concoction could safely get it out. You can skim oil off the surface of open water, and you can rake it off a sandy beach, but an oiled marsh just sits there, slowly dying. The larvae of countless species for which the marsh is a spawning ground – shrimp, crab, oysters and fin fish – will be poisoned.

It was already happening. Earlier that day, I travelled through nearby marshes in a shallow water boat. Fish were jumping in waters encircled by white boom, the strips of thick cotton and mesh BP is using to soak up the oil. The circle of fouled material seemed to be tightening around the fish like a noose. Nearby, a red-winged blackbird perched atop a 2 metre (7ft) blade of oil-contaminated marsh grass. Death was creeping up the cane; the small bird may as well have been standing on a lit stick of dynamite.

And then there is the grass itself, or the Roseau cane, as the tall sharp blades are called. If oil seeps deeply enough into the marsh, it will not only kill the grass above ground but also the roots. Those roots are what hold the marsh together, keeping bright green land from collapsing into the Mississippi River delta and the Gulf of Mexico. So not only do places like Plaquemines Parish stand to lose their fisheries, but also much of the physical barrier that lessens the intensity of fierce storms like hurricane Katrina. Which could mean losing everything.

How long will it take for an ecosystem this ravaged to be "restored and made whole" as Obama's interior secretary has pledged to do? It's not at all clear that such a thing is remotely possible, at least not in a time frame we can easily wrap our heads around. The Alaskan fisheries have yet to fully recover from the 1989 Exxon Valdez spill and some species of fish never returned. Government scientists now estimate that as much as a Valdez-worth of oil may be entering the Gulf coastal waters every four days. An even worse prognosis emerges from the 1991 Gulf war spill, when an estimated 11m barrels of oil were dumped into the Persian Gulf – the largest spill ever. That oil entered the marshland and stayed there, burrowing deeper and deeper thanks to holes dug by crabs. It's not a perfect comparison, since so little clean-up was done, but according to a study conducted 12 years after the disaster, nearly 90% of the impacted muddy salt marshes and mangroves were still profoundly damaged.

We do know this. Far from being "made whole," the Gulf coast, more than likely, will be diminished. Its rich waters and crowded skies will be less alive than they are today. The physical space many communities occupy on the map will also shrink, thanks to erosion. And the coast's legendary culture will contract and wither. The fishing families up and down the coast do not just gather food, after all. They hold up an intricate network that includes family tradition, cuisine, music, art and endangered languages – much like the roots of grass holding up the land in the marsh. Without fishing, these unique cultures lose their root system, the very ground on which they stand. (BP, for its part, is well aware of the limits of recovery. The company's Gulf of Mexico regional oil spill response plan specifically instructs officials not to make "promises that property, ecology, or anything else will be restored to normal". Which is no doubt why its officials consistently favour folksy terms like "make it right".)

If Katrina pulled back the curtain on the reality of racism in America, the BP disaster pulls back the curtain on something far more hidden: how little control even the most ingenious among us have over the awesome, intricately interconnected natural forces with which we so casually meddle. BP cannot plug the hole in the Earth that it made. Obama cannot order fish species to survive, or brown pelicans not to go extinct (no matter whose ass he kicks). No amount of money – not BP's recently pledged $20bn (£13.5bn), not $100bn – can replace a culture that has lost its roots. And while our politicians and corporate leaders have yet to come to terms with these humbling truths, the people whose air, water and livelihoods have been contaminated are losing their illusions fast.

"Everything is dying," a woman said as the town hall meeting was finally coming to a close. "How can you honestly tell us that our Gulf is resilient and will bounce back? Because not one of you up here has a hint as to what is going to happen to our Gulf. You sit up here with a straight face and act like you know when you don't know."

This Gulf coast crisis is about many things – corruption, deregulation, the addiction to fossil fuels. But underneath it all, it's about this: our culture's excruciatingly dangerous claim to have such complete understanding and command over nature that we can radically manipulate and re-engineer it with minimal risk to the natural systems that sustain us. But as the BP disaster has revealed, nature is always more unpredictable than the most sophisticated mathematical and geological models imagine. During Thursday's congressional testimony, Hayward said: "The best minds and the deepest expertise are being brought to bear" on the crisis, and that, "with the possible exception of the space programme in the 1960s, it is difficult to imagine the gathering of a larger, more technically proficient team in one place in peacetime." And yet, in the face of what the geologist Jill Schneiderman has described as "Pandora's well", they are like the men at the front of that gymnasium: they act like they know, but they don't know.

BP's mission statement

In the arc of human history, the notion that nature is a machine for us to re-engineer at will is a relatively recent conceit. In her ground-breaking 1980 book The Death of Nature, the environmental historian Carolyn Merchant reminded readers that up until the 1600s, the Earth was alive, usually taking the form of a mother. Europeans – like indigenous people the world over – believed the planet to be a living organism, full of life-giving powers but also wrathful tempers. There were, for this reason, strong taboos against actions that would deform and desecrate "the mother", including mining.

The metaphor changed with the unlocking of some (but by no means all) of nature's mysteries during the scientific revolution of the 1600s. With nature now cast as a machine, devoid of mystery or divinity, its component parts could be dammed, extracted and remade with impunity. Nature still sometimes appeared as a woman, but one easily dominated and subdued. Sir Francis Bacon best encapsulated the new ethos when he wrote in the 1623 De dignitate et augmentis scientiarum that nature is to be "put in constraint, moulded, and made as it were new by art and the hand of man".

Those words may as well have been BP's corporate mission statement. Boldly inhabiting what the company called "the energy frontier", it dabbled in synthesising methane-producing microbes and announced that "a new area of investigation" would be geoengineering. And of course it bragged that, at its Tiber prospect in the Gulf of Mexico, it now had "the deepest well ever drilled by the oil and gas industry" – as deep under the ocean floor as jets fly overhead.

Imagining and preparing for what would happen if these experiments in altering the building blocks of life and geology went wrong occupied precious little space in the corporate imagination. As we have all discovered, after the Deepwater Horizon rig exploded on 20 April, the company had no systems in place to effectively respond to this scenario. Explaining why it did not have even the ultimately unsuccessful containment dome waiting to be activated on shore, a BP spokesman, Steve Rinehart, said: "I don't think anybody foresaw the circumstance that we're faced with now." Apparently, it "seemed inconceivable" that the blowout preventer would ever fail – so why prepare?

This refusal to contemplate failure clearly came straight from the top. A year ago, Hayward told a group of graduate students at Stanford University that he has a plaque on his desk that reads: "If you knew you could not fail, what would you try?" Far from being a benign inspirational slogan, this was actually an accurate description of how BP and its competitors behaved in the real world. In recent hearings on Capitol Hill, congressman Ed Markey of Massachusetts grilled representatives from the top oil and gas companies on the revealing ways in which they had allocated resources. Over three years, they had spent "$39bn to explore for new oil and gas. Yet, the average investment in research and development for safety, accident prevention and spill response was a paltry $20m a year."

These priorities go a long way towards explaining why the initial exploration plan that BP submitted to the federal government for the ill-fated Deepwater Horizon well reads like a Greek tragedy about human hubris. The phrase "little risk" appears five times. Even if there is a spill, BP confidently predicts that, thanks to "proven equipment and technology", adverse affects will be minimal. Presenting nature as a predictable and agreeable junior partner (or perhaps subcontractor), the report cheerfully explains that should a spill occur, "Currents and microbial degradation would remove the oil from the water column or dilute the constituents to background levels". The effects on fish, meanwhile, "would likely be sublethal" because of "the capability of adult fish and shellfish to avoid a spill [and] to metabolise hydrocarbons". (In BP's telling, rather than a dire threat, a spill emerges as an all-you-can-eat buffet for aquatic life.)

Best of all, should a major spill occur, there is, apparently, "little risk of contact or impact to the coastline" because of the company's projected speedy response (!) and "due to the distance [of the rig] to shore" – about 48 miles (77km). This is the most astonishing claim of all. In a gulf that often sees winds of more than 70km an hour, not to mention hurricanes, BP had so little respect for the ocean's capacity to ebb and flow, surge and heave, that it did not think oil could make a paltry 77km trip. (Last week, a shard of the exploded Deepwater Horizon showed up on a beach in Florida, 306km away.)

None of this sloppiness would have been possible, however, had BP not been making its predictions to a political class eager to believe that nature had indeed been mastered. Some, like Republican Lisa Murkowski, were more eager than others. The Alaskan senator was so awe-struck by the industry's four-dimensional seismic imaging that she proclaimed deep-sea drilling to have reached the very height of controlled artificiality. "It's better than Disneyland in terms of how you can take technologies and go after a resource that is thousands of years old and do so in an environmentally sound way," she told the Senate energy committee just seven months ago.

Drilling without thinking has of course been Republican party policy since May 2008. With gas prices soaring to unprecedented heights, that's when the conservative leader Newt Gingrich unveiled the slogan "Drill Here, Drill Now, Pay Less" – with an emphasis on the now. The wildly popular campaign was a cry against caution, against study, against measured action. In Gingrich's telling, drilling at home wherever the oil and gas might be – locked in Rocky Mountain shale, in the Arctic National Wildlife Refuge, and deep offshore – was a surefire way to lower the price at the pump, create jobs, and kick Arab ass all at once. In the face of this triple win, caring about the environment was for sissies: as senator Mitch McConnell put it, "in Alabama and Mississippi and Louisiana and Texas, they think oil rigs are pretty". By the time the infamous "Drill Baby Drill" Republican national convention rolled around, the party base was in such a frenzy for US-made fossil fuels, they would have bored under the convention floor if someone had brought a big enough drill.

Obama, eventually, gave in, as he invariably does. With cosmic bad timing, just three weeks before the Deepwater Horizon blew up, the president announced he would open up previously protected parts of the country to offshore drilling. The practice was not as risky as he had thought, he explained. "Oil rigs today generally don't cause spills. They are technologically very advanced." That wasn't enough for Sarah Palin, however, who sneered at the Obama administration's plans to conduct more studies before drilling in some areas. "My goodness, folks, these areas have been studied to death," she told the Southern Republican leadership conference in New Orleans, now just 11 days before the blowout. "Let's drill, baby, drill, not stall, baby, stall!" And there was much rejoicing.

In his congressional testimony, Hayward said: "We and the entire industry will learn from this terrible event." And one might well imagine that a catastrophe of this magnitude would indeed instil BP executives and the "Drill Now" crowd with a new sense of humility. There are, however, no signs that this is the case. The response to the disaster – at the corporate and governmental levels – has been rife with the precise brand of arrogance and overly sunny predictions that created the disaster in the first place.

The ocean is big, she can take it, we heard from Hayward in the early days. While spokesman John Curry insisted that hungry microbes would consume whatever oil was in the water system, because "nature has a way of helping the situation". But nature has not been playing along. The deep-sea gusher has bust out of all BP's top hats, containment domes, and junk shots. The ocean's winds and currents have made a mockery of the lightweight booms BP has laid out to absorb the oil. "We told them," said Byron Encalade, the president of the Louisiana Oysters Association. "The oil's gonna go over the booms or underneath the bottom." Indeed it did. The marine biologist Rick Steiner, who has been following the clean up closely, estimates that "70% or 80% of the booms are doing absolutely nothing at all".

And then there are the controversial chemical dispersants: more than 1.3m gallons dumped with the company's trademark "what could go wrong?" attitude. As the angry residents at the Plaquemines Parish town hall rightly point out, few tests had been conducted, and there is scant research about what this unprecedented amount of dispersed oil will do to marine life. Nor is there a way to clean up the toxic mixture of oil and chemicals below the surface. Yes, fast multiplying microbes do devour underwater oil – but in the process they also absorb the water's oxygen, creating a whole new threat to marine life.

BP had even dared to imagine that it could prevent unflattering images of oil-covered beaches and birds from escaping the disaster zone. When I was on the water with a TV crew, for instance, we were approached by another boat whose captain asked, ""Y'all work for BP?" When we said no, the response – in the open ocean – was "You can't be here then". But of course these heavy-handed tactics, like all the others, have failed. There is simply too much oil in too many places. "You cannot tell God's air where to flow and go, and you can't tell water where to flow and go," I was told by Debra Ramirez. It was a lesson she had learned from living in Mossville, Louisiana, surrounded by 14 emission-spewing petrochemical plants, and watching illness spread from neighbour to neighbour.

Human limitation has been the one constant of this catastrophe. After two months, we still have no idea how much oil is flowing, nor when it will stop. The company's claim that it will complete relief wells by the end of August – repeated by Obama in his Oval Office address – is seen by many scientists as a bluff. The procedure is risky and could fail, and there is a real possibility that the oil could continue to leak for years.

The flow of denial shows no sign of abating either. Louisiana politicians indignantly oppose Obama's temporary freeze on deepwater drilling, accusing him of killing the one big industry left standing now that fishing and tourism are in crisis. Palin mused on Facebook that "no human endeavour is ever without risk", while Texas Republican congressman John Culberson described the disaster as a "statistical anomaly". By far the most sociopathic reaction, however, comes from veteran Washington commentator Llewellyn King: rather than turning away from big engineering risks, we should pause in "wonder that we can build machines so remarkable that they can lift the lid off the underworld".

Make the bleeding stop

Thankfully, many are taking a very different lesson from the disaster, standing not in wonder at humanity's power to reshape nature, but at our powerlessness to cope with the fierce natural forces we unleash. There is something else too. It is the feeling that the hole at the bottom of the ocean is more than an engineering accident or a broken machine. It is a violent wound in a living organism; that it is part of us. And thanks to BP's live camera feed, we can all watch the Earth's guts gush forth, in real time, 24 hours a day.

John Wathen, a conservationist with the Waterkeeper Alliance, was one of the few independent observers to fly over the spill in the early days of the disaster. After filming the thick red streaks of oil that the coast guard politely refers to as "rainbow sheen", he observed what many had felt: "The Gulf seems to be bleeding." This imagery comes up again and again in conversations and interviews. Monique Harden, an environmental rights lawyer in New Orleans, refuses to call the disaster an "oil spill" and instead says, "we are haemorrhaging". Others speak of the need to "make the bleeding stop". And I was personally struck, flying over the stretch of ocean where the Deepwater Horizon sank with the US Coast Guard, that the swirling shapes the oil made in the ocean waves looked remarkably like cave drawings: a feathery lung gasping for air, eyes staring upwards, a prehistoric bird. Messages from the deep.

And this is surely the strangest twist in the Gulf coast saga: it seems to be waking us up to the reality that the Earth never was a machine. After 400 years of being declared dead, and in the middle of so much death, the Earth is coming alive.

The experience of following the oil's progress through the ecosystem is a kind of crash course in deep ecology. Every day we learn more about how what seems to be a terrible problem in one isolated part of the world actually radiates out in ways most of us could never have imagined. One day we learn that the oil could reach Cuba – then Europe. Next we hear that fishermen all the way up the Atlantic in Prince Edward Island, Canada, are worried because the Bluefin tuna they catch off their shores are born thousands of miles away in those oil-stained Gulf waters. And we learn, too, that for birds, the Gulf coast wetlands are the equivalent of a busy airport hub – everyone seems to have a stopover: 110 species of migratory songbirds and 75% of all migratory US waterfowl.

It's one thing to be told by an incomprehensible chaos theorist that a butterfly flapping its wings in Brazil can set off a tornado in Texas. It's another to watch chaos theory unfold before your eyes. Carolyn Merchant puts the lesson like this: "The problem as BP has tragically and belatedly discovered is that nature as an active force cannot be so confined." Predictable outcomes are unusual within ecological systems, while "unpredictable, chaotic events [are] usual". And just in case we still didn't get it, a few days ago, a bolt of lightning struck a BP ship like an exclamation mark, forcing it to suspend its containment efforts. And don't even mention what a hurricane would do to BP's toxic soup.

There is, it must be stressed, something uniquely twisted about this particular path to enlightenment. They say that Americans learn where foreign countries are by bombing them. Now it seems we are all learning about nature's circulatory systems by poisoning them.

In the late 90s, an isolated indigenous group in Colombia captured world headlines with an almost Avatar-esque conflict. From their remote home in the Andean cloud forests, the U'wa let it be known that if Occidental Petroleum carried out plans to drill for oil on their territory, they would commit mass ritual suicide by jumping off a cliff. Their elders explained that oil is part of ruiria, "the blood of Mother Earth". They believe that all life, including their own, flows from ruiria, so pulling out the oil would bring on their destruction. (Oxy eventually withdrew from the region, saying there wasn't as much oil as it had previously thought.)

Virtually all indigenous cultures have myths about gods and spirits living in the natural world – in rocks, mountains, glaciers, forests – as did European culture before the scientific revolution. Katja Neves, an anthropologist at Concordia University, points out that the practice serves a practical purpose. Calling the Earth "sacred" is another way of expressing humility in the face of forces we do not fully comprehend. When something is sacred, it demands that we proceed with caution. Even awe.

If we are absorbing this lesson at long last, the implications could be profound. Public support for increased offshore drilling is dropping precipitously, down 22% from the peak of the "Drill Now" frenzy. The issue is not dead, however. It is only a matter of time before the Obama administration announces that, thanks to ingenious new technology and tough new regulations, it is now perfectly safe to drill in the deep sea, even in the Arctic, where an under-ice clean up would be infinitely more complex than the one underway in the Gulf. But perhaps this time we won't be so easily reassured, so quick to gamble with the few remaining protected havens.

Same goes for geoengineering. As climate change negotiations wear on, we should be ready to hear more from Dr Steven Koonin, Obama's undersecretary of energy for science. He is one of the leading proponents of the idea that climate change can be combated with techno tricks like releasing sulphate and aluminium particles into the atmosphere – and of course it's all perfectly safe, just like Disneyland! He also happens to be BP's former chief scientist, the man who just 15 months ago was still overseeing the technology behind BP's supposedly safe charge into deepwater drilling. Maybe this time we will opt not to let the good doctor experiment with the physics and chemistry of the Earth, and choose instead to reduce our consumption and shift to renewable energies that have the virtue that, when they fail, they fail small. As US comedian Bill Maher put it, "You know what happens when windmills collapse into the sea? A splash."

The most positive possible outcome of this disaster would be not only an acceleration of renewable energy sources like wind, but a full embrace of the precautionary principle in science. The mirror opposite of Hayward's "If you knew you could not fail" credo, the precautionary principle holds that "when an activity raises threats of harm to the environment or human health" we tread carefully, as if failure were possible, even likely. Perhaps we can even get Hayward a new desk plaque to contemplate as he signs compensation cheques. "You act like you know, but you don't know."

Naomi Klein visited the Gulf coast with a film-crew from Fault Lines, a documentary programme hosted by Avi Lewis on al-Jazeera English Television. She was a consultant on the film

Funny, and Yet, So Sad

2010-06-11T18:06:00.002-05:00

If you'd like a little respite from the "greatest environmental disaster in the history of the United States," check out this Twitter spoof of Beyond Petroleum's PR.

Impossible Things...

2010-06-11T18:03:00.001-05:00

Here's a great set of stats for those who still would love to believe that things here in the Empire aren't really all that bad, at least compared to other, more benighted nations (hah!). Quoted in its entirety:

50 Statistics About The U.S. Economy That Are Almost Too Crazy To Believe

Most Americans know that the U.S. economy is in bad shape, but what most Americans don't know is how truly desperate the financial situation of the United States really is. The truth is that what we are experiencing is not simply a "downturn" or a "recession". What we are witnessing is the beginning of the end for the greatest economic machine that the world has ever seen. Our greed and our debt are literally eating our economy alive. Total government, corporate and personal debt has now reached 360 percent of GDP, which is far higher than it ever reached during the Great Depression era. We have nearly totally dismantled our once colossal manufacturing base, we have shipped millions upon millions of middle class jobs overseas, we have lived far beyond our means for decades and we have created the biggest debt bubble in the history of the world. A great day of financial reckoning is fast approaching, and the vast majority of Americans are totally oblivious.

But the truth is that you cannot defy the financial laws of the universe forever. What goes up must come down. The borrower is the servant of the lender. Cutting corners always catches up with you in the end.

Sometimes it takes cold, hard numbers for many of us to fully realize the situation that we are facing.

So, the following are 50 very revealing statistics about the U.S. economy that are almost too crazy to believe....

#50) In 2010 the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.

#49) It is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars in 2010.

#48) If you went out and spent one dollar every single second, it would take you more than 31,000 years to spend a trillion dollars.

#47) In fact, if you spent one million dollars every single day since the birth of Christ, you still would not have spent one trillion dollars by now.

#46) Total U.S. government debt is now up to 90 percent of gross domestic product.

#45) Total credit market debt in the United States, including government, corporate and personal debt, has reached 360 percent of GDP.

#44) U.S. corporate income tax receipts were down 55% (to $138 billion) for the year ending September 30th, 2009.

#43) There are now 8 counties in the state of California that have unemployment rates of over 20 percent.

#42) In the area around Sacramento, California there is one closed business for every six that are still open.

#41) In February, there were 5.5 unemployed Americans for every job opening.

#40) According to a Pew Research Center study, approximately 37% of all Americans between the ages of 18 and 29 have either been unemployed or underemployed at some point during the recession.

#39) More than 40% of those employed in the United States are now working in low-wage service jobs.

#38) According to one new survey, 24% of American workers say that they have postponed their planned retirement age in the past year.

#37) Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008. Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005.

#36) Mortgage purchase applications in the United States are down nearly 40 percent from a month ago to their lowest level since April of 1997.

#35) RealtyTrac has announced that foreclosure filings in the U.S. established an all time record for the second consecutive year in 2009.

#34) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in March 2010, an increase of nearly 19 percent from February, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.

#33) In Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases. Ten years ago, there were only about 4,000.

#32) In California's Central Valley, 1 out of every 16 homes is in some phase of foreclosure.

#31) The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period. That was a record high and up from 9.1 percent a year ago.

#30) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a 35 percent jump from the first quarter of 2009.

#29) For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.

#28) More than 24% of all homes with mortgages in the United States were underwater as of the end of 2009.

#27) U.S. commercial property values are down approximately 40 percent since 2007 and currently 18 percent of all office space in the United States is sitting vacant.

#26) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010. That was almost twice the level of a year earlier.

#25) In 2009, U.S. banks posted their sharpest decline in private lending since 1942.

#24) New York state has delayed paying bills totalling $2.5 billion as a short-term way of staying solvent but officials are warning that its cash crunch could soon get even worse.

#23) To make up for a projected 2010 budget shortfall of $280 million, Detroit issued $250 million of 20-year municipal notes in March. The bond issuance followed on the heels of a warning from Detroit officials that if its financial state didn't improve, it could be forced to declare bankruptcy.

#22) The National League of Cities says that municipal governments will probably come up between $56 billion and $83 billion short between now and 2012.

#21) Half a dozen cash-poor U.S. states have announced that they are delaying their tax refund checks.

#20) Two university professors recently calculated that the combined unfunded pension liability for all 50 U.S. states is 3.2 trillion dollars.

#19) According to EconomicPolicyJournal.com, 32 U.S. states have already run out of funds to make unemployment benefit payments and so the federal government has been supplying these states with funds so that they can make their payments to the unemployed.

#18) This most recession has erased 8 million private sector jobs in the United States.

#17) Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of 2010.

#16) U.S. government-provided benefits (including Social Security, unemployment insurance, food stamps and other programs) rose to a record high during the first three months of 2010.

#15) 39.68 million Americans are now on food stamps, which represents a new all-time record. But things look like they are going to get even worse. The U.S. Department of Agriculture is forecasting that enrollment in the food stamp program will exceed 43 million Americans in 2011.

#14) Phoenix, Arizona features an astounding annual car theft rate of 57,000 vehicles and has become the new "Car Theft Capital of the World".

#13) U.S. law enforcement authorities claim that there are now over 1 million members of criminal gangs inside the country. These 1 million gang members are responsible for up to 80% of the crimes committed in the United States each year.

#12) The U.S. health care system was already facing a shortage of approximately 150,000 doctors in the next decade or so, but thanks to the health care "reform" bill passed by Congress, that number could swell by several hundred thousand more.

#11) According to an analysis by the Congressional Joint Committee on Taxation the health care "reform" bill will generate $409.2 billion in additional taxes on the American people by 2019.

#10) The Dow Jones Industrial Average just experienced the worst May it has seen since 1940.

#9) In 1950, the ratio of the average executive's paycheck to the average worker's paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.

#8) Approximately 40% of all retail spending currently comes from the 20% of American households that have the highest incomes.

#7) According to economists Thomas Piketty and Emmanuel Saez, two-thirds of income increases in the U.S. between 2002 and 2007 went to the wealthiest 1% of all Americans.

#6) The bottom 40 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.

#5) If you only make the minimum payment each and every time, a $6,000 credit card bill can end up costing you over $30,000 (depending on the interest rate).

#4) According to a new report based on U.S. Census Bureau data, only 26 percent of American teens between the ages of 16 and 19 had jobs in late 2009 which represents a record low since statistics began to be kept back in 1948.

#3) According to a National Foundation for Credit Counseling survey, only 58% of those in "Generation Y" pay their monthly bills on time.

#2) During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

#1) According to the Tax Foundation’s Microsimulation Model, to erase the 2010 U.S. budget deficit, the U.S. Congress would have to multiply each tax rate by 2.4. Thus, the 10 percent rate would be 24 percent, the 15 percent rate would be 36 percent, and the 35 percent rate would have to be 85 percent.

More...

2010-06-05T17:37:00.007-05:00

Evil stuff...

Look In the Mirror....

2010-06-05T17:31:00.003-05:00

Smell yourselves...we are all complicit.

What Went Wrong? Here's a List...

2010-05-30T08:49:00.003-05:00

Shamelessly stolen from sage commentator "Numerian" over at The Agonist...posted in response to the question "where's the outrage" among the US public over, oh, the greatest environmental disaster in US history, and the public's blase response. Nicely done, fellow.

It all began in 1980

Or right around then, with the election of Ronald Reagan and the opportunity for right-wing extremists to begin reshaping society. Undoing this work will take ten years or more, and that is if society has a brutal awakening regarding what has happened. That is by no means a sure thing considering what was done. Here is a list of "20 Theses" showing what the right wing has wrought, and how difficult it will be to undo all this:

1) The elevation of the corporation as the supreme social structure in society, superior to the political process, and in possession of rights normally restricted to the people.
2) The creation of an oligarchical command structure consisting of prominent and wealthy businessmen, politicians, media figures, military leaders, intellectual and other consultants, and religious entertainers, who can use political, economic and social power to advance their personal interests over those of society.
3) The abolishment of the death tax as society's best and last means of preventing dynastic wealth, and the use of nepotism to advance the careers of the children of oligarchical figures.
4) The development of crony capitalism, whereby the oligarchy can exert its corporate power to protect their personal wealth.
5) The glorification of the markets and mercantile capitalism as a means of allocating society's wealth and resolving social problems, along with data mining and equity extraction as tools to collect rents from the markets for the benefit of the oligarchical class.
6) The rise of the cult of the individual, and the use of personal wealth and conspicuous consumption as a measure of individual merit.
7) The identification of poverty and want as personal failures.
8) The identification of the government as a source of problems, rather than as a protector of the needy and regulator of the powerful.
9) The embrace of globalization as a way to open vast new consumer markets to corporations, despite the cost in living standards to the average individual in developed economies.
10) The discovery of debt as a means of ensuring economic growth and masking the deterioration in living standards of the people.
11) The suborning of the media by placing them under the control of large corporate and oligarchical powers.
12) The use of the big lie and hypocrisy as tools to achieve and wield political or economic power.
13) The marginalization of the voting process through gerrymandering of Congressional districts, the use of opaque computer vote-counting techniques, the emphasis on candidate personalities rather than issues, and the dramatic escalation of campaign costs so that only corporate-sponsored candidates may compete.
14) The establishment of "enemies within" - liberals, minorities, women, gays, immigrants and others - to replace the external enemy of Communism as a vote-getting device, at least until a new external enemy arose in the form of Islamic extremism.
15) The abandonment of historic civil rights, such as habeas corpus, protections against illegal searches, or torture, all in the name of providing "security", as well as the relegation of the Constitution to the status of "a piece of paper", and the rule of law as an outmoded legal construct.
16) The elimination of the draft, and the use of mercenaries, to allow for the pursuit of war without inconvenience to the people at large, and for the creation of a military empire abroad.
17) The use of patriotism to prevent any questioning of military actions, and the introduction of military techniques on domestic soil, including the creation of a surveillance state.
18) The attack on science and rationality, in pursuit of religious and political agendas.
19) The development of a celebrity culture as a means of distracting the people from real social problems.
20) The hijacking of religion to advance the interests of the powerful and wealthy, including use of the "prosperity gospel" to promote mercantile capitalism, and social markers such as abortion and gay marriage to obtain votes from religious sects.

Oil Spill In The Gulf: Chris Hedges

2010-05-17T18:13:00.001-05:00

Well, it could be the greatest environmental disaster in the history of humans...but even if it's not, it's still worth getting some perspective from Chris Hedges. If you haven't read War is a Force That Gives Us Meaning, you're missing out. Well, here's his latest, quoted in full:

BP and the ‘Little Eichmanns’
http://www.truthdig.com/report/item/bp_and_the_little_eichmanns_20100517/
Posted on May 17, 2010

By Chris Hedges

Cultures that do not recognize that human life and the natural world have a sacred dimension, an intrinsic value beyond monetary value, cannibalize themselves until they die. They ruthlessly exploit the natural world and the members of their society in the name of progress until exhaustion or collapse, blind to the fury of their own self-destruction. The oil pouring into the Gulf of Mexico, estimated to be perhaps as much as 100,000 barrels a day, is part of our foolish death march. It is one more blow delivered by the corporate state, the trade of life for gold. But this time collapse, when it comes, will not be confined to the geography of a decayed civilization. It will be global.

Those who carry out this global genocide—men like BP’s Chief Executive Tony Hayward, who assures us that “The Gulf of Mexico is a very big ocean. The amount of oil and dispersant we are putting into it is tiny in relation to the total water volume’’—are, to steal a line from Ward Churchill, “little Eichmanns.” They serve Thanatos, the forces of death, the dark instinct Sigmund Freud identified within human beings that propels us to annihilate all living things, including ourselves. These deformed individuals lack the capacity for empathy. They are at once banal and dangerous. They possess the peculiar ability to organize vast, destructive bureaucracies and yet remain blind to the ramifications. The death they dispense, whether in the pollutants and carcinogens that have made cancer an epidemic, the dead zone rapidly being created in the Gulf of Mexico, the melting polar ice caps or the deaths last year of 45,000 Americans who could not afford proper medical care, is part of the cold and rational exchange of life for money.

The corporations, and those who run them, consume, pollute, oppress and kill. The little Eichmanns who manage them reside in a parallel universe of staggering wealth, luxury and splendid isolation that rivals that of the closed court of Versailles. The elite, sheltered and enriched, continue to prosper even as the rest of us and the natural world start to die. They are numb. They will drain the last drop of profit from us until there is nothing left. And our business schools and elite universities churn out tens of thousands of these deaf, dumb and blind systems managers who are endowed with sophisticated skills of management and the incapacity for common sense, compassion or remorse. These technocrats mistake the art of manipulation with knowledge.

“The longer one listened to him, the more obvious it became that his inability to speak was closely connected with an inability to think, namely, to think from the standpoint of somebody else,” Hannah Arendt wrote of “Eichmann in Jerusalem.” “No communication was possible with him, not because he lied but because he was surrounded by the most reliable of all safeguards against words and the presence of others, and hence against reality as such.”

Our ruling class of technocrats, as John Ralston Saul points out, is effectively illiterate. “One of the reasons that he is unable to recognize the necessary relationship between power and morality is that moral traditions are the product of civilization and he has little knowledge of his own civilization,” Saul writes of the technocrat. Saul calls these technocrats “hedonists of power,” and warns that their “obsession with structures and their inability or unwillingness to link these to the public good make this power an abstract force—a force that works, more often than not, at cross-purposes to the real needs of a painfully real world.”

BP, which made $6.1 billion in profits in the first quarter of this year, never obtained permits from the National Oceanic and Atmospheric Administration. The protection of the ecosystem did not matter. But BP is hardly alone. Drilling with utter disregard to the ecosystem is common practice among oil companies, according to a report in The New York Times. Our corporate state has gutted environmental regulation as tenaciously as it has gutted financial regulation and habeas corpus. Corporations make no distinction between our personal impoverishment and the impoverishment of the ecosystem that sustains the human species. And the abuse, of us and the natural world, is as rampant under Barack Obama as it was under George W. Bush. The branded figure who sits in the White House is a puppet, a face used to mask an insidious system under which we as citizens have been disempowered and under which we become, along with the natural world, collateral damage. As Karl Marx understood, unfettered capitalism is a revolutionary force. And this force is consuming us.

Karl Polanyi in his book “The Great Transformation,” written in 1944, laid out the devastating consequences—the depressions, wars and totalitarianism—that grow out of a so-called self-regulated free market. He grasped that “fascism, like socialism, was rooted in a market society that refused to function.” He warned that a financial system always devolved, without heavy government control, into a Mafia capitalism—and a Mafia political system—which is a good description of our corporate government. Polanyi warned that when nature and human beings are objects whose worth is determined by the market, then human beings and nature are destroyed. Speculative excesses and growing inequality, he wrote, always dynamite the foundation for a continued prosperity and ensure “the demolition of society.”

“In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological, and moral entity ‘man’ attached to that tag,” Polanyi wrote. “Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as victims of acute social dislocation through vice, perversion, crime, and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. Undoubtedly, labor, land, and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organizations was protected against the ravages of this satanic mill.”

The corporate state is a runaway freight train. It shreds the Kyoto Accords in Copenhagen. It plunders the U.S. Treasury so speculators can continue to gamble with billions in taxpayer subsidies in our perverted system of casino capitalism. It disenfranchises our working class, decimates our manufacturing sector and denies us funds to sustain our infrastructure, our public schools and our social services. It poisons the planet. We are losing, every year across the globe, an area of farmland greater than Scotland to erosion and urban sprawl. There are an estimated 25,000 people who die every day somewhere in the world because of contaminated water. And some 20 million children are mentally impaired each year by malnourishment.

America is dying in the manner in which all imperial projects die. Joseph Tainter, in his book “The Collapse of Complex Societies,” argues that the costs of running and defending an empire eventually become so burdensome, and the elite becomes so calcified, that it becomes more efficient to dismantle the imperial superstructures and return to local forms of organization. At that point the great monuments to empire, from the Sumer and Mayan temples to the Roman bath complexes, are abandoned, fall into disuse and are overgrown. But this time around, Tainter warns, because we have nowhere left to migrate and expand, “world civilization will disintegrate as a whole.” This time around we will take the planet down with us.

“We in the lucky countries of the West now regard our two-century bubble of freedom and affluence as normal and inevitable; it has even been called the ‘end’ of history, in both a temporal and teleological sense,” writes Ronald Wright in “A Short History of Progress.” “Yet this new order is an anomaly: the opposite of what usually happens as civilizations grow. Our age was bankrolled by the seizing of half the planet, extended by taking over most of the remaining half, and has been sustained by spending down new forms of natural capital, especially fossil fuels. In the New World, the West hit the biggest bonanza of all time. And there won’t be another like it—not unless we find the civilized Martians of H.G. Wells, complete with the vulnerability to our germs that undid them in his War of the Worlds.”

The moral and physical contamination is matched by a cultural contamination. Our political and civil discourse has become gibberish. It is dominated by elaborate spectacles, celebrity gossip, the lies of advertising and scandal. The tawdry and the salacious occupy our time and energy. We do not see the walls falling around us. We invest our intellectual and emotional energy in the inane and the absurd, the empty amusements that preoccupy a degenerate culture, so that when the final collapse arrives we can be herded, uncomprehending and fearful, into the inferno.

Complexity and Sustainability: Joseph Tainter

2010-05-13T09:01:00.002-05:00

This paper, quoted in its entirety, deserves a much larger audience. Too bad Chaos has been so lax lately, that readers have probably fled! Oh well...anyhow, here is the eminent authority of collapse, on sustainability:

Human Resource Use: Timing and Implications for Sustainability
Joseph A. Tainter
Department of Environment and Society, Utah State University, Logan, Utah 84322, U.S.A.

____________________________________________________________________________________________________

Few questions of history have been more enduring than how today’s complex societies evolved from the foraging bands of our ancestors. While this might seem of academic interest, it has important implications for anticipating our future. Our understanding of sustainability depends to a surprising degree on our understanding of the human past. My purposes today are to show that the conventional understandings of cultural evolution are untenable, as are assumptions about sustainability that follow from them, and to present a different approach to assessing our future.

Cultural complexity is deeply embedded in our contemporary self image. Colloquially it is known by the more common term “civilization,” which we believe our ancestors achieved through the phenomenon called “progress.” The concepts of civilization and progress have a status in the cosmology of industrial societies that amounts to what anthropologists call “ancestor myths.” Ancestor myths validate a contemporary social order by presenting it as a natural and sometimes heroic progression from earlier times.

Social scientists label this a “progressivist” view. It supposes that cultural complexity is intentional, that it emerged through the inventiveness of our ancestors. Progressivism is the dominant ideology of free-market societies. But inventiveness is not a sufficient explanation for cultural complexity, which requires facilitating circumstances. What were those circumstances? Prehistorians once thought they had the answer: The discovery of agriculture gave our ancestors surplus food and, concomitantly, free time to invent urbanism and the things that comprise “civilization”–cities, artisans, priesthoods, kings, aristocracies, and all of the other features of early states.

The progressivist view posits a specific relationship between resources and complexity. It is that complexity develops because it can, and that the factor facilitating this is surplus energy. Energy precedes complexity and allows it to emerge. There are, however, significant reasons to doubt whether surplus energy has actually driven much of cultural evolution.

One strand of thought that challenges progressivism emerged in the 18th and 19th centuries in the works of Wallace (1761), Malthus (1798), and Jevons. The economist Kenneth Boulding derived from Malthus’s essay on population three theorems: the Dismal Theorem, the Utterly Dismal Theorem, and the moderately cheerful form of the Dismal Theorem. The Utterly Dismal Theorem directly challenges the progressivist view:

Any technical improvement can only relieve misery for a while, for as long as misery is the only check on population, the improvement will enable population to grow, and will soon enable more people to live in misery than before. The final result of improvements, therefore, is to increase the equilibrium population, which is to increase the sum total of human misery (Boulding, 1959: vii [emphases in original]).

The implication of this strain of thought is that humans have rarely had surplus energy. Surpluses are quickly dissipated by growth in consumption. Since humans have rarely had surpluses, the availability of energy cannot be the primary driver of cultural evolution.

Beyond a Malthusian view, there is another factor that undermines progressivism. It is that complexity costs. In any living system, increased complexity (involving differentiation in structure and increasing organization) carries a metabolic cost. In non-human species this is a straightforward matter of additional calories. Among humans the cost is calculated in such currencies as resources, effort, time, or money, or by more subtle matters such as annoyance. While humans find complexity appealing in spheres such as art, music, or architecture, we usually prefer that someone else pay the cost. We are averse to complexity when it unalterably increases the cost of daily life without a clear benefit to the individual or household. Before the development of fossil fuels, increasing the complexity and costliness of a society meant that people worked harder.

The development of complexity is thus a paradox of human history. Over the past 12,000 years, we have developed technologies, economies, and social institutions that cost more labor, time, money, energy, and annoyance, and that go against our aversion to such costs. Why, then, did human societies ever become more complex?

At least part of the answer is that complexity is a basic problem-solving tool. Confronted with problems, we often respond by developing more complex technologies, establishing new institutions, adding more specialists or bureaucratic levels to an institution, increasing organization or regulation, or gathering and processing more information. While we usually prefer not to bear the cost of complexity, our problem-solving efforts are powerful complexity generators. All that is needed for growth of complexity is a problem that requires it. Since problems continually arise, there is persistent pressure for complexity to increase.

Cultural complexity can be viewed as an economic function. Societies and institutions invest in problem solving, undertaking costs and expecting benefits in return. In problem-solving systems, inexpensive solutions are adopted before more complex and expensive ones. In the history of human food-gathering and production, for example, labor-sparing hunting and gathering gave way to more labor-intensive agriculture, which in some places has been replaced by industrial agriculture that consumes more energy than it produces. We produce minerals and energy whenever possible from the most economical sources. Our societies have changed from egalitarian relations, economic reciprocity, ad hoc leadership, and generalized roles to social and economic differentiation, specialization, inequality, and full-time leadership. These characteristics are the essence of complexity, and they increase the costliness of any society.

In the progressivist view, surplus energy precedes and facilitates the evolution of complexity. Certainly this is sometimes true: There have been occasions when humans adopted energy sources of such great potential that, with further development and positive feedback, there followed great expansions in the numbers of humans and the wealth and complexity of societies. These occasions have, however, been so rare that we designate them with terms signifying a new era: the Agricultural Revolution and the Industrial Revolution. It is worth noting that these unusual transitions have not resulted from unbridled human creativity. Rather, they emerged from solutions to problems of resource shortages, and were adopted reluctantly because initially they created diminishing returns on effort in peoples’ daily lives.

Most of the time, cultural complexity increases from day-to-day efforts to solve problems. Complexity that emerges in this way will usually appear before there is additional energy to support it. Rather than following the availability of energy, cultural complexity often precedes it. Complexity thus compels increases in resource production. This understanding of the temporal relationship between complexity and resources has implications for sustainability that diverge from what is commonly assumed. I will explore these implications shortly. It is useful first to present a historical case study, the Western Roman Empire, that illustrates these points.

The Roman Empire collapsed in the mid 5th century A.D., but its last 200 years of existence had been a reprieve. It had been nearly destroyed in the 3rd century. In the half-century from 235-284 the empire was repeatedly breached by invasions of Germanic peoples from the north and the Persians from the east. When these invaders were not being repelled, Roman armies were fighting each other in the service of would-be emperors. Many cities were sacked and productive lands devastated. For a time, rival empires broke away in the east and the west. It seemed that the Roman Empire would not survive much longer.

The Roman government had a clear sustainability goal: the survival of the empire. In response to the crises, the emperors Diocletian and Constantine, in the late third and early fourth centuries, designed a government that was larger, more complex, and more highly organized. They doubled the size of the army. This was very costly. To pay for this sustainability effort, the government taxed its citizens more heavily, conscripted their labor, and dictated their occupations.

With the rise in taxes, population could not recover from plagues in the second and third centuries. There were chronic shortages of labor. Marginal lands went out of cultivation. Faced with taxes, peasants would abandon their lands and flee to the protection of a wealthy landowner. The Roman Empire survived the 3rd century crisis and achieved two centuries of sustainability, but at the long-term cost of consuming its capital resources: producing lands and peasant population. When crises emerged again in the late 4th century, the empire lacked the resources to respond adequately and in time collapsed.

The Roman Empire is a single case study in complexity and problem solving, but it is an important and representative one. It illustrates the basic process by which societies increase in complexity. Societies adopt increasing complexity to solve problems, becoming at the same time more costly. In the normal course of economic evolution, this process at some point will produce diminishing returns. Once diminishing returns set in, a problem-solving institution must either find new resources to continue the activity, or fund the activity by reducing the share of resources available to other economic sectors. The latter is likely to produce economic contraction, popular discontent, and eventual collapse. This was the fate of the Western Roman Empire.

This understanding of complexity and resources has implications for understanding sustainability. Both popular and academic discourse commonly assume that (a) future sustainability requires that industrial societies consume a lower quantity of resources than is now the case, and (b) sustainability will result automatically if we do so. Sustainability emerges, in this view, as a passive consequence of consuming less. Thus sustainability efforts are commonly focused on reducing consumption through voluntary or enforced conservation, perhaps involving simplification, and/or through improvements in technical efficiencies.

The common perspective on sustainability follows logically from the progressivist view that resources precede and facilitate innovations that increase complexity. Complexity, in this view, is voluntary. Human societies become more complex by choice. By this reasoning, we should be able to forego complexity and the resource consumption that it entails. Progressivism leads to the notion that societies can deliberately reduce their use of resources and thereby achieve sustainability.

The fact that complexity and costliness increase through mundane problem solving suggests a different and startling conclusion: Contrary to what is typically advocated as the route to sustainability, it is usually not possible for a society to reduce its consumption of resources voluntarily over the long term. To the contrary, as problems great and small inevitably arise, addressing these problems requires complexity and resource consumption to increase. As illustrated by the Roman Empire and other cases, this has commonly been the case.

Many advocates of sustainability will find it disturbing that long-term conservation is not possible. Naturally we must ask: Are there alternatives to this process? Regrettably, no simple solutions are evident. Consider some of the approaches commonly advocated:

1. Voluntarily Reduce Resource Consumption. While this may work for a time, its longevity as a strategy is constrained by the fact that societies increase in complexity to solve problems. Resource production must grow to fund the increased complexity. To implement voluntary conservation long term would require that a society be either uniquely lucky in not being challenged by problems, or that it not address the problems that confront it.

2. Employ the Price Mechanism to Control Resource Consumption. This is currently the laissez-faire strategy of industrialized nations. Since humans don’t commonly forego affordable consumption of desired goods and services, economists consider it more effective than voluntary conservation. Both approaches, however, lead eventually to the same outcome: As problems arise, resource consumption must increase at the societal level even if consumers as individuals purchase less.

3. Ration Resources. Because of its unpopularity, rationing is possible in democracies only for clear, short-term emergencies. This is illustrated by the reactions to rationing in England and the United States during World War II. Moreover, rationed resources may become needed to solve societal problems, belying any attempt to conserve through rationing. Something like this can be seen in the fiscal stimulus programs enacted recently.

4. Reduce Population. While this would reduce aggregate resource consumption temporarily, as a long-term strategy it has the same fatal flaw: Problems will emerge that require solutions, and those solutions will compel resource production to grow.

5. Hope for Technological Solutions. I sometimes call this a faith-based approach to our future. Members of industrialized societies are socialized to believe that we can always find a technological solution to resource problems. Technology, within the framework of this belief, will presumably allow us continually to reduce our resource consumption per unit of material well-being. Conventional economics teaches that to bring this about we need only the price mechanism and unfettered markets. The flaw here was pointed out by William Stanley Jevons: As technological improvements reduce the cost of using a resource, total consumption will actually increase.

In conclusion, sustainability is not the achievement of stasis. It is not a passive consequence of having fewer humans who consume more limited resources. One must work at being sustainable. The challenges that any society (or other institution) might confront are, for practical purposes, endless in number and infinite in variety. This being so, sustainability is a matter of solving problems.

In the conventional view, complexity follows energy. If so, then we should be able to forego complexity voluntarily and reduce our consumption of the resources that it requires. This approach to sustainability implicitly sees the future as a condition of stasis with no challenges.

In actuality, major infusions of surplus energy are rare in human history. More commonly, complexity increases in response to problems. Complexity emerging through problem solving typically precedes the availability of energy, and compels increases in its production. Complexity is not something that we can ordinarily choose to forego.

Applying this understanding leads to two conclusions. The first is that the solutions commonly recommended to promote sustainability–conservation, simplification, pricing, and innovation–can do so only in the short term. Secondly, long-term sustainability depends on solving major societal problems that will converge in coming decades, and this will require increasing complexity and energy production. Sustainability is not a condition of stasis. It is, rather, a process of continuous adaptation, of perpetually addressing new or ongoing problems and securing the resources to do so.

It is useful to think of sustainability in the metaphor of an athletic game: It is possible to “lose”–that is, to become unsustainable, as happened to the Western Roman Empire. But the converse does not hold. Because we continually confront challenges, there is no point at which a society has “won”–become sustainable in perpetuity, or at least for a very long time. Success, rather, consists of staying in the game.

An Interview With Dr. Bartlett

2010-03-30T07:51:00.002-05:00

Here's a nice interview with our favorite Malthusian, Dr. Albert Bartlett, Professor Emeritus, Physics, University of Colorado at Boulder. Enjoy!

I have to thank Jeremy Grantham for referencing Albert Bartlett’s talk, “Arithmetic, Population, & Energy”, in his semi annual letter to partners. It inspired me to track down Professor Bartlett and interview him for our readers.

Introduction/Background

Professor Albert Bartlett Emeritus Professor of Physics at the University of Colorado at Boulder. In the public space Professor Bartlett is most well known for his lecture titled Arithmetic, Population, and Energy. A Lecture he has given over 1,600 times since September, 1969. Bartlett joined the faculty of the University of Colorado in Boulder in September 1950. His B.A. degree in physics is from Colgate University (1944) and his M.A. and Ph.D. degrees in physics are from Harvard University (1948), (1951). In 1978 he was national president of the American Association of Physics Teachers. He is a Fellow of the American Physical Society and of the American Association for the Advancement of Science. In 1969 and 1970 he served two terms as the elected Chair of the four-campus Faculty Council of the University of Colorado.

Question & Answers (Copyright 2009-2010 Miguel Barbosa & Albert Bartlett)

You have become very famous for your talk, “Arithmetic, Population, and Energy.” What motivated you to create this talk?

In the late 1960’s I began to realize that people didn’t understand the large numbers that result from steady growth rates. So, forty years ago I developed the talk; I’ve given it an average of once every 8.7 days for 40 years.

Why do you think people have such difficulty understanding (compounding) growth rates?

It’s arithmetic; people don’t like arithmetic. You hear it at cocktail parties. People say, “Oh, I’m terrible at arithmetic.” You never hear anyone say “I can’t read or write.” My impression is that after my talk people understand it very quickly. Years ago I gave it very slowly and in two parts to junior high school students. After the second part, two little kids came up and said, “We can understand it, why can’t grownups?”

You’re a physicist; how did you become interested in physics? And how did you land a job at Los Alamos?

I had a high school physics course that I enjoyed very much. After high school I went to college, but dropped out to work on steamboats in the Great Lakes. After working for a while, I transferred to Colgate University, took my first college physics class, did well, and stuck with it. Richard Feynman once said, “If there was anything more fun than physics I’d be doing it.”…He couldn’t seem to find anything more fun. The same applies to me.

Did you meet Richard Feynman?

Yes. I was at Los Alamos during the war…whenever he would lecture the entire lab would stop to listen to him. He was simultaneously a great physicist and a great clown.

What about Niels Bohr? Tell us about your experiences meeting with him.

“I was sitting at the lunch counter and Niels Bohr sat down beside me. I was amazed.” What was it like being around these scientists? I was in constant awe. I’d often ask myself how ended up in such a place. I barely had a Bachelors degree. But that was sufficient to get me into these secret meetings. I went religiously to those meeting and one thing led to another.

Do you think most politicians understand growth rates, but prefer to look the other way?

These are chamber of commerce types: promoters, builders, architects. Their business is promoting growth. But the single thing to note is that, both at the community level and national level, growth doesn’t pay for itself. The more you grow the greater your debt load. Colorado has had decades of wild and largely uncontrolled growth and is now practically bankrupt. People become fed up with the constant increases in taxes needed to pay the costs of growth and they vote for tax limitation measures. Unfortunately, the growth promoters seem to find ways around these limitations, so the growth continues and the consequent problems escalate rapidly. We can see this happening in California and we have a similar situation brewing in Colorado.

What you are implying is that true growth would lead to profitability and thus state governments could accumulate reserves?

Rational people (leaders) would have reserves for lean years. In fact this reminds me – there’s a little book called, “Better Not Bigger” by Eben Fodor. He looks at the municipal costs of growth in various communities. He estimates that every new house built in Oregon costs the Oregon taxpayer something in the order of $25,000 in costs not paid by taxes on the construction of the home itself.

This reminds us of utilities companies…

Utilities right now are fighting around the country to get more coal and nuclear plants around the country. What they are really fighting for, and what they normally get, is the right to tax customers for the costs of planning and construction. . In a more rational world the investors would bear these responsibilities, and when the plant was finished you could figure the cost into the rate system- so that the people that built it would be reimbursed. Now, rather than going out and borrowing money they want to get money from rate payers while they are planning. Often state regulators are allowing utilities to charge payers for planning costs- and it isn’t even clear that the plants will be built. This is a perpetual growth promoting situation.

If companies grew for very long periods at high rates (say 15% plus) within a matter of years we would all be working forthem.

Some investors fail to realize that growth eventually undoes itself. That is to say growth is mean reverting. For you or me any additional physical growth would either be; obesity or cancer. There’s a time to grow, yet when you reach maturity any further growth is detrimental.

Your book titled, “The Essential Exponential for the Future of our Planet,” contains a chapter called, “Democracy Cannot Survive Overpopulation,” in which you argue convincingly that overpopulation, by raising the number of constituents per elected official, makes it harder for individuals to gain access to representatives and have a voice in politics. Also, overpopulation breeds government regulation to cope with problems caused by population pressure.

Yes, this is a very important issue. To be exact, I took the title of the chapter from Issac Asimov. Here’s an example: When I moved to Boulder Colorado (in 1950) the population was 20,000 and there were 9 city members on the council. Today the population is 100,000 and there are still only 9 city members on the council. So in effect today we only have 20% of the democracy we use to have in 1950.

In essence, it’s harder for the individual to have access to a representative?

Of course. In the decade of the 1990’s the US population grew by 13.1%, while the number of members in the House of Representatives didn’t grow at all. So we can say that at the national level, democracy declined by 13.1% Furthermore, the Constitution requires that the government perform what is called redistricting. This happens after every census. Redistricting ensures that the populations of districts are equal across the country. In our example, the average district needed to have 13.1% more constituents after the 2000 census than after the 1990’s census. This means that every district went from approximately 600,000 constituents to approximately 700,000 constituents. Compare that with the first Congress where the makeup was 30,000 constituents per member of Congress. It’s true that women didn’t vote and thus the electorate makeup was different, but you can imagine one person in Congress representing 30,000. It’s much harder to imagine one person representing 700,000 people. Every district in the country had to grow by 100,000 people. There’s no way you can represent that many people. So it’s much easier as a politician to take your ideas from the lobbyist who has plenty of money. As a result we now often get one dollar-one vote versus what use to be one person-one vote.

Are you suggesting there’s a crowding out effect? That is to say, in a time of many important issues (global warming, health care, and financial crises) people are alienated?

Yes, that’s right.

You say the terms “sustainable” and “sustainability” are popularly used to describe “activities that are ecologically laudable,” but unsustainable. How can the average reader interested in learning about sustainability decide whether publications are seeking to illuminate or obfuscate? Slogans are seemingly designed to “sustain” optimistm and vagueness.

There are a few organizations devoted to alert people of the dangers of population growth. There’s a group called Californians for Population Stabilization. There’s a real good group in Washington called Negative Population Growth; they have the best series of monographs of any group I’m aware of. You can find them on the web at npg.org.

How do you approach reading periodicals that present confusing growth rates?

I approach periodicals with skepticism and look for absurdities. Remember that politicians will try to claim that there isn’t a conflict between saving the environment and smart growth. Unfortunately, both smart growth and dumb growth destroy the environment. The only difference is that smart growth destroys the environment with good taste. It’s like buying a ticket on the Titanic, if you’re smart you go first class. But the outcome is the same…the boat still sinks.

Well if the outcome is the same, then most sustainable solutions are pseudosolutions. Tells us about pseudosolutions…

It’s so discouraging when you see Al Gore’s book & film, “An Inconvenient Truth.” Early in his book he says population growth has changed our whole way of life. With those words he is saying that he understands that population growth is the cause of the problem. Unfortunately at the end of his book when outlining the things you can do to avoid environmental problems (changing bulbs etc), Gore never mentions curbing population growth. This behavior is what Mark Twain would call a “silent lie.” If you have information that would help other people if you shared it, but you kee it hidden. Then you are guilty of what Mark Twain would call a silent lie.

In 1994, you wrote “In the manner of Alice in Wonderland, and without regard for accuracy or consistency, ‘sustainability’ seems to have been redefined flexibly to suit a variety of wishes and conveniences.” How are you seeing sustainability used by current politicians and businesses? Has it gotten worse? And what are the most recent clear examples of misuse of sustainability by politicians?

I couldn’t quantify it, but I believe so. Everything now is called “sustainable.” It’s the “in” thing to do, whether it’s sustainable or not.

According to your interpretation of the Tragedy of the Commons (Hardin 1968) your writings suggest that there will always be large opposition to programs of making population growth pay for itself. Those who profit from (uneconomic)growth will use their considerable resources to convince the community that the community should pay the costs of growth. How does the tragedy of the commons relate to launching wars?

The world’s oceans are a perfect example of the tragedy of the commons. By and large they are unmanaged commons and they are destroyed by high tech fisheries. This is tragic for local fishermen who have lived off the oceans for centuries. Small conflicts over resources can lead to wars.”

When it comes to war… look at Iraq. The poor GIs getting shot and killed are paying an enormous cost. Bush seems to think there is a law of conservation of terrorists, that is to say, “There are a certain number of terrorists in the world and you kill them all and you solve the problem.” Unfortunately, this doesn’t solve the problem at all. We aren’t reducing terrorism; rather, we are increasing it.

Where does the role of economist, Kenneth Boulding, play into the topic of population growth?

He’s one of the few economists that I can respect. He was a colleague at the University of Colorado. He is known for saying that, “Anyone who thinks that steady growth can continue indefinitely, is either a madman or an economist.” I once asked Boulding if he said that, he gave me a funny smile and said, “Yes, I think so.” Boulding’s three laws are related to sustainability. In fact, in my opinion, they say it all. The second law is the important one. It says, the solution to problems create more problems. “The main source of problems is solutions.

Excerpt of Boulding’s Three Laws:

First Theorem: “The Dismal Theorem” If the only ultimate check on the growth of population is misery, then the population will grow until it is miserable enough to stop its growth.

Second Theorem: “The Utterly Dismal Theorem” This theorem states that any technical improvement can only relieve misery for a while, for so long as misery is the only check on population, the [technical] improvement will enable population to grow, and will soon enable more people to live in misery than before. The final result of [technical] improvements, therefore, is to increase the equilibrium population which is to increase the total sum of human misery.

Third Theorem: “The moderately cheerful form of the Dismal Theorem” Fortunately, it is not too difficult to restate the Dismal Theorem in a moderately cheerful form, which states that if something else, other than misery and starvation, can be found which will keep a prosperous population in check, the population does not have to grow until it is miserable and starves, and it can be stably prosperous. Until we know more, the Cheerful Theorem remains a question mark. Misery we know will do the trick. This is the only sure- fire automatic method of bringing population to equilibrium. Other things may do it.

This is reminiscent of Eric Sevareid’s Law – The Chief Cause of Problems is Solutions. In a society as complex as ours is there a way around this issue?

I don’t believe there is a way around this issue. In a society as complex as ours it’s impossible to anticipate the interaction of all agents. It’s very much like the operation of the National Electric Grid. No one knows exactly how it operates. So if a squirrel crosses the wrong power line the east coast can go without power. These things do in fact happen. More importantly, because our system is so complex it’s vulnerable. If we are talking about a war on terror we wouldn’t want such a vulnerable system.

In preparation for this interview you sent us a book review. My favorite quote from this review is the following: “A society that is totally dependent on high tech for the functioning of every aspect of the lives of its people is vulnerable to disruption by acts of God and acts of people. The complexities of our pres¬ent infrastructure predictably lead to unpredictable failures. More complex infrastructures anticipated for the future will probably experience larger unpredictable failures.”

There is big talk in Europe right now about putting large fields of solar collectors in the Sahara Desert and then transmitting the power under the Mediterranean Sea to Europe. It looks good on paper, but the long extended transmission lines will be vulnerable to the forces of nature and to terrorists. A small group of individuals could deprive Europe of a big fraction of its electricity for long periods of time. “Insanity” is the only word I can think of to describe plans to build this incredibly expensive system that is so transparently vulnerable to sabotage.”

In other words, complex infrastructure(s) translate into unpredictable failures. When it comes to alternative energy, most solutions are complex. What’s your opinion of alternative energy sources?

If alternative energies are to replace existing technologies very sizable investments would be required. I often wonder if there is enough capital in the world to replace this existing energy production, that is, to go from coal & natural gas to geothermal, wind or or solar. I don’t know the answer to the investment question.

What I do know is that it’s very difficult to manage wind energy. Currently, coal plants provide base loads and then natural gas (or hydroelectric) turbines are used to meet peak loads. But when you factor wind into your management scheme things become very difficult. You don’t know where the wind is blowing, how much, when, or in what direction it’s blowing. Then you have to factor this into your management. With 5% of your electricity coming from wind this “might” be manageable but to increase it to 50% or 60% it’s very difficult. Most people don’t pay attention to the difficulties of managing electrical demand.

Is the culprit of global warming population growth? Are you suggesting that unless we have major breakthroughs in technology population growth will undermine most current energy initiatives?

Al Gore understands that population growth is the problem. But he doesn’t recommend doing anything to reduce overpopulation which is the cause of the problems.. It is politically incorrect to talk about population growth. The last US president that worried about population was Richard Nixon. He charted a major study called “The Rockefeller Commission Report.” This study was put together by some very talented people. Their conclusion was simple; they couldn’t see any benefit to further population growth in the US. Unfortunately, the study was put on the shelf and forgotten.

This reminds me of the Red Queen…the more she runs the more the walls/scenery catch up. What can we do?

This is something Malthus understood years ago. We still have economists and politicians that claim that Malthus was wrong. This is nonsense. I’ve read Malthus three times and he presents population problems very clearly. The message of Malthus, translated to today’s problems would be something like this: “Population growth has the potential to outstrip the growth in production of any of the resources that are necessary to sustain our population. This is as true today as it was a hundred years ago when he wrote his essay.

I’d like to ask you a question from the title of your own piece, “Why have scientists succumbed to political correctness?”

I don’t know. I think there is a widespread feeling amongst scientists and certainly among the population that science and technology will save us, so why worry about it? Here’s a story… I was once met with a state senator; he said to me “I’m not worried about running out of petroleum, you (pointing to me) scientists will figure out what ever we need.” So I asked him what was the last new source of energy scientists found? He didn’t have an answer,

so I suggested nuclear power – the process was discovered in Germany in 1939. Enrico Fermi had a reactor operating in 1942. By 1956 we had first commercial nuclear power reactor in this country. Since then, we have spent billions of public and private dollars and we only receive 20% of our electricity from nuclear power. Innovation on the large scale required by our overpopulated society will take time and costs billions of dollars..

Even if science/technology develops the appropriate energy solutions. These solutions would have to be developed and implemented at the same rate as the population growth?

What you must realize is that technological improvements by design allow for and encourage more growth. This is like prescribing aspirin for cancer. As for the timing you’re absolutely right: while technology develops populations keep compounding. And because the scale is so large it’s impossible to implement changes quick enough. In other words, it’s very difficult to get 30% of the population using hybrid electric cars in anything short of 20 years.

Let’s talk about employment. Does growth solve unemployment problems?

If creating jobs reduced unemployment, Colorado would have negative unemployment (or whatever that means). For decades we have been creating jobs and we still have unemployment. No matter how many jobs you create you can’t get off unemployment. This is a consequence of people moving around – a constitutionally protected right.

Newly created jobs in a community temporarily lowers the unemployment rate (say from 5% to 4%), but then people move into the community to restore the unemployment rate to its earlier higher value (of 5%). Yet this is 5% of the no larger population, so more individuals are out of work than before.

What’s your opinion of national unemployment rates and the recent crisis?

For years, we have promoted an insane policy of exporting jobs and importing people. So now it’s catching up with us. Any country that has to import people to do the work of the country is unsustainable. One cannot sustain a world in which some regions have high standards of living while others have low standards of living. All countries cannot simultaneously be net importers of carrying capacity. World trade involves the exportation and importation of carrying capacity.

Tell us more about carrying capacity and trade.

Carrying capacity is a measure of how many people can be supported indefinitely. Therefore if any fraction of global warming is due to the actions of humans, this alone proves that human populations are larger than the carrying capacity of the earth. Sustainability requires that the size of the population be less than or equal to the carrying capacity of the ecosystem for the desired standard of living.

Many economists have raised concerns over countries particularly European countries which have experienced zero population growth rates (or negative population rates). They claim that these rates will burden “entitlements” such as social security… So clearly the answer is to have higher birth rates…unfortunately this only exacerbates the problems of “sustainability.” What’s your take?

Social Security and such projects are Ponzi schemes. They depend on having more and more people paying every year or they collapse. In effect, Social Security will collapse when there aren’t enough young workers. Getting the population back on the growth curve isn’t a long term answer. That makes all the other problems more difficult. So what you have to do is refinance social security – by raising taxes, reducing benefits, or altering the retirement age.

It’s so sad to see European politicians offering bonuses to couples to have more children because they are afraid of slowing growth rates. What people don’t realize is that declining growth rates are the way to sustainability.

You talk about how zero or negative population growth rates translate into higher standards of living. Can you comment on this?

Thirty years ago when the Chinese put their one child per family policy, there statement of justification was that population growth interferes with economic development. In 30 years, they have proven this is true. We in the U.S. haven’t learned this lesson – if you spend all your resources to take care of new people you have no resources to take care of existing citizens.

That’s interesting; we look at China as an economic miracle. Not many attribute much of this success to controlled population growth. This brings me to my next question: many population problems will not be solved unless Americans are consistently implementing plans for the next 70 years. How do we manage this given our political structures? Does China have an advantage?

That’s a great difficulty. Planning horizons in a democracy are based in term years (2, 4, 6 years). Unfortunately, if you change fertility rates it can take 50-70 years before you see the full effects of a change in fertility. This is called population momentum which is a mismatch to our democracy. Politicians implement changes that benefit us in the short term over the long term.

Have you ever calculated the required population for all countries to enjoy the standard of living experienced by Americans?

I haven’t done that, and there isn’t any specific formula. It depends on the standard of living. The most I can do is quote David Pimentel who is a global agricultural scientist at Cornell University. He says that a sustainable world population living at current US dietary level would consist of two billion people. Furthermore, he suggests that a sustainable US population at current dietary levels would have to be around 130-150 million people, which is the population of the US around World War II.

So, how do we get there? My answer is that the government should bring the issue to the forefront and ask; how large do we (as a nation) want to be and what benefit is there from population growth. Then, we need to set goals and plan accordingly. The key is to make family planning available widely throughout the US and the world – with the goal that every child is a wanted child.

You’ve written that, “The benefits of population growth accrue to a few; while the costs are borne by all of society.” Let’s enumerate some of the costs borne by society and a potential solution.

Individuals who benefit from growth will continue to exert strong pressures supporting and encouraging both population growth and growth in rates of consumption of resources.

The individuals who promote growth are motivated by the recognition that growth is good for them. In order to gain public support for their goals, they must convince people that population growth and growth in the rates of consumption of resources are also good for society. [This is the Charles Wilson argument: if it is good for General Motors, it is good for the United States.] (Yates 1983) As for the costs borne by society – with increased growth you have to provide police, fire, schools, waste removal, clean water, and a variety of other infrastructure projects. These services have to be paid for – but they aren’t paid for by growth. Schools in particular suffer. The school systems get their operating expenses from the taxes and to get capital expenses they have to issue bonds. Thus, all tax payers have to pay higher taxes to accommodate schools for new kids.

The solution is to tax growth, put a tax on real estate transactions (both at local levels and state levels) and use this tax to fund new projects.

Where are most economists confused on this issue of growth rates & consumption?

Economists think of infinite substitutability. They cite the example of shifting out of whale oil to petroleum or from wood to coal. Economists suggest that this can continue indefinitely. Unfortunately there are no close substitutes for petroleum. Furthermore, we already know which substitutes exist and they are very costly to access. The substitutability age is no longer as prominent.

What books would you recommend we read to understand population growth rate issues?

I recommend reading Richard Heinberg’s books, “Peak Oil” and “Peak Everything.” He clearly understands the issues.

Is there any hope given the actions of the current administration?

I certainly welcome the new administration, but the problem is we have the same Congress. This Congress enjoys the status quo, they are protective of their own interests, and tey listen to lobbyists. So as someone once said, “we have the best government money can buy.”

Growth never pays for itself. One of the biggest culprits is the federal government. Almost all states have requirements for a balanced budget. The federal government does not have this requirement. As a consequence the federal government is now paying for state schools, highways, sewage systems, bridges. This has happened because the local economy can’t support local population growth. Therefore, the main responsibility of members of Congress is to bring home federal grants to pay for the results of population growth in their representative district.

Another thing to remember is that inflation is a tax on everyone. So if the federal government issues bonds to pay for the consequences of growth (infrastructure, etc) this is likely to result in inflation. Thus, we will all bear the costs. Having looked at our national debt levels, I’m worried that the inflation could be very severe.

That said, stopping population growth is a necessary condition for sustainability, but it isn’t a sufficient condition.

Let’s assume we could implement population growth constraints. What else must be done?

Assuming you can constrain population growth rates, you have to implement every possible efficiency improvement (meaning energy, design, etc). In addition, you would have to create an environmental agency to stop polluters and require existing sources of pollution to be removed. The US population growth rate is the highest of any industrial nation. The US can’t preach for other countries to limit population growth unless we are willing to set an example and do so first.

Key Points to Remember: By Albert Bartlett:

When applied to material things, the term “sustainable growth” is an oxymoron. (It is possible to have sustainable growth of non-material things such as inflation.) Perhaps this is why inflation rates are sustainable or as some politicians would say hopefully sustainable in moderate amounts. We have seen how major national and international reports misrepresent and downplay (marginalize) the quantitative importance of the arithmetic of population sizes and growth.

1. One has to ask if it is possible to have an increase in economic activity (growth) without having increases in the rates of consumption of non-renewable resources? If so, under what conditions can this happen? Are we moving toward those conditions today?

2. What courses of action that could be followed to meet the needs of the present, but which, in doing so, would not limit the ability of generations, throughout the distant future, to meet their own needs?

3. The size of population that can be sustained (the carrying capacity) and the sustainable average standards of living of the population are inversely related to one another. “This runs counter to most traditional entrepreneurial myths of sustainable growth and rising standards of living”

I come back to an Eric Sevareid quote: “The chief cause of problems is solutions.” That is so important. For example, as long as there’s population growth, urban planning is bound to make everything worse. Here’s why. Essentially all the problems planners must deal with are caused by population growth. And planners are trained to solve problems. For a planner, a problem is anything that inhibits population growth. So when you solve the problem you are encouraging more population growth, and this makes everything worse.

Professor thank you for taking the time to answer our questions. We will continue to track your progress. I wish you the best of health. For More information about Professor Bartlett visit Albartlett.org

Miguel Barbosa
Founder of
[www.simoleonsense.com]

Catholic Church Update, by Matt Taibbi

2010-03-29T07:58:00.001-05:00

We've commented before on this prolific and insightful writer. Here he is at his screamingly funny and accurate best, on the recurrent and endless Catholic church molestation scandal:

The Catholic Church is a Criminal Enterprise
By MATT TAIBBI

The Holy See’s reaction to both stories has been swift. An unsigned editorial this week in the Vatican newspaper L’Osservatore Romano attacked the New York Times by name, accusing the paper of willfully ignoring the “truth” of Ratzinger/Benedict’s record and of attempting “to instrumentalize, without any foundation in fact, horrible episodes and sorrowful events uncovered in some cases from decades ago.” The media, it continued, showed a “despicable intent of attacking, at whatever cost, Benedict XVI and his closest collaborators.”

Earlier in the week, New York’s archbishop, Timothy Dolan, used his blog to dismiss the New York Times reports and defend the pontiff’s record by arguing that authorities outside the church also are culpable. Stories about sexual abuse by priests were “fair” if “unending,” he wrote. But he condemned the media for portraying child sexual abuse “as a tragedy unique to the church alone. That, of course, is malarkey.”

via A pope with a problem – latimes.com.

Anyone who’s interested in losing his lunch should read the above-mentioned blog entry by New York archbishop Timothy Dolan in defense of Pope Benedict; the archbishop’s incredibly pompous and self-pitying rant is some of the most depraved horseshit I’ve ever seen on the internet, which is saying a lot.

One expects professional slimeballs like the public relations department of Goldman Sachs to pull out the “Well, we weren’t the only thieves!” argument when accused of financial malfeasance. But I almost couldn’t believe my eyes as I read through Dolan’s retort and it dawned on me that he was actually going to use the “We weren’t the only child molesters!” excuse. Dolan must have very roomy man-robes, because it seems to me you’d need a set of balls like two moons of Jupiter to say such a thing in public and expect it to fly. But this is exactly what Dolan does; he bases his entire defense of the Church on the idea that others are equally culpable. The relevant section of his piece:

What adds to our anger over the nauseating abuse and the awful misjudgment in reassigning such a dangerous man, though, is the glaring fact that we never see similar headlines that would actually be “news”: How about these, for example?

– “Doctor Asserts He Ignored Abuse Warnings,” since Dr. Huth admits in the article that he, in fact, told the archdiocese the abusing priest could be reassigned under certain restrictions, a prescription today recognized as terribly wrong;

– “Doctor Asserts Public Schools Ignored Abuse Warnings,” since the data of Dr. Carol Shakeshaft concludes that the number of cases of abuse of minors by teachers, coaches, counsellors, and staff in government schools is much, much worse than by priests;

– “Doctor Asserts Judges (or Police, Lawyers, District Attorneys, Therapists, Parole Officers) Ignored Abuse Warnings,” since we now know the sober fact that no one in the healing and law enforcement professions knew back then the depth of the scourge of abuse, or the now-taken-for-granted conclusion that abusers of young people can never safely work closely with them again.

The most revolting part of this response is the last bit about how “no one knew… back then” the depth of the scourge of abuse, or the fact that child molesters cannot be allowed near children ever again once caught. Dolan is trying to get us to focus on the 1962 case, but the truth is that as recently as this last decade, the Church’s doctrinal office elected to proceed with church trials for less than 10% of the 3000 cases of abuse reported to them between the years of 2000 and 2010.

And just a few days after this blog entry of Dolan’s, the Times would come out with another story indicating that the current Pope, then a Cardinal named Joseph Ratzinger, seems to have quashed an effort to bring a serial child abuser named Lawrence Murphy to a church trial. The inaction of Ratzinger’s office resulted in Murphy being allowed to die “in the dignity of the priesthood,” which was his wish as expressed in a letter to then-Cardinal Ratzinger in January 1998.

So while schools, parole officers, judges, lawyers and therapists may have been deficient in their understanding of child abuse back in 1962 (although I’m sorry — it could have been 1562, if someone molested my child and was allowed back in the priesthood, I’d be reaching for an axe), the Catholic church is alone among all of them in continuing to not get it since then. Despite massive public scandal over the course of what now is decades, they continue to deflect and shield child molesters as a matter of institutional routine. The ugliest part of the New York Times story wasn’t even the involvement of Ratzinger in this mess but the fact that three successive archbishops failed to do anything about Murphy, a man who apparently molested upwards of 200 children.

(And not only did he molest these children, but he clearly was not forthcoming about his crimes when examined by experts in sexual abuse . In the notes of one such expert there is a telling notation: “Denies sexual contact with anyone not named in outside complaints, i.e. admits to sexual contact only with those accused of!” The expert included that exclamation point, too.)

So this monster who was known to the highest authorities in the church to be a monster was allowed to die an active priest who was allowed to work with children for 24 years even after he was exposed, until the end of his life. For Dolan then to lay all this off on 1962 mores is disgusting all by itself and totally disingenuous.

But even worse — what does Dolan’s whiny deflecting and excuse-making say about the church as an arbiter of ethical values? These pompous assholes run around in their poofy robes and dresses shaking smoke-filled decanters with important expressions on their faces and pretending to great insight about grace and humility, but here we have the head of the largest Diocese in America teaching his entire congregation that when caught committing a terrible sin, the appropriate response is to blame the media and pull the “All the other kids were doing it, too!” stunt!

I was raised Catholic but stopped going to church at the age of 12. I was a complete idiot at that age with regard to almost every other area of human knowledge, but even I knew back then that the church was a scam. There are good and decent people working as individual priests, but the institution as a whole is a gang of cheap charlatans preying on peoples’ guilt feelings (which of course are cultivated intentionally by the church, which teaches children to be ashamed of their natural sexuality) in order to solicit a lifetime of contributions.

When I see a Catholic priest chanting his ridiculous incantations and waving his holy smoke over someone’s gravesite or at a wedding, the vibe I get is exactly the same as the one I get watching a plumber groan and moan and babble gibberish about all the different things wrong with your kitchen pipes, when in reality all he had to do was replace a washer. It’s the same as picking up your car after an oil change and listening to the mechanic rattle off a list of charges totaling thousands for the nineteen extra things he looked at under your hood, just out of concern for your safety… And when you protest, no, there was nothing wrong with my alternator, I’m not paying for that, he tries to bullshit you — oh, yes there was, trust me, if we hadn’ta fixed that, your car woulda died on the highway within a week.

That’s all the church is. They’re a giant for-profit company using predatory salesmanship to sell what they themselves know is a defective, outmoded, basically unnecessary product. They’ll use any means necessary to keep their market share and if they have to lie and cheat and deflect and point fingers to keep the racket going, they’ll do it, just like any other sleazeball company.

But I think it’s time we started considering that what the church is is even worse than that. It’s possible we should start wondering if the church is also a criminal organization that in this country, anyway, should be broken up using RICO statutes.

One of the few areas where I agreed with George Bush was in the notion that a country providing safe haven to terrorists should itself be treated as a terrorist organization. Morally this isn’t a difficult one to figure out; a country that keeps house for a bin Laden and doesn’t assist other countries in trying to catch him is a rogue state, one that should be booted out of the community of nations.

We don’t permit countries that harbor terrorists to participate in international society, but the Catholic Church — an organization that has been proven over and over again to systematically enable child molesters, right up now to the level of the Pope — is given a free pass. In fact the Church is not only not sanctioned in any serious way, it gets to retain its outrageous tax-exempt status, which makes its systematic child abuse, in this country at least, a government-subsidized activity.

Somewhere underneath all of this there is a root story that has to do with celibacy. The celibate status of its priests is basically the Catholic church’s last market advantage in the Christian religion racket, but human beings are not designed to be celibate and so problems naturally arise among the population of priests forced to live that terrible lifestyle. Just as it refuses to change its insane and criminal stance on birth control and condoms, the church refuses to change its horrifically cruel policy about priestly celibacy. That’s because it quite correctly perceives that should it begin to dispense with the irrational precepts of its belief system, it would lose its appeal as an ancient purveyor of magical-mystery bullshit and become just a bigger, better-financed, and infinitely more depressing version of a Tony Robbins self-help program.

Therefore it must cling to its miserable celibacy in order to keep its sordid business scheme going; and if clinging to its miserable celibacy means having to look the other way while children are serially molested by its sexually stunted and tortured employees, well, so be it.

If you look at it that way, the church’s institutional behavior is far worse than is commonly believed. It’s not just a matter of an intractable bureaucracy responding too slowly or too insensitively to some scattered accidents of fate. This is more like the situation of a car company that continues selling a cheap but faulty brake system because it has calculated that it stands to make more money selling the cars than it does to lose in lawsuits. The only difference is, a car company can fix the brakes if it wants to. What the Catholic church is selling is by definition faulty. It can’t change, or it will be out of business. So even if not changing means kids will be continue to be molested, it doesn’t change.

I think Chris Hitchens said this once, and I agree with him; if I were a person that made that kind of moral choice, I think I’d have to kill myself. But these guys not only don’t kill themselves, they go out in public ranting about how wronged they are and how they’ve been fucked over by the evil New York Times for airing out their dirty laundry. Again, I admire the balls, but seriously, they must know the game is almost up. Sooner or later people are going to catch on, the state is going to make a move, and there’s going to be a hell of a lot of church property going up for auction along with the seized Escalades of DEA-busted drug dealers. Or maybe not in this lifetime — but one can only hope.

A Favorite Quote

2010-03-10T16:28:00.001-06:00

"The fact that people are poor or discriminated against doesn't necessarily endow them with any special qualities of justice, nobility, charity or compassion."

—Saul Alinsky

"No One Saw This Coming"

2010-03-01T18:29:00.002-06:00

The next time you hear this, think about the following (wonky, with an economic emphasis, but devastating in its own way). Okay, it's fifty-one pages, but well worth reading, at least the conclusions, and you might want to check out the folks who did actually get it right this time, since so so many got it wrong.

Matt Taibbi's Con Games...

2010-03-01T18:27:00.002-06:00

Well worth a read. Here's the piece in its entirety:

Wall Street's Bailout Hustle
Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy - they're re-creating the conditions for another crash

MATT TAIBBI

Posted Feb 17, 2010 5:57 AM

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On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.

The bank had already set aside a tidy $16.2 billion for salaries and bonuses — meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.

Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."

Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.

Goldman wasn't alone. The nation's six largest banks — all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry — set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.

Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?

The only reason such apathy exists, however, is because there's still a widespread misunderstanding of how exactly Wall Street "earns" its money, with emphasis on the quotation marks around "earns." The question everyone should be asking, as one bailout recipient after another posts massive profits — Goldman reported $13.4 billion in profits last year, after paying out that $16.2 billion in bonuses and compensation — is this: In an economy as horrible as ours, with every factory town between New York and Los Angeles looking like those hollowed-out ghost ships we see on History Channel documentaries like Shipwrecks of the Great Lakes, where in the hell did Wall Street's eye-popping profits come from, exactly? Did Goldman go from bailout city to $13.4 billion in the black because, as Blankfein suggests, its "performance" was just that awesome? A year and a half after they were minutes away from bankruptcy, how are these assholes not only back on their feet again, but hauling in bonuses at the same rate they were during the bubble?

The answer to that question is basically twofold: They raped the taxpayer, and they raped their clients.

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The bottom line is that banks like Goldman have learned absolutely nothing from the global economic meltdown. In fact, they're back conniving and playing speculative long shots in force — only this time with the full financial support of the U.S. government. In the process, they're rapidly re-creating the conditions for another crash, with the same actors once again playing the same crazy games of financial chicken with the same toxic assets as before.

That's why this bonus business isn't merely a matter of getting upset about whether or not Lloyd Blankfein buys himself one tropical island or two on his next birthday. The reality is that the post-bailout era in which Goldman thrived has turned out to be a chaotic frenzy of high-stakes con-artistry, with taxpayers and clients bilked out of billions using a dizzying array of old-school hustles that, but for their ponderous complexity, would have fit well in slick grifter movies like The Sting and Matchstick Men. There's even a term in con-man lingo for what some of the banks are doing right now, with all their cosmetic gestures of scaling back bonuses and giving to charities. In the grifter world, calming down a mark so he doesn't call the cops is known as the "Cool Off."

To appreciate how all of these (sometimes brilliant) schemes work is to understand the difference between earning money and taking scores, and to realize that the profits these banks are posting don't so much represent national growth and recovery, but something closer to the losses one would report after a theft or a car crash. Many Americans instinctively understand this to be true — but, much like when your wife does it with your 300-pound plumber in the kids' playroom, knowing it and actually watching the whole scene from start to finish are two very different things. In that spirit, a brief history of the best 18 months of grifting this country has ever seen:

CON #1 THE SWOOP AND SQUAT

By now, most people who have followed the financial crisis know that the bailout of AIG was actually a bailout of AIG's "counterparties" — the big banks like Goldman to whom the insurance giant owed billions when it went belly up.

What is less understood is that the bailout of AIG counter-parties like Goldman and Société Générale, a French bank, actually began before the collapse of AIG, before the Federal Reserve paid them so much as a dollar. Nor is it understood that these counterparties actually accelerated the wreck of AIG in what was, ironically, something very like the old insurance scam known as "Swoop and Squat," in which a target car is trapped between two perpetrator vehicles and wrecked, with the mark in the game being the target's insurance company — in this case, the government.

This may sound far-fetched, but the financial crisis of 2008 was very much caused by a perverse series of legal incentives that often made failed investments worth more than thriving ones. Our economy was like a town where everyone has juicy insurance policies on their neighbors' cars and houses. In such a town, the driving will be suspiciously bad, and there will be a lot of fires.

AIG was the ultimate example of this dynamic. At the height of the housing boom, Goldman was selling billions in bundled mortgage-backed securities — often toxic crap of the no-money-down, no-identification-needed variety of home loan — to various institutional suckers like pensions and insurance companies, who frequently thought they were buying investment-grade instruments. At the same time, in a glaring example of the perverse incentives that existed and still exist, Goldman was also betting against those same sorts of securities — a practice that one government investigator compared to "selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars."

Goldman often "insured" some of this garbage with AIG, using a virtually unregulated form of pseudo-insurance called credit-default swaps. Thanks in large part to deregulation pushed by Bob Rubin, former chairman of Goldman, and Treasury secretary under Bill Clinton, AIG wasn't required to actually have the capital to pay off the deals. As a result, banks like Goldman bought more than $440 billion worth of this bogus insurance from AIG, a huge blind bet that the taxpayer ended up having to eat.

Thus, when the housing bubble went crazy, Goldman made money coming and going. They made money selling the crap mortgages, and they made money by collecting on the bogus insurance from AIG when the crap mortgages flopped.

Still, the trick for Goldman was: how to collect the insurance money. As AIG headed into a tailspin that fateful summer of 2008, it looked like the beleaguered firm wasn't going to have the money to pay off the bogus insurance. So Goldman and other banks began demanding that AIG provide them with cash collateral. In the 15 months leading up to the collapse of AIG, Goldman received $5.9 billion in collateral. Société Générale, a bank holding lots of mortgage-backed crap originally underwritten by Goldman, received $5.5 billion. These collateral demands squeezing AIG from two sides were the "Swoop and Squat" that ultimately crashed the firm. "It put the company into a liquidity crisis," says Eric Dinallo, who was intimately involved in the AIG bailout as head of the New York State Insurance Department.

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It was a brilliant move. When a company like AIG is about to die, it isn't supposed to hand over big hunks of assets to a single creditor like Goldman; it's supposed to equitably distribute whatever assets it has left among all its creditors. Had AIG gone bankrupt, Goldman would have likely lost much of the $5.9 billion that it pocketed as collateral. "Any bankruptcy court that saw those collateral payments would have declined that transaction as a fraudulent conveyance," says Barry Ritholtz, the author of Bailout Nation. Instead, Goldman and the other counterparties got their money out in advance — putting a torch to what was left of AIG. Fans of the movie Goodfellas will recall Henry Hill and Tommy DeVito taking the same approach to the Bamboo Lounge nightclub they'd been gouging. Roll the Ray Liotta narration: "Finally, when there's nothing left, when you can't borrow another buck . . . you bust the joint out. You light a match."

And why not? After all, according to the terms of the bailout deal struck when AIG was taken over by the state in September 2008, Goldman was paid 100 cents on the dollar on an additional $12.9 billion it was owed by AIG — again, money it almost certainly would not have seen a fraction of had AIG proceeded to a normal bankruptcy. Along with the collateral it pocketed, that's $19 billion in pure cash that Goldman would not have "earned" without massive state intervention. How's that $13.4 billion in 2009 profits looking now? And that doesn't even include the direct bailouts of Goldman Sachs and other big banks, which began in earnest after the collapse of AIG.

CON #2 THE DOLLAR STORE

In the usual "DollarStore" or "Big Store" scam — popularized in movies like The Sting — a huge cast of con artists is hired to create a whole fake environment into which the unsuspecting mark walks and gets robbed over and over again. A warehouse is converted into a makeshift casino or off-track betting parlor, the fool walks in with money, leaves without it.

The two key elements to the Dollar Store scam are the whiz-bang theatrical redecorating job and the fact that everyone is in on it except the mark. In this case, a pair of investment banks were dressed up to look like commercial banks overnight, and it was the taxpayer who walked in and lost his shirt, confused by the appearance of what looked like real Federal Reserve officials minding the store.

Less than a week after the AIG bailout, Goldman and another investment bank, Morgan Stanley, applied for, and received, federal permission to become bank holding companies — a move that would make them eligible for much greater federal support. The stock prices of both firms were cratering, and there was talk that either or both might go the way of Lehman Brothers, another once-mighty investment bank that just a week earlier had disappeared from the face of the earth under the weight of its toxic assets. By law, a five-day waiting period was required for such a conversion — but the two banks got them overnight, with final approval actually coming only five days after the AIG bailout.

Why did they need those federal bank charters? This question is the key to understanding the entire bailout era — because this Dollar Store scam was the big one. Institutions that were, in reality, high-risk gambling houses were allowed to masquerade as conservative commercial banks. As a result of this new designation, they were given access to a virtually endless tap of "free money" by unsuspecting taxpayers. The $10 billion that Goldman received under the better-known TARP bailout was chump change in comparison to the smorgasbord of direct and indirect aid it qualified for as a commercial bank.

When Goldman Sachs and Morgan Stanley got their federal bank charters, they joined Bank of America, Citigroup, J.P. Morgan Chase and the other banking titans who could go to the Fed and borrow massive amounts of money at interest rates that, thanks to the aggressive rate-cutting policies of Fed chief Ben Bernanke during the crisis, soon sank to zero percent. The ability to go to the Fed and borrow big at next to no interest was what saved Goldman, Morgan Stanley and other banks from death in the fall of 2008. "They had no other way to raise capital at that moment, meaning they were on the brink of insolvency," says Nomi Prins, a former managing director at Goldman Sachs. "The Fed was the only shot."

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In fact, the Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to stave off disaster — it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three or four percent. It was basically a license to print money — no different than attaching an ATM to the side of the Federal Reserve.

"You're borrowing at zero, putting it out there at two or three percent, with hundreds of billions of dollars — man, you can make a lot of money that way," says the manager of one prominent hedge fund. "It's free money." Which goes a long way to explaining Goldman's enormous profits last year. But all that free money was amplified by another scam:

CON #3 THE PIG IN THE POKE

At one point or another, pretty much everyone who takes drugs has been burned by this one, also known as the "Rocks in the Box" scam or, in its more elaborate variations, the "Jamaican Switch." Someone sells you what looks like an eightball of coke in a baggie, you get home and, you dumbass, it's baby powder.

The scam's name comes from the Middle Ages, when some fool would be sold a bound and gagged pig that he would see being put into a bag; he'd miss the switch, then get home and find a tied-up cat in there instead. Hence the expression "Don't let the cat out of the bag."

The "Pig in the Poke" scam is another key to the entire bailout era. After the crash of the housing bubble — the largest asset bubble in history — the economy was suddenly flooded with securities backed by failing or near-failing home loans. In the cleanup phase after that bubble burst, the whole game was to get taxpayers, clients and shareholders to buy these worthless cats, but at pig prices.

One of the first times we saw the scam appear was in September 2008, right around the time that AIG was imploding. That was when the Fed changed some of its collateral rules, meaning banks that could once borrow only against sound collateral, like Treasury bills or AAA-rated corporate bonds, could now borrow against pretty much anything — including some of the mortgage-backed sewage that got us into this mess in the first place. In other words, banks that once had to show a real pig to borrow from the Fed could now show up with a cat and get pig money. "All of a sudden, banks were allowed to post absolute shit to the Fed's balance sheet," says the manager of the prominent hedge fund.

The Fed spelled it out on September 14th, 2008, when it changed the collateral rules for one of its first bailout facilities — the Primary Dealer Credit Facility, or PDCF. The Fed's own write-up described the changes: "With the Fed's action, all the kinds of collateral then in use . . . including non-investment-grade securities and equities . . . became eligible for pledge in the PDCF."

Translation: We now accept cats.

The Pig in the Poke also came into play in April of last year, when Congress pushed a little-known agency called the Financial Accounting Standards Board, or FASB, to change the so-called "mark-to-market" accounting rules. Until this rule change, banks had to assign a real-market price to all of their assets. If they had a balance sheet full of securities they had bought at $3 that were now only worth $1, they had to figure their year-end accounting using that $1 value. In other words, if you were the dope who bought a cat instead of a pig, you couldn't invite your shareholders to a slate of pork dinners come year-end accounting time.

But last April, FASB changed all that. From now on, it announced, banks could avoid reporting losses on some of their crappy cat investments simply by declaring that they would "more likely than not" hold on to them until they recovered their pig value. In short, the banks didn't even have to actually hold on to the toxic shit they owned — they just had to sort of promise to hold on to it.

That's why the "profit" numbers of a lot of these banks are really a joke. In many cases, we have absolutely no idea how many cats are in their proverbial bag. What they call "profits" might really be profits, only minus undeclared millions or billions in losses.

"They're hiding all this stuff from their shareholders," says Ritholtz, who was disgusted that the banks lobbied for the rule changes. "Now, suddenly banks that were happy to mark to market on the way up don't have to mark to market on the way down."

CON #4 THE RUMANIAN BOX

One of the great innovations of Victor Lustig, the legendary Depression-era con man who wrote the famous "Ten Commandments for Con Men," was a thing called the "Rumanian Box." This was a little machine that a mark would put a blank piece of paper into, only to see real currency come out the other side. The brilliant Lustig sold this Rumanian Box over and over again for vast sums — but he's been outdone by the modern barons of Wall Street, who managed to get themselves a real Rumanian Box.

How they accomplished this is a story that by itself highlights the challenge of placing this era in any kind of historical context of known financial crime. What the banks did was something that was never — and never could have been — thought of before. They took so much money from the government, and then did so little with it, that the state was forced to start printing new cash to throw at them. Even the great Lustig in his wildest, horniest dreams could never have dreamed up this one.

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The setup: By early 2009, the banks had already replenished themselves with billions if not trillions in bailout money. It wasn't just the $700 billion in TARP cash, the free money provided by the Fed, and the untold losses obscured by accounting tricks. Another new rule allowed banks to collect interest on the cash they were required by law to keep in reserve accounts at the Fed — meaning the state was now compensating the banks simply for guaranteeing their own solvency. And a new federal operation called the Temporary Liquidity Guarantee Program let insolvent and near-insolvent banks dispense with their deservedly ruined credit profiles and borrow on a clean slate, with FDIC backing. Goldman borrowed $29 billion on the government's good name, J.P. Morgan Chase $38 billion, and Bank of America $44 billion. "TLGP," says Prins, the former Goldman manager, "was a big one."

Collectively, all this largesse was worth trillions. The idea behind the flood of money, from the government's standpoint, was to spark a national recovery: We refill the banks' balance sheets, and they, in turn, start to lend money again, recharging the economy and producing jobs. "The banks were fast approaching insolvency," says Rep. Paul Kanjorski, a vocal critic of Wall Street who nevertheless defends the initial decision to bail out the banks. "It was vitally important that we recapitalize these institutions."

But here's the thing. Despite all these trillions in government rescues, despite the Fed slashing interest rates down to nothing and showering the banks with mountains of guarantees, Goldman and its friends had still not jump-started lending again by the first quarter of 2009. That's where those nuclear-powered balls of Lloyd Blankfein came into play, as Goldman and other banks basically threatened to pick up their bailout billions and go home if the government didn't fork over more cash — a lot more. "Even if the Fed could make interest rates negative, that wouldn't necessarily help," warned Goldman's chief domestic economist, Jan Hatzius. "We're in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more."

Translation: You can lower interest rates all you want, but we're still not fucking lending the bailout money to anyone in this economy. Until the government agreed to hand over even more goodies, the banks opted to join the rest of the "private sector" and "save" the taxpayer aid they had received — in the form of bonuses and compensation.

The ploy worked. In March of last year, the Fed sharply expanded a radical new program called quantitative easing, which effectively operated as a real-live Rumanian Box. The government put stacks of paper in one side, and out came $1.2 trillion "real" dollars.

The government used some of that freshly printed money to prop itself up by purchasing Treasury bonds — a desperation move, since Washington's demand for cash was so great post-Clusterfuck '08 that even the Chinese couldn't buy U.S. debt fast enough to keep America afloat. But the Fed used most of the new cash to buy mortgage-backed securities in an effort to spur home lending — instantly creating a massive market for major banks.

And what did the banks do with the proceeds? Among other things, they bought Treasury bonds, essentially lending the money back to the government, at interest. The money that came out of the magic Rumanian Box went from the government back to the government, with Wall Street stepping into the circle just long enough to get paid. And once quantitative easing ends, as it is scheduled to do in March, the flow of money for home loans will once again grind to a halt. The Mortgage Bankers Association expects the number of new residential mortgages to plunge by 40 percent this year.

CON #5 THE BIG MITT

All of that Rumanian box paper was made even more valuable by running it through the next stage of the grift. Michael Masters, one of the country's leading experts on commodities trading, compares this part of the scam to the poker game in the Bill Murray comedy Stripes. "It's like that scene where John Candy leans over to the guy who's new at poker and says, 'Let me see your cards,' then starts giving him advice," Masters says. "He looks at the hand, and the guy has bad cards, and he's like, 'Bluff me, come on! If it were me, I'd bet everything!' That's what it's like. It's like they're looking at your cards as they give you advice."

In more ways than one can count, the economy in the bailout era turned into a "Big Mitt," the con man's name for a rigged poker game. Everybody was indeed looking at everyone else's cards, in many cases with state sanction. Only taxpayers and clients were left out of the loop.

At the same time the Fed and the Treasury were making massive, earthshaking moves like quantitative easing and TARP, they were also consulting regularly with private advisory boards that include every major player on Wall Street. The Treasury Borrowing Advisory Committee has a J.P. Morgan executive as its chairman and a Goldman executive as its vice chairman, while the board advising the Fed includes bankers from Capital One and Bank of New York Mellon. That means that, in addition to getting great gobs of free money, the banks were also getting clear signals about when they were getting that money, making it possible to position themselves to make the appropriate investments.

One of the best examples of the banks blatantly gambling, and winning, on government moves was the Public-Private Investment Program, or PPIP. In this bizarre scheme cooked up by goofball-geek Treasury Secretary Tim Geithner, the government loaned money to hedge funds and other private investors to buy up the absolutely most toxic horseshit on the market — the same kind of high-risk, high-yield mortgages that were most responsible for triggering the financial chain reaction in the fall of 2008. These satanic deals were the basic currency of the bubble: Jobless dope fiends bought houses with no money down, and the big banks wrapped those mortgages into securities and then sold them off to pensions and other suckers as investment-grade deals. The whole point of the PPIP was to get private investors to relieve the banks of these dangerous assets before they hurt any more innocent bystanders.

But what did the banks do instead, once they got wind of the PPIP? They started buying that worthless crap again, presumably to sell back to the government at inflated prices! In the third quarter of last year, Goldman, Morgan Stanley, Citigroup and Bank of America combined to add $3.36 billion of exactly this horseshit to their balance sheets.

This brazen decision to gouge the taxpayer startled even hardened market observers. According to Michael Schlachter of the investment firm Wilshire Associates, it was "absolutely ridiculous" that the banks that were supposed to be reducing their exposure to these volatile instruments were instead loading up on them in order to make a quick buck. "Some of them created this mess," he said, "and they are making a killing undoing it."

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CON #6 THE WIRE

Here's the thing about our current economy. When Goldman and Morgan Stanley transformed overnight from investment banks into commercial banks, we were told this would mean a new era of "significantly tighter regulations and much closer supervision by bank examiners," as The New York Times put it the very next day. In reality, however, the conversion of Goldman and Morgan Stanley simply completed the dangerous concentration of power and wealth that began in 1999, when Congress repealed the Glass-Steagall Act — the Depression-era law that had prevented the merger of insurance firms, commercial banks and investment houses. Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.

One of the most common practices is a thing called front-running, which is really no different from the old "Wire" con, another scam popularized in The Sting. But instead of intercepting a telegraph wire in order to bet on racetrack results ahead of the crowd, what Wall Street does is make bets ahead of valuable information they obtain in the course of everyday business.

Say you're working for the commodities desk of a big investment bank, and a major client — a pension fund, perhaps — calls you up and asks you to buy a billion dollars of oil futures for them. Once you place that huge order, the price of those futures is almost guaranteed to go up. If the guy in charge of asset management a few desks down from you somehow finds out about that, he can make a fortune for the bank by betting ahead of that client of yours. The deal would be instantaneous and undetectable, and it would offer huge profits. Your own client would lose money, of course — he'd end up paying a higher price for the oil futures he ordered, because you would have driven up the price. But that doesn't keep banks from screwing their own customers in this very way.

The scam is so blatant that Goldman Sachs actually warns its clients that something along these lines might happen to them. In the disclosure section at the back of a research paper the bank issued on January 15th, Goldman advises clients to buy some dubious high-yield bonds while admitting that the bank itself may bet against those same shitty bonds. "Our salespeople, traders and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research," the disclosure reads. "Our asset-management area, our proprietary-trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research."

Banks like Goldman admit this stuff openly, despite the fact that there are securities laws that require banks to engage in "fair dealing with customers" and prohibit analysts from issuing opinions that are at odds with what they really think. And yet here they are, saying flat-out that they may be issuing an opinion at odds with what they really think.

To help them screw their own clients, the major investment banks employ high-speed computer programs that can glimpse orders from investors before the deals are processed and then make trades on behalf of the banks at speeds of fractions of a second. None of them will admit it, but everybody knows what this computerized trading — known as "flash trading" — really is. "Flash trading is nothing more than computerized front-running," says the prominent hedge-fund manager. The SEC voted to ban flash trading in September, but five months later it has yet to issue a regulation to put a stop to the practice.

Over the summer, Goldman suffered an embarrassment on that score when one of its employees, a Russian named Sergey Aleynikov, allegedly stole the bank's computerized trading code. In a court proceeding after Aleynikov's arrest, Assistant U.S. Attorney Joseph Facciponti reported that "the bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways."

Six months after a federal prosecutor admitted in open court that the Goldman trading program could be used to unfairly manipulate markets, the bank released its annual numbers. Among the notable details was the fact that a staggering 76 percent of its revenue came from trading, both for its clients and for its own account. "That is much, much higher than any other bank," says Prins, the former Goldman managing director. "If I were a client and I saw that they were making this much money from trading, I would question how badly I was getting screwed."

Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over. Goldman's own explanation for this phenomenon is comedy of the highest order. In testimony before a government panel in January, Blankfein was confronted about his firm's practice of betting against the same sorts of investments it sells to clients. His response: "These are the professional investors who want this exposure."

In other words, our clients are big boys, so screw 'em if they're dumb enough to take the sucker bets I'm offering.

CON #7 THE RELOAD

Not many con men are good enough or brazen enough to con the same victim twice in a row, but the few who try have a name for this excellent sport: reloading. The usual way to reload on a repeat victim (called an "addict" in grifter parlance) is to rope him into trying to get back the money he just lost. This is exactly what started to happen late last year.

It's important to remember that the housing bubble itself was a classic confidence game — the Ponzi scheme. The Ponzi scheme is any scam in which old investors must be continually paid off with money from new investors to keep up what appear to be high rates of investment return. Residential housing was never as valuable as it seemed during the bubble; the soaring home values were instead a reflection of a continual upward rush of new investors in mortgage-backed securities, a rush that finally collapsed in 2008.

But by the end of 2009, the unimaginable was happening: The bubble was re-inflating. A bailout policy that was designed to help us get out from under the bursting of the largest asset bubble in history inadvertently produced exactly the opposite result, as all that government-fueled capital suddenly began flowing into the most dangerous and destructive investments all over again. Wall Street was going for the reload.

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A lot of this was the government's own fault, of course. By slashing interest rates to zero and flooding the market with money, the Fed was replicating the historic mistake that Alan Greenspan had made not once, but twice, before the tech bubble in the early 1990s and before the housing bubble in the early 2000s. By making sure that traditionally safe investments like CDs and savings accounts earned basically nothing, thanks to rock-bottom interest rates, investors were forced to go elsewhere to search for moneymaking opportunities.

Now we're in the same situation all over again, only far worse. Wall Street is flooded with government money, and interest rates that are not just low but flat are pushing investors to seek out more "creative" opportunities. (It's "Greenspan times 10," jokes one hedge-fund trader.) Some of that money could be put to use on Main Street, of course, backing the efforts of investment-worthy entrepreneurs. But that's not what our modern Wall Street is built to do. "They don't seem to want to lend to small and medium-sized business," says Rep. Brad Sherman, who serves on the House Financial Services Committee. "What they want to invest in is marketable securities. And the definition of small and medium-sized businesses, for the most part, is that they don't have marketable securities. They have bank loans."

In other words, unless you're dealing with the stock of a major, publicly traded company, or a giant pile of home mortgages, or the bonds of a large corporation, or a foreign currency, or oil futures, or some country's debt, or anything else that can be rapidly traded back and forth in huge numbers, factory-style, by big banks, you're not really on Wall Street's radar.

So with small business out of the picture, and the safe stuff not worth looking at thanks to the Fed's low interest rates, where did Wall Street go? Right back into the shit that got us here.

One trader, who asked not to be identified, recounts a story of what happened with his hedge fund this past fall. His firm wanted to short — that is, bet against — all the crap toxic bonds that were suddenly in vogue again. The fund's analysts had examined the fundamentals of these instruments and concluded that they were absolutely not good investments.

So they took a short position. One month passed, and they lost money. Another month passed — same thing. Finally, the trader just shrugged and decided to change course and buy.

"I said, 'Fuck it, let's make some money,'" he recalls. "I absolutely did not believe in the fundamentals of any of this stuff. However, I can get on the bandwagon, just so long as I know when to jump out of the car before it goes off the damn cliff!"

This is the very definition of bubble economics — betting on crowd behavior instead of on fundamentals. It's old investors betting on the arrival of new ones, with the value of the underlying thing itself being irrelevant. And this behavior is being driven, no surprise, by the biggest firms on Wall Street.

The research report published by Goldman Sachs on January 15th underlines this sort of thinking. Goldman issued a strong recommendation to buy exactly the sort of high-yield toxic crap our hedge-fund guy was, by then, driving rapidly toward the cliff. "Summarizing our views," the bank wrote, "we expect robust flows . . . to dominate fundamentals." In other words: This stuff is crap, but everyone's buying it in an awfully robust way, so you should too. Just like tech stocks in 1999, and mortgage-backed securities in 2006.

To sum up, this is what Lloyd Blankfein meant by "performance": Take massive sums of money from the government, sit on it until the government starts printing trillions of dollars in a desperate attempt to restart the economy, buy even more toxic assets to sell back to the government at inflated prices — and then, when all else fails, start driving us all toward the cliff again with a frank and open endorsement of bubble economics. I mean, shit — who wouldn't deserve billions in bonuses for doing all that?

Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."

More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

The REAL Unemployment Rate...

2010-03-01T18:25:00.001-06:00

Here it is...don't pay attention to the horse hockey emanating from the mainstream media.

Blind Spot

2010-02-01T10:40:00.002-06:00

Really nice production here, with most of our friends: Heinberg, the Bartletts (Albert and Roscoe), Tainter, Savinar, etc. Puts just about everything in perspective, with easy to understand explanations. In a different culture, works like these would be a wake-up call, but not in the US. Not too hard to realize why, and the film takes a pretty good stab at it.

No Xmas Rant This Year...

2009-12-22T21:56:00.003-06:00

As longtime readers know, Chaos usually presents at least one seasonal rant. Not this year; Chaos believes (now) that people change only when they have to, and this holiday season is proof of that. Look for less sales, profits, and generally retail activity, just because (and this is so simple and yet so true, one needs to recite it at least a few times a week) people who don't have jobs are not inclined to buy stuff. So, it seems a little unfair to get upset at those few who do have a few bucks, since they are merely repeating the same forms that served them so well in past years. Who knew that the entire way of doing most things changed completely a year and a half or so ago, and that it will affect the way everyone lives for quite some time, if not forever? Well. At this time, Chaos (now changed from the callow person who began this blog over four years ago, see the blogroll) merely wishes good times and fellowship to those readers who still remain. Try and put aside earthly concerns, for just a few moments, and revel in the pleasure of being aware and present at this particular moment.

Dr. Bartlett's Laws of Sustainability

2009-11-09T08:27:00.003-06:00

Few words are as carelessly, ignorantly and malevolently misused as "sustainability." Our friend, Dr.Albert Bartlett, Professor Emeritus of the University of Colorado at Boulder, and star of the classic "Arithmetic, Population and Energy" video referenced on this blog many times, has compiled the following laws of real sustainability (ideally, one would view the video prior to perusing these, but here they are anyway). (Copied from The Oil Drum)

LAWS OF SUSTAINABILITY

The Laws that follow are offered to define the term "sustainability." In some cases these statements are accompanied by corollaries that are identified by capital letters. They all apply for populations and rates of consumption of goods and resources of the sizes and scales found in the world in 2005, and may not be applicable for small numbers of people or to groups in primitive tribal situations.

These Laws are believed to hold rigorously.

The list is but a single compilation, and hence may be incomplete. Readers are invited to communicate with the author in regard to items that should or should not be in this list.

First Law: Population growth and / or growth in the rates of consumption of resources cannot be sustained.

A) A population growth rate less than or equal to zero and declining rates of consumption of resources are a necessary, but not a sufficient, condition for a sustainable society.

B) Unsustainability will be the certain result of any program of "development," that does not plan the achievement of zero (or a period of negative) growth of populations and of rates of consumption of resources. This is true even if the program is said to be “sustainable.”

C) The research and regulation programs of governmental agencies that are charged with protecting the environment and promoting "sustainability" are, in the long run, irrelevant, unless these programs address vigorously and quantitatively the concept of carrying capacities and unless the programs study in depth the demographic causes and consequences of environmental problems.

D) Societies, or sectors of a society, that depend on population growth or growth in their rates of consumption of resources, are unsustainable.

E) Persons who advocate population growth and / or growth in the rates of consumption of resources are advocating unsustainability.

F) Persons who suggest that sustainability can be achieved without stopping population growth are misleading themselves and others.

G) Persons whose actions directly or indirectly cause increases in population or in the rates of consumption of resources are moving society away from sustainability.

H) The term "Sustainable Growth" is an oxymoron.

I) In terms of population sizes and rates of resource consumption, “The only smart growth is no growth.” (Hammond, 1999)

Second Law: In a society with a growing population and / or growing rates of consumption of resources, the larger the population, and / or the larger the rates of consumption of resources, the more difficult it will be to transform the society to the condition of sustainability.

Third Law: The response time of populations to changes in the human fertility rate is the average length of a human life, or approximately 70 years. (Bartlett and Lytwak 1995) [This is called "population momentum."]

A) A nation can achieve zero population growth if:
a) the fertility rate is maintained at the replacement level for 70 years, and
b) there is no net migration during the 70 years.
During the 70 years the population continues to grow, but at declining rates until the growth finally stops after approximately 70 years.

B) If we want to make changes in the total fertility rates so as to stabilize the population by the mid - to late 21st century, we must make the necessary changes now.

C) The time horizon of political leaders is of the order of two to eight years.

D) It will be difficult to convince political leaders to act now to change course, when the full results of the change may not become apparent in the lifetimes of those leaders.

Fourth Law: The size of population that can be sustained (the carrying capacity) and the sustainable average standard of living of the population are inversely related to one another. (This must be true even though Cohen asserts that the numerical size of the carrying capacity of the Earth cannot be determined, (Cohen 1995))

A) The higher the standard of living one wishes to sustain, the more urgent it is to stop population growth.

B) Reductions in the rates of consumption of resources and reductions in the rates of production of pollution can shift the carrying capacity in the direction of sustaining a larger population.

Fifth Law: One cannot sustain a world in which some regions have high standards of living while others have low standards of living.

Sixth Law: All countries cannot simultaneously be net importers of carrying capacity.

A) World trade involves the exportation and importation of carrying capacity.

Seventh Law: A society that has to import people to do its daily work (“We can’t find locals who will do the work,”) is not sustainable.

Eighth Law: Sustainability requires that the size of the population be less than or equal to the carrying capacity of the ecosystem for the desired standard of living.

A) Sustainability requires an equilibrium between human society and dynamic but stable ecosystems.

B) Destruction of ecosystems tends to reduce the carrying capacity and / or the sustainable standard of living.

C) The rate of destruction of ecosystems increases as the rate of growth of the population increases.

D) Affluent countries, through world trade, destroy the ecosystems of less developed countries.

E) Population growth rates less than or equal to zero are necessary, but are not sufficient, conditions for halting the destruction of the environment. This is true locally and globally.

Ninth Law: ( The lesson of "The Tragedy of the Commons" ) (Hardin 1968): The benefits of population growth and of growth in the rates of consumption of resources accrue to a few; the costs of population growth and growth in the rates of consumption of resources are borne by all of society.

A) Individuals who benefit from growth will continue to exert strong pressures supporting and encouraging both population growth and growth in rates of consumption of resources.

B) The individuals who promote growth are motivated by the recognition that growth is good for them. In order to gain public support for their goals, they must convince people that population growth and growth in the rates of consumption of resources, are also good for society. [This is the Charles Wilson argument: if it is good for General Motors, it is good for the United States.] (Yates 1983)

Tenth Law: Growth in the rate of consumption of a non-renewable resource, such as a fossil fuel, causes a dramatic decrease in the life-expectancy of the resource.

A) In a world of growing rates of consumption of resources, it is seriously misleading to state the life-expectancy of a non-renewable resource "at present rates of consumption," i.e., with no growth. More relevant than the life-expectancy of a resource is the expected date of the peak production of the resource, i.e. the peak of the Hubbert curve. (Hubbert 1972)

B) It is intellectually dishonest to advocate growth in the rate of consumption of non-renewable resources while, at the same time, reassuring people about how long the resources will last "at present rates of consumption.” (zero growth)

Eleventh Law: The time of expiration of non-renewable resources can be postponed, possibly for a very long time, by:

i ) technological improvements in the efficiency with which the resources are recovered and used

ii ) using the resources in accord with a program of "Sustained Availability," (Bartlett 1986)

iii ) recycling

iv ) the use of substitute resources.

Twelfth Law: When large efforts are made to improve the efficiency with which resources are used, the resulting savings are easily and completely wiped out by the added resources that are consumed as a consequence of modest increases in population.

A) When the efficiency of resource use is increased, the consequence often is that the "saved" resources are not put aside for the use of future generations, but instead are used immediately to encourage and support larger populations.

B) Humans have an enormous compulsion to find an immediate use for all available resources.

Thirteenth Law: The benefits of large efforts to preserve the environment are easily canceled by the added demands on the environment that result from small increases in human population.

Fourteenth Law: (Second Law of Thermodynamics) When rates of pollution exceed the natural cleansing capacity of the environment, it is easier to pollute than it is to clean up the environment.

Fifteenth Law: (Eric Sevareid's Law); The chief cause of problems is solutions. (Sevareid 1970)

A) This law should be a central part of higher education, especially in engineering.

Sixteenth Law: Humans will always be dependent on agriculture. (This is the first of Malthus’ two postulata.)

A) Supermarkets alone are not sufficient.

B) The central task in sustainable agriculture is to preserve agricultural land. The agricultural land must be protected from losses due to things such as:

i ) Urbanization and development

ii ) Erosion

iii ) Poisoning by chemicals

Seventeenth Law: If, for whatever reason, humans fail to stop population growth and growth in the rates of consumption of resources, Nature will stop these growths.

A) By contemporary western standards, Nature's method of stopping growth is cruel and inhumane.

B) Glimpses of Nature's method of dealing with populations that have exceeded the carrying capacity of their lands can be seen each night on the television news reports from places where large populations are experiencing starvation and misery.

Eighteenth Law: In local situations within the U.S., creating jobs increases the number of people locally who are out of work.

A) Newly created jobs in a community temporarily lowers the unemployment rate (say from 5% to 4%), but then people move into the community to restore the unemployment rate to its earlier higher value (of 5%), but this is 5% of the larger population, so more individuals are out of work than before.

Nineteenth Law: Starving people don't care about sustainability.

A) If sustainability is to be achieved, the necessary leadership and resources must be supplied by people who are not starving.

Twentieth Law: The addition of the word "sustainable" to our vocabulary, to our reports, programs, and papers, to the names of our academic institutes and research programs, and to our community initiatives, is not sufficient to ensure that our society becomes sustainable.

Twenty-First Law: Extinction is forever.
SO WHERE DO WE GO FROM HERE?

The challenge of making the transition to a sustainable society is enormous, in part because of a major global effort to keep people from recognizing the centrality of population growth to the enormous problems of the U.S. and the world.

• On the global scale, we need to support family planning throughout the world, and we should generally restrict our foreign aid to those countries that make continued demonstrated progress in reducing population growth rates and sizes.

• The immediate task is to restore numeracy to the population programs in the local, national and global agendas.

• On the national scale, we can work for the selection of leaders who will recognize that population growth is the major problem in the U.S. and who will initiate a national dialog on the problem. With a lot of work at the grassroots, our system of representative government will respond.

• On the local and national levels, we must focus serious attention and large fiscal resources on the development of renewable energy sources.

• On the local and national levels, we need to work to improve social justice and equity.

• On the community level in the U.S., we should work to make growth pay for itself.

If You Have Your Money In a Bank...

2009-10-25T11:56:00.001-05:00

This video should scare the bejesus out of you. When a government official takes time out of her day to say that all deposits are safe...RUN!!!

More Nice Moving Pictures...

2009-10-01T08:47:00.001-05:00

Try this lovely video, if you can't manage to get your head around the economic blowout and the ridiculous insistence of the thundering herd that things are getting better:

Let's Solve The Economic Blowout!

2009-09-23T19:18:00.003-05:00

Proof that we never lack for good ideas, we just have a shortage of will, here comes the esteemed regulator William Black, with a fine example of what we could do, if somehow, we were not unable to by the capture of the fine American corporations who make up most of the political landscape in this fine nation. Here it is, read and ponder the vast difference between this and our esteemed President's latest remarks to third world countries:

William K. Black's Proposal for “Systemically Dangerous Institutions”

William K. Black, Associate Professor of Economics and Law at the University of Missouri – Kansas City, and the former head S&L regulator, has written the following fantastic new proposal concerning the giant, insolvent banks. Posted/reprinted with Professor Black's permission.

William K. Black
Associate Professor of Economics and Law
University of Missouri – Kansas City

blackw@umkc.edu

September 10, 2009

The Obama administration is continuing the Bush administration policy of refusing to comply with the Prompt Corrective Action (PCA) law. Both administrations twisted a deeply flawed doctrine – “too big to fail” – into a policy enshrining crony capitalism.

Historically, “too big to fail” was a misnomer – large, insolvent banks and S&Ls were placed in receivership and their “risk capital” (shareholders and subordinated debtholders) received nothing. That treatment is fair, minimizes the costs to the taxpayers, and minimizes “moral hazard.” “Too big to fail” meant only that they were not placed in liquidating receiverships (akin to a Chapter 7 “liquidating” bankruptcy). In this crisis, however, regulators have twisted the term into immunity. Massive insolvent banks are not placed in receivership, their senior managers are left in place, and the taxpayers secretly subsidize their risk capital. This policy is indefensible. It is also unlawful. It violates the Prompt Corrective Action law. If it is continued it will cause future crises and recurrent scandals.

On October 16, 2006, Chairman Bernanke delivered a speech explaining why regulators must not allow banks with inadequate capital to remain open.
http://federalreserve.gov/newsevents/speech/bernanke20061016a.htm

Capital regulation is the cornerstone of bank regulators' efforts to maintain a safe and sound banking system, a critical element of overall financial stability. For example, supervisory policies regarding prompt corrective action are linked to a bank's leverage and risk-based capital ratios. Moreover, a strong capital base significantly reduces the moral hazard risks associated with the extension of the federal safety net.

The Treasury has fundamentally mischaracterized the nature of institutions it deems “too big to fail.” These institutions are not massive because greater size brings efficiency. They are massive because size brings market and political power. Their size makes them inefficient and dangerous.

Under the current regulatory system banks that are too big to fail pose a clear and present danger to the economy. They are not national assets. A bank that is too big to fail is too big to operate safely and too big to regulate. It poses a systemic risk. These banks are not “systemically important”, they are “systemically dangerous.” They are ticking time bombs – except that many of them have already exploded.

We need to comply with the Prompt Corrective Action law. Any institution that the administration deems “too big to fail” should be placed on a public list of “systemically dangerous institutions” (SDIs). SDIs should be subject to regulatory and tax incentives to shrink to a size where they are no longer too big to fail, manage, and regulate. No single financial entity should be permitted to become, or remain, so large that it poses a systemic risk.

SDIs should:

1. Not be permitted to acquire other firms

2. Not be permitted to grow

3. Be subject to a premium federal corporate income tax rate that increases with asset size

4. Be subject to comprehensive federal and state regulation, including:

a. Annual, full-scope examinations by their primary federal regulator

b. Annual examination by the systemic risk regulator

c. Annual tax audits by the IRS

d. An annual forensic (anti-fraud) audit by a firm chosen by their primary federal regulator

e. An annual audit by a firm chosen by their primary federal regulator

f. SEC review of every securities filing

5. A prohibition on any stock buy-backs

6. Limits on dividends

7. A requirement to follow “best practices” on executive compensation as specified by their primary federal regulator

8. A prohibition against growth and a requirement for phased shrinkage

9. A ban (which becomes effective in 18 months) on having an equity interest in any affiliate that is headquartered in or doing business in any tax haven (designated by the IRS) or engaging in any transaction with an entity located in any tax haven

10. A ban on lobbying any governmental entity

11. Consolidation of all affiliates, including SIVs, so that the SDI could not evade leverage or capital requirements

12. Leverage limits

13. Increased capital requirements

14. A ban on the purchase, sale, or guarantee of any new OTC financial derivative

15. A ban on all new speculative investments

16. A ban on so-called “dynamic hedging”

17. A requirement to file criminal referrals meeting the standards set by the FBI

18. A requirement to establish “hot lines” encouraging whistleblowing

19. The appointment of public interest directors on the BPSR’s board of directors

20. The appointment by the primary federal regulator of an ombudsman as a senior officer of the SDI with the mission to function like an Inspector General

Predatory Health Care, Once Again

2009-09-23T19:09:00.002-05:00

A thought-provoking piece in the LA Times reminds us just how tenuous our health here in the US is: in brief, the reporter, a fired health care correspondent, decides to go it alone regarding health insurance, and finds many justifications (rationalizations) to do without, chiefly, that, should he contract a major illness/condition, the insurance company would do everything in its considerable power to deny him the coverage he paid for. A good deal of this article consists of the writer rationalizing his gambling instinct by boasting about his good health, which seems at the least, rash. This, readers, is what we've sunk to, today, in the Predatory Empire we find ourselves in. Here's the article, reprinted in its entirety:

Choosing to not have medical insurance

He covered the healthcare industry for much of his career and realizes the importance of a safety net. But after weighing the risks and benefits, he is going it alone.

By J. Duncan Moore Jr.

September 21, 2009

It never occurred to me that I would count myself among America's 47 million uninsured when I passed my 53rd birthday earlier this year. I'm the last person I would have imagined living without a safety net between me and the medical risks of early middle age.

Insurance against the unforeseeable, after all, is what makes middle-class existence possible. Yet, as the country debates the merits of reforming the rules around insurance markets, it's worth pondering what value health insurance really adds for individuals under the current system.

I have no insurance partly by accident and partly by intent. I'm not freaking out, though. Should I be? I'll tell you what I know. Then you decide.

A little more than two years ago, I quit my job. It was, on the face of it, a good job, with a high salary, professional prestige and a luxury health-insurance policy. But I was miserable -- so unhappy, in fact, that I started to worry about myself.

I had stopped sleeping through the night. After one particularly grueling 14-hour day, a blood vessel in my nose burst and I had to lie on the floor in the lobby of an office tower while security guards debated calling an ambulance. Without being aware of it, I lost 10 pounds over five months.

What was this fearsome job? Writing about health insurance for a news organization. I interviewed top executives at the nation's mega-managed-care companies. I attended investor conferences, covered earnings reports, wrote about clinical trials, explained Medicare benefits. I learned to love the delectable insurance lingo -- medical-loss ratios, adverse selection, moral hazard, the underwriting cycle -- that make normal people feel as if they're stirring concrete with their eyelashes.

But the deadline stress was killing me, and I decided not to die before my time. I signed up for the 18-month COBRA extension and began paying $447.12 a month out of my savings for health insurance. I assumed I would find a job, with new insurance coverage, soon enough. I didn't anticipate the economic crisis or the collapse of the journalism profession.

When the COBRA coverage was about to expire and I still didn't have a job, I considered the insurance problem from two perspectives: my health status and history -- and what insurance actually buys. The answer I came up with surprised me.

Healthy lifestyle

I've always been a naturally healthy person. I eat right and get plenty of sleep. All my life I've avoided unhealthy behaviors like crack cocaine and yoga. My parents are in their 80s and in great shape. There's no cancer or heart disease in the family history. My Scottish grandparents lived to be 87 and 91.

Like a lot of guys who were not especially athletic in their youth, when I hit my 40s I decided to become a stud. I taught myself to swim and started lifting weights. I sold my car 10 years ago and started taking public transit. In warm weather, I ride my bike everyplace I need to go. I've never been overweight. I'm fit, trim, well-proportioned. My body mass index hovers around 24.7. (At 25, you are borderline "overweight," but people with strong bones and lots of muscle mass like me tend to tilt toward overweight in that metric.)

If I were going to develop a chronic disease, I'd have it by now. My blood glucose tends toward the low end, so I'm not going to become diabetic. I have some lower back pain and stiffness from a herniated disk 15 years ago, but I manage it with strengthening exercises and stretches. Knee or joint surgery? I don't like to run. Cancer? I never smoked. I had a colonoscopy at 51 and saw for myself on the video monitor that I'm clean as a whistle down there. I did, however, have early signs of a precancerous condition a few years ago.

I had some tests, and doctors believe it won't turn into anything serious. We are watching the situation. (According to insurance brokers I consulted, however, that condition could be enough to exclude me from qualifying for an individual policy.)

As to heart and vascular risk,I have always had low blood pressure and pretty good, though not ideal, cholesterol. I got my last blood work-up numbers from my doctor and plugged them into the heart attack risk calculator on the website of the National Heart Lung and Blood Institute. My risk score is 5%. Five of 100 people with this level of risk will have a heart attack in the next 10 years. That sounds acceptable.

So what does a guy like me need with health insurance? I'm the best risk in town, I thought to myself. Why shouldn't I self-insure? In other words, why couldn't I accept full responsibility for my own health expenses?

That's what big companies do. They hire a health insurer to "rent" a network of doctors and hospitals; they also pay the bills for their employees and encourage healthy habits. But the actual medical risk is held by the employers themselves. Companies save a lot of money that way. Risk management is where insurance companies make their big profits.

And so I decided: Why shouldn't I create my own network and find providers who would give me a discount for paying cash? I know how to be a savvy medical consumer. Twelve years ago, I needed a gum graft, and was told my insurance wouldn't cover it. I called oral surgeons until I found one willing to give me a firm price for the procedure. Most doctors don't like to cite a price in advance, but as the U.S. health system moves toward asking patients to pay a greater share of the bill, doctors are going to have to become more responsive to their patients' cost sensitivities.

About a year ago, when I was looking at the end of my COBRA policy in a few months, I talked to the business manager at my regular physician's office about my options. He said the office offers a standard discount to people without insurance, ranging from 20% to 40%, depending on the service or procedures performed. Diagnostic tests and X-rays are another matter, he said. He advised me to check in advance what sorts of discounts might be available. For hospitalizations, major medical centers in Chicago, where I live, are giving pre-arranged discounts, ranging from 15% to 58%, to patients who don't have insurance.

A month ago, I went to the doctor for a checkup. My "intermediate" visit, billed at $100, was discounted to $65, and some routine cholesterol tests, billed at $195, cost me $110. I wrote two checks on the spot. There was no paperwork, no correspondence, no phone calls, no arguing about deductibles or co-pays, for me or for the doctor's office. And the doctor got his money immediately.

The truth is, I still have money in the bank and can afford to pay most bills myself. A disaster costing more than $50,000 would be a problem, but short of that, I could handle it.

A few years ago I worked for a large consulting firm. The head of the healthcare practice used to argue that the U.S. will get a grip on its exploding healthcare costs only if consumers have "more skin in the game," as he put it. Regular people have to face the real costs of their medical options, instead of having them hidden behind employer-sponsored insurance or Medicare, and choose more wisely. I'm prepared to pay those costs, within reason, and consume medical care more sparingly.

Most health insurance payments to providers are for routine services that, strictly speaking, are not insurable events. The real purpose of insurance is to protect you against sudden, unexpected, unaffordable events, for instance, a heart attack or cancer diagnosis. Yet that's not how most of us use our health insurance these days. We use it to pay regular, predictable expenses such as office visits, diagnostic tests, dental cleanings and eye exams.

Giving up conventional insurance that covers all these routine expenses, however, still leaves people exposed to the risk of unanticipated catastrophe, the expense of which can sometimes force people into bankruptcy.

For me, the main medical risk is being hit by a bus or cab, or falling off my bike. But even if I bought a policy, there are no guarantees that the insurance company would pay, that it wouldn't try to weasel out of the obligation.

Avoiding payment

That brings me to the single most terrifying aspect of health insurance in America today: rescissions. This newspaper has published a drumbeat of horror stories -- notably in a 2006 article and many since -- about Californians who had purchased health insurance and paid premiums in good faith, only to find their policies revoked once they made expensive claims for major illnesses, such as cancer, or procedures, such as heart surgeries. This portrait of the health insurance industry has been horrific.

Around the same time the articles began, I learned that my music teacher had been hospitalized for two weeks in a coma that he had barely survived. Like many creative types, he was self-employed, with an individual policy. His insurer reneged on the bill, asserting that the coma was the result of a preexisting condition. The hospital is now pursuing my teacher for a six-figure medical bill. It could cost him his house. It's one thing when it happens to anonymous people a thousand miles away, another when it happens to somebody you know.

On July 21, the Chicago Tribune splashed across the front page the story of a man who got preauthorization for an expensive back operation. Yet after the $148,000 procedure was done, UnitedHealthcare, his employer's insurer, refused to pay -- even though it had already authorized the surgery. After the patient wrote to the Tribune's "What's Your Problem" columnist, and after the newspaper made inquiries with UnitedHealthcare, the decision was reversed and the insurer paid the bill.

The industry's continued use of rescissions to evade bills that companies don't wish to honor eviscerates the value of health insurance. To a person like me, who is on the margin, rescissions are the deciding factor between purchasing and not purchasing insurance.

As I indicated earlier, I believe in insurance. Honestly, it is foolhardy for a middle-class person to go without it. Yet as long as the insurers can use medical underwriting to exclude poor risks and redline preexisting conditions -- sometimes retroactively -- insurance isn't worth what we're being asked to pay.

I'm looking forward to the day when all of us will qualify for good medical insurance at reasonable prices, with a firm regulatory hand behind it. If we all have to pay into the system in order to make health reform work, so be it. I'll gladly pay if I'm assured of getting the services I contracted for.

In October, I'll hit 12 months without insurance, and I will have saved about $6,000 that otherwise would have padded the profits of the insurance companies.

Eventually, I will have some serious medical expenses, and I'll use these savings to pay them. Between now and then, I'm going to wear my bike helmet and stay off the rollerblades.

Moore is a freelance writer in Chicago and the co-founder of the Assn. of Health Care Journalists.

An Ominous Sign...

2009-09-09T16:53:00.003-05:00

Here's a highly interesting video on one person's response to the typical predatory bank and credit card industry; the fact that someone has decided not to pay their credit card bill is not particularly newsworthy, nor the fact that this particular bank (Bank of America) has jacked up the interest rate to 30% or so. Instead, ponder what might happen to the system (well, some are saying that it's happening already, and who is Chaos to disagree?) if more than a small percentage of people starting feeling and acting like this. Hmmm. Well, anyway, check out this tiny snapshot of where we are:

Oh, and if you want more evidence of predatory behavior, look no further than this article on how banks take advantage of people overdrawing their account with debit cards. The bank knows at the instant of the transaction that the amount requested is more than the individual has in their account, but they don't decline the transaction, just assess the victim (uh, Chaos means the customer) a nice, fat fee.

The Spiral Downward...

2009-09-09T14:49:00.003-05:00

"You can't cheat an honest man"---W.C. Fields

This fine feature, courtesy of the Washington Post, is an excellent example of both the path downwards that a huge chunk of the US public is about to experience, and a cultural snapshot of the values that have gotten the Empire to the exact place that it now finds itself. It's tragic and pathetic how people who have really no economic understanding of any kind are suddenly hoisted on their own petards by their innumeracy when large forces almost outside their comprehension intrude into their lives (translation: no safety net). Come to think of it, this is an approximation of the economic debacle generally, except that the worst excesses were caused by the largest, most powerful, and smartest (hah!) players. At any rate, in order to preserve the insights for posterity, here it is in its entirety...click on the original link as well, because there is a revealing slideshow which simply must be watched.

For Many Americans, Nowhere to Go but Down

MIDDLEBURY, Ind. -- He sinks into the couch, foot jiggling, his gaze traveling from his wife to the television to the darkness outside, broken now and then by the distant glow of passing headlights.

His mind settles into another round of "What if?"

As in: What if we don't have cash to buy milk, eggs, bread or diapers? What if our unemployment benefits run out? What if we never find jobs?

And then Scott Nichols thinks of the words he doesn't want to say, what for him, a 39-year-old husband and father of two, is the option he has hoped to avoid since being laid off nine months earlier.

They already took free food from a church pantry, cardboard boxes filled with Corn Flakes and bologna and saltines, his wife, Kelly, walking in, head down, while he stayed in the car, ashen. They pawned his wedding ring, sold part of her Silver Eagle coin collection and had help from the Salvation Army paying their electric bill.

Now another cliff approaches: the loss of the home they rent.

"Looks like we'll have to go to your mom's," Scott Nichols says to Kelly, 33, who is in a beige recliner, staring ahead.

Moving to her mother's would mean returning to the rundown industrial town where they grew up, a place that makes him feel dirty, inside and out. They would sleep in her basement jammed with forgotten furniture, a few steps from a pair of cat litter boxes and below three narrow windows blocked by insulation.

Twenty months after it began, what has the American recession come to?

There are signs that the bottom has been reached. The stock market is on its way back up. Retail sales are improving. The overall sense of desperation, so widespread at the beginning of the year, has eased.

Every day come new reports suggesting some improvement.

But underneath all of the reports is this living room.

"Okay," Kelly says.

The people who have just agreed that they are out of options sit in silence, wondering the way out.

"It needs to be paid," she insists. The $40 installment on their Kmart layaway plan is nearly a week late.

"That doesn't leave a whole lot of money," he says. If they pay the $40, they will have $31 for themselves, their 2-year-old daughter and his 17-year-old son until their next unemployment checks arrive in five days.

"This is why we have no money," she says, irritated, fatigued.

These are the conversations that pervade Scott and Kelly Nichols's days.

How did they get here? How did their every other exchange evolve into a riddle that includes the refrain "How much?" followed by "How much do we have left?" How did their horizon become a basement in southern Michigan?

Nearly four years ago, in search of better pay, Scott Nichols took his older brother's advice and followed him to where he had moved years before: northern Indiana and the flatlands of Elkhart County, the country's largest manufacturer of recreational vehicles.

"The RV Capital of the World," as Elkhart's leaders say.

Scott got a job on a paint crew at an RV plant, and by the end of 2007 his income had climbed to $53,000, more than he had ever earned. After work he was the man at the bar with the thick roll of bills, the man he had always wanted to be, buying round after round for himself and his friends. The man with "the full pocket," as he liked to say. He took his son on a fishing trip. He took his family out to eat and told them to order whatever they wanted.

Then gas prices soared, the economy unraveled and demand for RVs plummeted. Over the course of a year, Elkhart County's unemployment rate rose from less than 5 percent to more than 18 percent. Thousands of workers lost their jobs, the casualties including Scott, and Kelly, who worked in accounts payable at another RV company. The crisis in Elkhart drew the attention of President Obama, who traveled there within weeks of taking office. Obama plans another trip to the county on Wednesday to further focus on the economy.

When he lost his job, Scott had no savings, his primary objective always having been to earn enough to cover the rent, eat an occasional steak, feed and clothe their children, ride his dirt bike, fish, golf, play poker, buy lottery tickets, and drink Bud Light.

For two decades, a robust U.S. economy had allowed Scott a paycheck-to-paycheck life, one in which he was always confident that the next payday was ahead. Lose one job, and soon enough there was another. He flipped burgers at a diner. He was an apprentice at an auto body shop. He drove a delivery truck, was a gofer for an elevator mechanic, mopped floors at a burrito plant, worked as a forge operator, and sanded and buffed and painted truck caps and RVs.

But this time, as weeks stretched into months, Scott found himself not only with no job opportunities but also with nowhere to turn for help. His parents, a retired machinist and truck-stop waitress, still live in the same cramped mobile home in which he grew up. His brother, the one who persuaded him to move to Indiana, has been behind on his own bills since his RV company cut his hours. And Kelly's mother, a retired public school teacher, can offer only her basement.

At the kitchen table, Scott opens the newspaper.

"Movie Extras Needed Now -- 45 bucks to register, earn $100 to $300 a day," he says, reading aloud.

A company needs "employees to assemble products at home, $500 weekly, no experience necessary."

Another is looking for people to "earn $3,800 a week working from home, selling information packs."

"Here's that one we got burned on," he says.

Part-Time Inside Phone Sales. Data Entry From Home. Bodyguards Wanted.

He folds the paper and tosses it across the table.

" 'Bee Movie?' " asks Hailey, the 2-year-old, climbing into Scott's lap. He loves his children. He tries to be a good father. He dotes on them.

"I don't want to watch the 'Bee Movie' right now," he says, rubbing his eyes. He pours cough medicine into a spoon and takes it to her. "I know it doesn't taste good," he says.

Five weeks before they will have to move unless they find jobs, every day is a slow-motion version of the one before, the soundtrack a mix of sighs and yawns, whatever is on TV, Hailey's laughter, Hailey's crying, Hailey's whining, discussions about which bills to pay, and infrequent, inconsequential chatter.

"That new Camaro is freakin' ugly."

"Didn't see it."

"It's right across from the library. How could you miss it?"

They always sit in the same spots, as they do today, a Wednesday, Kelly in the recliner, tattered at the edges. Scott is on his end of the couch, clutching a jug of Pepsi that he refills when it empties.

A photograph from their wedding day sits on a wooden shelf in the corner, "Kelly and Scott, July 10, 2004" in script on the frame. Her smile is wide, her dress bright white. He's in a black tux, grinning, his hair a buzz cut, his goatee neat, the mustache pencil thin.

Now, sitting on the couch, 11 months after being laid off, his hair is thick and uncombed, and his mustache full. He has gained 40 pounds since his last day on the job. He needs a refill on his antidepressant but doesn't want to spend money to see a doctor.

"C'mon, Karma," he says to the dog, a docile Labrador and Rottweiler mix. "Let's go get the garbage can. Quick trip. Like the wind."

Scott walks to the end of the driveway, 87 paces, from where he pushes the bin back to the house, a gray mobile home with a finished basement and a garage on three flat acres. He falls back onto the couch, glancing up at a framed print of three wolves, then at Kelly, then at Hailey. His toes wiggle inside his white socks. He yawns.

In the months since his layoff, he has walked into this place or that place looking for work, unannounced visits that resulted in nothing. He went to a factory that makes ambulances. Nothing. To another that sells truck caps. Nothing. Another that produces tops for aerosol cans. Nothing. He heard about an RV plant that might be hiring, but decided he needs more information before he'll get in his car anymore. He refuses to waste gas chasing rumors.

Driving anywhere alone is an expense that needs justification. Driving anywhere as a family is nearly impossible, because their two-door Cougar is too cramped and too sagging to accommodate their collective weight. Their second car, an old sport-utility vehicle, is stranded in a mechanic's back yard, needing repairs that Scott says he can't afford. So they stay home, which is another way to avoid spending money.

There is time to think: about the laundry he needs to wash. Or maybe he'll save it until tomorrow so he has something to do. He imagines the taunting he's sure he'll hear from his other brother -- the brother who has remained in Michigan -- if he moves back there and into the basement: "So you thought you were gonna go down there and make a ton of money . . . "

He thinks about his son, Cody, with his C's and D's and no direction or ambition. What will Cody do in a year when he graduates from high school? He thinks about taking classes to learn how to use a computer, aware that a new skill could help him find a job. The idea infuriates him. He has a blue folder filled with certificates: "Scott Nichols has satisfactorily completed the Advanced Auto Body Course." And: Scott Nichols "has completed 460 hours of training in auto glass installation." And: "Scott Nichols successfully completed 1,020 hours of training in auto painting."

Why should he have to start all over?

"Did you eat all the doughnuts?" Kelly asks.

"What do you think I was eating last night?" he answers.

She studies Hailey, who is on the floor, gaping at the TV.

"She's kind of sedentary," she says.

"Why?"

"I don't know."

"Why?"

"I don't know."

Scott smiles. "Why?"

She rolls her eyes. "I'm going to smack you."

For dinner, they eat breakfast -- pancakes and sausages, which is what Scott had scheduled for this night when he mapped out a month's worth of meals to save money. The handwritten menu hangs on the refrigerator. Another night was soup and sandwiches. Another night was Chicken Helper and cottage cheese. Another night was leftovers. This night, Cody washes the dishes, his shoulder-length brown hair concealing his face as he leans over the sink.

"Homework?" Scott asks.

"No."

"Imagine that. If I get another call from school."

"You won't."

"What'd you do, tell them I don't have a phone?"

Cody disappears into his room to play Xbox. The TV is still on, the "King of Queens" fading into "Family Guy," "Two and a Half Men," "The New Old Christine," "Gary Unmarried," and "Seinfeld." As the sky turns black, no one switches on the lights. Kelly and Scott are in their usual places, the living room consumed by the blue glow of the television and an unceasing laugh track.

Monday is the day Scott dresses and leaves the house with a purpose that reminds him of the way he felt when he went to work. Only now he's off to collect their unemployment benefits, electronically delivered to their bank accounts by the state of Indiana: $268 for Kelly, $390 for him.

"Payday," he says, driving to an ATM.

He withdraws $700, which he tucks into a front pocket of his jeans. He buys a Pepsi, four packs of Marlboro Lights and $20 in gas. He pays the electric bill, buys brake pads and a $66 money order for the kids' health insurance, and hoses down the Cougar at a car wash. At the bank, he deposits $500 toward rent.

"Five, 10, 12 dollars," he says, counting his remaining cash.

He has $100 more coming, his reward for winning the NASCAR betting pool at his bar, a dark, smoky joint called the Winners Circle. He walks in just before noon, hoping to find someone, anyone, who might know something about a job. The place is almost empty. The bartender, gray-haired, gravelly-voiced Valerie, delivers his winnings and a $2 draft. He rarely drinks at home or in front of his kids. He never drank at work. But sometimes he drinks here, beer after beer after beer.

"I don't want to end up in a bell tower with a high-powered rifle," he likes to say. "I need to let loose in some way. I'm not going to give up everything."

At 1:10 p.m. he orders his fourth Bud. At 1:44 he orders a fifth, then a sixth. His cellphone rings. He knows it's Kelly before he answers. There's that question again: How much does he have left?

"We're still fine," he says. "Promise! No I'm not! . . . I've only had six. . . . I'm good. . . . This is it."

He downs a seventh beer, then an eighth at 3:04. He drives home slowly. The last thing he needs is a cop pulling him over. He passes Coachmen RV on his left, a plant where he applied for a job six weeks earlier. He passes Evergreen on the right, another RV maker, the sign at the entrance to the long driveway announcing, "Not accepting any applications."

In the kitchen, Scott gives Kelly the rest of the money in his pocket, $70, which needs to last until next week's unemployment money arrives. He hands Hailey his loose change for her piggy bank before falling into a chair and losing himself in a game of solitaire.

"Mmm."

Kelly is the one out of the house now, closing her eyes as she sits in a Subway, savoring a foot-long sandwich.

Her thoughts shift to a phone conversation she had that morning with their landlord, when she gave notice that she and Scott would be moving out in a month unless they found work. The prospect of leaving Elkhart makes her think about the place she wishes they were going, a house that exists in her imagination.

"A Victorian," she says. "Four bedrooms, two-and-a-half baths, a family room, a living room, a sunroom, what I would call a sewing room, a kitchen, a dining room and a wraparound porch. That's what drew me to it, the wraparound."

She takes another bite and wanders around the first floor.

"The family room was going to be where I kept my plants," she says. "It was going to be soft green. . . . And the sunroom, that was going to be yellow and it was going to have golden wicker to decorate it. . . . And then upstairs, the master bedroom was going to be mostly white with some blue. . . . And the master bath was going to be purple and white and I was going to have a stained-glass window."

She's ashamed that she and Scott have no money. She's embarrassed that they can't find jobs. She didn't grow up this way. In high school, she had a 3.9 grade-point average. She keeps a few old papers in a box, a teacher's "A -- Well Written" scrawled on one, "Very Good!" on another. She got a scholarship to a community college, then lost it after she started partying and stopped going to class. She held a series of forgettable jobs at forgettable places: a bank, a photo lab, a Burger King. She went back to school, finished her two-year degree and continued to work at forgettable places.

She thinks about her mother, a divorcée, raising two daughters on her own and taking them on trips to New York and Washington, D.C., and Europe. She and Scott have never taken a family vacation. They were together for eight years before getting married, mainly because Kelly wanted to save up for a catered wedding reception. Scott would have been happy flying to Vegas and mixing in some gambling. He doesn't need a tux. Or a Victorian.

"And the first bedroom was going to be Hailey's bedroom," she says. "Soft green with a big Oriental rug with a big rose in the middle. And a big canopy bed. . . . "

She takes a last bite of her sandwich.

"I know it'll never happen," she says. "But you can still dream. Wish. Imagine."

She wipes her mouth with a napkin.

"If I made $60,000 and Scott made $60,000, we could probably do it in three or four years."

Her voice trails off.

"Someday."

She tosses her trash in the garbage. The tour is over.

An e-mail pops up on Kelly's BlackBerry, which she got when she was working and has kept because of the cost of breaking the contract. The message is from a chiropractor needing a bookkeeper, a job she thought was filled because she had applied two months earlier and got no response. Now the doctor wants her to take what he calls a "personality survey."

She drives to the public library to use a computer, because she and Scott don't own one. The survey requires that she rate how a series of 80 statements describes her, "4" being "most like you" and "1" being "least." Next to "I am a winner in most situations," she checks 1.

A few minutes after clicking the send button, their landlord calls, asking permission to drop by the next day to see what in the house needs to be fixed. The landlord, also an RV worker, is carrying two mortgages and must rent or sell the place as soon as possible.

Kelly hangs up and listens to her voicemail. A message from the chiropractor's assistant: The doctor wants her to come in for an interview, the first callback she has received in more than two months.

"Astonishing!" she says, driving toward home. "I wish I could stop and pick some lilacs. Look at all those pretty flowers!"

Hailey is sitting on Scott's lap, and Cody in the recliner, when Kelly walks in the house. They're watching "Bee Movie." Kelly tells Scott about the landlord's call.

"They want to do a walk-through tomorrow, put an ad in the paper."

"When tomorrow?"

"Tomorrow afternoon."

She mentions the call from the chiropractor.

"You're getting a job interview?" Cody asks.

"Yeah."

Scott coughs. He's fighting a cold. His mind drifts to cleaning up the house and packing. Kelly wonders whether they should trim the hedges.

"For God's sakes! That's just pitiful!" he shouts. "The things you worry about!"

"It just bugs me, okay?"

"Don't get snappy with me!"

They're silent for a few moments, his thoughts swinging back to the landlord.

"Didn't know she was going to market it that damn quick," he says.

The next morning, as she prepares to leave for her interview, Kelly gives Hailey a children's book to take to Scott, saying, "Ask Daddy to read it to you one more time."

The book is called "What Dads Can't Do," which Kelly discovered when she took Hailey to story time at the library. She hoped its message might lift her husband's spirits.

His voice is a monotone as he reads.

"There are so many things that dads can't do, it's a wonder they make it through life at all. But dads can't give up. No matter how tired a dad gets or how hard life gets, a dad never quits."

He closes the book and hands it to Hailey, who brings it to Kelly, who walks out the door, saying, "All right, wish me good things."

Scott is silent as the door shuts and asks no questions when she returns.

"Want me to tell you what happened?"

"Uh-huh."

He doesn't look up from the wall he's touching up with white paint. The landlord is due soon.

"It's 28 hours, eight bucks an hour," she says. No benefits, she adds.

"You say, 'Thank you, but -- '?"

"Yup," she says. "I make more on unemployment."

They sweep and vacuum. As he wipes down the stove, the sink and the counters, Scott thinks about a guy from his home town he loves to tease. He's over 30, has three kids and still lives at home with his mother. What a loser.

"I can't make that joke anymore," he says.

The landlord arrives with his wife, saying how sorry he is to see them go.

"Tell you the truth, I'm broke," Scott says. While Kelly follows them through the house, he wanders the back yard with Hailey and Karma.

An hour later, over lasagna, Scott asks Cody if his girlfriend is still trying to persuade him to stay with her instead of moving to Michigan.

"I'd rather stay down here," the boy says.

"You understand that life happens?" Scott says. "We've got to do something?"

Cody nods.

Scott goes into the garage, mounts his dirt bike, gunning the engine and standing on the pedals as he speeds across the field behind the house, his face slick with grimy sweat. For the first time all day, for the first time in a long while, he seems happy.

"Look at Daddy go!" Kelly says, holding Hailey's hand.

The bike hits a bump and Scott tumbles forward, over the handlebars, falling hard on the grass. His shoulder throbs. No job, no health insurance. He can't risk hurting himself any more. He pushes his bike to the garage and heads back to the couch.

Twenty-two days to go.

A couple of hours north, inside a small yellow house in Jackson, Mich., Kelly's mother walks down 11 dark steps into the basement. She's surrounded by stacks of boxes and milk crates, old chairs shoved against tables and shelves. The ceiling is low enough to touch.

Hailey will sleep upstairs, in a toddler bed already occupied by Winnie the Pooh and Mickey Mouse.

And Cody?

"I don't know what they're going to do," says Diane Lawrence.

She shakes her head and walks up to the living room, settling into an easy chair. Her walls are decorated with antique clocks, a painting of a lighthouse and her mother's 70-year-old wedding dress, enshrined in a frame.

Lawrence leans back. She has no answers, none that she is sure of, anyway. Only questions.

How will three adults, a teenager and a child share a single bathroom?

How long will they stay?

Jackson is about 80 miles west of Detroit, its only recent distinction being that it made Forbes magazine's list of the country's 10 worst small cities for finding jobs. Elkhart was named, too. It was sixth worst. Jackson? Number one.

"There's just nothing available for anyone in this part of the country," she says.

Her friend warned her not to take them in. They're adults, let them figure it out. Lawrence scoffs at the idea. Of course they'll live with her. They're her family.

"It's not their fault the economy fell through the floor," she says. "It's just too bad it happened."

Six days until they have to leave.

"You know what he grossed this year?" a woman asks at Scott and Kelly's barbecue, referring to her husband, an RV worker, who grins as he toes the ground. "Under $10,000."

"We're three months behind on our mortgage payments," she says.

"After I pay all my monthly bills, I've got $40 in my pocket," says a boyish man, a single parent who works two jobs and fixes cars on the side.

"Haven't seen it this bad here in 21 years," says another man, in a baseball cap and bowling shirt, leaning against his pickup, gripping a can of beer. "We've all had to make adjustments."

No one more so than Scott, the host at his own farewell party, who is grilling burgers and hotdogs and hugging friends. He smiles when he sees Richard Oiler, his buddy, who recently got a job painting RVs after being laid off for 15 months.

Soon after he started, Oiler called Scott and told him to get over to the plant to fill out an application. Scott drove over once, then again, but never got a call. Maybe it's worth one last-ditch try before they go, he decides now. He moves closer to Oiler. He says he's going to stop by the plant on Monday to put in another application, and asks if he can deliver it to Oiler. Maybe Oiler could hand it to the bosses.

"See if you can?" he asks. He raises his eyebrows. "See what I'm saying?"

"Right," Oiler says.

Scott wanders away. Oiler sips his beer. He considers himself fortunate to have found a job. But he makes $15 an hour, without the regular bonuses that he and Scott could count on during fatter times. "Made more in high school," he says. Every day, he has to stop himself from talking back to his bosses.

"You keep your mouth shut!" his wife snaps.

Inside the house, Cody and his girlfriend, Brandy, lie on his bed watching cartoons. He wears a black T-shirt emblazoned with the Grim Reaper's hooded face. Thick black liner circles her hazel eyes.

"I have atrocious grades and no money," Cody says, which leaves one option, as far as he can see: the military, although boot camp is not something he'd relish.

"I'm not exactly in shape."

"You could lose weight," Brandy says.

"I'll diet then and if I can't get past that, well guess what? They'll send me home."

"No, they won't, Cody."

He doesn't want to leave their house, his school, Brandy. He envisions the three of them sleeping in that basement -- Kelly, Scott and himself, no walls between them.

"I'm sorry," Cody says, "but this is wrong."

Outside, as the sun fades and a bonfire begins to glow, Kelly keeps an eye on Hailey while Scott wanders from friend to friend, bantering as he tilts his head back and chugs another beer. If anyone says anything approaching sentimental, he obliges with a hug and a promise to return. Then he moves on, laughing as he goes.

After 12 months of trying to fix his life, there is no more fixing to be done. Scott Nichols accepts that he is a man standing in a back yard of a house that soon won't be his own. He's a man with no way out. He's the man with no option but surrender.

Monday: Four days left. He does not go to see Richard Oiler. He does not fill out an application.

Tuesday: Kelly packs up some of her things. A clarinet she hasn't played since high school. A Louis Armstrong CD. Two photographs she took at some other point in her life, one of a rose, one of lilacs. A Shakespeare anthology. She shows Scott a wooden keepsake box. "You can yard-sale that," he says, "along with all the damn candles you got."

Wednesday: They run a few errands in the sagging Cougar.

Thursday: They rent a U-Haul and begin loading, father and son, silent. First the TV, then the couches, their dressers, their beds, the kitchen table, the washer and dryer, his two hunting rifles, then box after box after box, until the house is empty and the truck is full.

They arrive in Jackson by late afternoon the next day, Kelly's mother leading them down those 11 dark steps, apologizing not once but twice for the putrid smell of cat urine.

Kelly sits on a desk and Cody slumps in a chair. Scott is on the bed, arms folded, his eyes lost in the shadows. Kelly's mother offers to ask the cable company about running another line downstairs for their television.

Not necessary, Scott assures her.

"I don't plan on being here for long," he promises. He stands and unfolds his arms. The man with no options wonders what to do next, but there is nothing left to do other than trudge upstairs, unload the truck, and come back down to the basement.

Hunger Insurance From Dmitry Orlov

2009-08-24T07:53:00.002-05:00

Our longtime friend, author of Reinventing Collapse and numerous helpful pieces on the differences and non-differences between the collapse of the Soviet Union and the impending collapse of the US Empire, has a screamingly funny post up on the US healthcare system. Here it is in its entirety:

"I would like to sell you some hunger insurance. Are you insured against hunger? Perhaps you should be! Without this coverage, you may find it impossible to continue to afford feeding yourself and your family. With this coverage, not only will you be assured of continuing to get at least some food, but so will I. In fact, thanks to this plan, I will get to eat very, very well indeed.

Here's how it works. You buy a hunger insurance plan from my hunger insurance company, or from one of my illustrious competitors in the hunger insurance industry. The hunger insurance market is very competitive, offering you plenty of consumer choice. You can even decide to go with a hunger maintenance organization (HMO); that would make a lot of sense if you are on a diet.

Whichever company you choose buys up food in bulk on your behalf. Then, should you come down with a case of hunger, you can file a claim, pay the copayment, and get some of the food. Certain feeding procedures, such as breakfast, are considered elective, and are not covered.

The company is in a position to demand lower prices for food from the food providers, and can even pass some of these savings on to you. (But the fine folks in the hunger insurance company do have to eat too, you know.) Of course, the food providers try to make up the difference by charging those without hunger insurance much higher prices, but how can anyone blame them? That's just market economics. There may also be some food-related benefits, such as lower rental rates on bowls, spoons, napkins and feeding tubes (check the details of your plan).

There is just one more twist: you should try to arrange your hunger insurance plan through your employer. You see, it is much more expensive for companies to do business with consumers directly. It is much cheaper and easier for them to deal with other companies, and this allows them to, again, pass along some of the savings. In fact, many hunger insurers may decide not to sell individual hunger plans because group hunger is much more profitable. This is just Business 101: nothing personal. Plus, how can you afford to pay your hunger premium every month if you are unemployed? It goes without saying that if you want to keep your hunger insurance, you better try to keep your job, whether they pay you or not! And if you are currently unemployed, then, well... why am I still talking to you?

I am sure you will agree that this is a damn good system: it offers you consumer choice, a healthy diet, and, most importantly, peace of mind. But, as you may have heard, some people have been clamoring for a so-called "single-feeder system" run by the government. Now, that sort of thing may be very well for those miserable communists, but let me ask you a couple of questions.

First: Do you want to get fed the same as everyone else, even if you can afford to pay a little extra? What if you, say, win the lottery; wouldn't you want to upgrade to the premium plan, and dine on filet mignon, foie gras and truffles like I do instead of the corporate-government-provided Happi-Meals?

But even more importantly, who do you want your children to be when they grow up: lowly, overworked, underpaid government bureaucrats, or fat-cat capitalists like me? Isn't this compelling vision of hope worth tightening your belt for? To be perfectly honest, those jobs are reserved for my children, but yours might still be able to find work as their personal bathroom assistants, if they are docile and pretty... let's pretend you didn't hear that.

But ultimately it is still all up to you, because it is you who, every few years, walks into a voting booth and pulls a lever. And then I have to work with whoever you elect, and bring them around to seeing things my way. We are in this together, you see: you get to pull the lever, but I get to write the checks, with your money. Politicians have to eat too, you know, I am there to help them, and they know it.

Is that your stomach growling, or are you just happy to see me?"

New Rules (Apologies to Bill Maher)

2009-08-21T20:07:00.003-05:00

Well, it has been quite some time, and of course Chaos would apologize to any remaining readers (assuming there are some to begin with), but really, it all seems a bit much these days. It pains Chaos to be right about the US health care system, but what purpose does it serve, after all, to know that if one remains in this country, any medical issues will involve much more funds than one can afford? To know this and remain, it seems, is a willful act of negligence, if not blindness.

At any rate, Chaos now has a few new axioms to live by, having studied multiple issues of massive importance for the last few years, and here they are:

1. Any problem which requires the vast majority of the public to "wake up," "come together," and act in any sort of unified fashion will fail. E.g., peak oil, peak water, peak resources, global heating, driving slower, etc.
2. Any problem which involves disabling or diminishing the influence of large corporate entities will fail. E.g., health care, agricultural reform, regulation of large financial firms, etc.
3. Any problem which requires more than a modicum of understanding by the public (and most especially, the US public) will fail. E. g., all the above examples mentioned, plus drug policy, gun control, and legalization of homosexual rights.
4. Population control will not be mentioned, outside of China, and some doomer blogs.
5. Discussion of the effects of and the eventual exhaustion of exponential growth in use of finite resources is strictly taboo, in all circumstances.
6. Humans will not change unless forced to by changes in circumstances. Changes in actions will always precede changes in attitudes. E.g., we didn't stop overconsuming and borrowing money for same because we figured out it was a good idea, we just ran out of money.

Another One From Matt Taibbi

2009-07-17T19:18:00.001-05:00

This guy is great, just keeps knocking them out of the park:

So what’s wrong with Goldman posting $3.44 billion in second-quarter profits, what’s wrong with the company so far earmarking $11.4 billion in compensation for its employees? What’s wrong is that this is not free-market earnings but an almost pure state subsidy.

Last year, when Hank Paulson told us all that the planet would explode if we didn’t fork over a gazillion dollars to Wall Street immediately, the entire rationale not only for TARP but for the whole galaxy of lesser-known state crutches and safety nets quietly ushered in later on was that Wall Street, once rescued, would pump money back into the economy, create jobs, and initiate a widespread recovery. This, we were told, was the reason we needed to pilfer massive amounts of middle-class tax revenue and hand it over to the same guys who had just blown up the financial world. We’d save their asses, they’d save ours. That was the deal.

It turned out not to happen that way. We constructed this massive bailout infrastructure, and instead of pumping that free money back into the economy, the banks instead simply hoarded it and ate it on the spot, converting it into bonuses. So what does this Goldman profit number mean? This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s resources upward, on a grand scale. It was a selective rescue of a small group of chortling jerks who must be laughing all the way to the Hamptons every weekend about how they fleeced all of us at the very moment the game should have been up for all of them.

Now, the counter to this charge is, well, hey, they made that money fair and square, legally, how can you blame them? They’re just really smart!

Bullshit. One of the most hilarious lies that has been spread about Goldman of late is that, since it repaid its TARP money, it’s now free and clear of any obligation to the government - as if that was the only handout Goldman got in the last year. Goldman last year made your average AFDC mom on food stamps look like an entrepreneur. Here’s a brief list of all the state aid that is hiding behind that $3.44 billion number they announced the other day. In no particular order:

1. The AIG bailout. Goldman might have gone out of business last year if AIG had been allowed to proceed to an ordinary bankruptcy, as AIG owed Goldman about $20 billion at the time it went into a death spiral. Instead, Goldman gets to call upon its former chief, Hank Paulson, who green-lights this massive, $80 billion bailout of AIG (with Lloyd Blankfein in the room), at least $12.9 billion of which went straight to Goldman. Moreover, let’s not forget this: both Goldman and Bank Societe Generale had been tattooing AIG with collateral calls in the period before AIG’s collapse, with Goldman extracting a full $5.9 billion from the company during that time. It was those collateral calls that really killed AIG.

Now, ask yourself: exactly how big would Goldman’s profits be this year, if they had to fill a still-extant $13 billion or even a $20 billion hole on its balance sheet from AIG’s collapse? You think it would still be $3.44 billion? What if Hank Paulson had elected to save Lehman instead of saving AIG/Goldman, how big would Goldman’s profits be then? Is anyone even asking this question?

I keep hearing people say, “Well, so what — it’s only fair that Goldman got paid off for its deals with AIG. After all, AIG was contractually obligated to Goldman. Goldman deserves that money, because it was doing the right thing in buying insurance from AIG in the first place.”

That’s bullshit, too. As Rich Bennett over at the hilarious monkey business blog pointed out to me the other day, Goldman was insane and reckless in making those deals with AIG. Goldman wasn’t removing risk from its books by buying CDS protection from AIG, they were exchanging one kind of risk for another kind of risk, counterparty risk. “If you have too much risk to one entity and they go bust, you’re shit outta luck,” Rich says. “They took AIG for a ride, and when the music stopped, they and their partners were going to be taking up the proverbial tookus.”

So to review: Goldman makes insane bets, runs wild on AIGFP’s house idiot Joe Cassano for a while, sticking him with $20 billion in risk, and when it all went to shit — as it inevitably had to — they drove a big stake through AIG’s heart and got the government to step in and pay them off using our money. How’s that for market capitalism? Just like Adam Smith drew it up, right? They’re just smart guys!

2. TARP. Much discussed, no need to really review here. Goldman got its $10 billion. It paid off its $10 billion. Good for them. However, there’s one thing to note here, and it hasn’t been mentioned really at all in the press. It is continually reported that now that Goldman has repaid its TARP money, it no longer has restrictions on its executive compensation. That’s actually not true. The government still holds warrants from Goldman and other companies that it acquired during the TARP process, and until the banks pay off those warrants (and they’re all already trying to pay them off at below market prices), the Treasury still technically has the authority to prevent lavish bonuses. Not that that will happen, of course, and this is yet another government handout — a firmer government would be hard on Goldman to the end of the process, while this government is doing its matador job and waving through these massive bonuses early on in the repayment schedule.

3. The Temporary Liquidity Guarantee Program. So Goldman last year converts from an investment bank to bank holding company status, which now makes it eligible for a new program that gives commercial banks FDIC backing for unsecured debt. This is not a direct subsidy in the sense of us actually handing over a bunch of money to Goldman, but it’s almost better, in a way. This basically hands over a free AAA rating to the big banks and allows them access to mountains of cheap money, with all of us on the hook if something went wrong. This is the equivalent of telling Exxon it can take crude from the Strategic Petroleum Reserve at below-market rates during an energy crisis and then turn around and sell it on the market at whatever price it wants, and pocket the difference, for the good of God and country. Goldman took full advantage of this deal, issuing $28 billion in FDIC-backed debt after its conversion. Exactly how hard is it for a bank to make a profit when it has unlimited access to virtually free money? It is almost impossible for banks to not make money when their cost of capital sinks this low.

Ask yourself this question: has borrowing money gotten any cheaper for you this year? Did someone from the government walk up to you after you foreclosed on your house or missed payments on your charge card and, as a favor, just because you’re so cool, jack your credit score back up to the 99th percentile and invite you to start all over again? Because that’s what happened to these assholes. They made every bad move you can think of and they not only got a clean credit slate but a vitually ceiling-free spending limit.

4. The Fed Programs. By converting to a bank holding company, Goldman also became eligible for a whole galaxy of new bailout programs administered through the federal reserve like the Term Asset-Backed Securities Loan Facility (TALF); it also became eligible to borrow cheap money from the Fed’s discount window. There is so much to cover here that it would take forever to get to all of it, but the key number to remember here is $2.2 trillion (not billion, trillion). That’s how much the Fed has lent out in assistance since this crisis started and we have no idea how much of it went to Goldman or any other firm, thanks to Ben Bernanke, who refuses to disclose this information. But you can bet that Goldman has taken full advantage of all the various programs designed to relieve the banks of the worthless crap assets they acquired while they were playing roulette the past ten years or so. We just have no idea how much crap they unloaded on the Fed, or how much they borrowed. Would you really bet that it wasn’t much?

5. The TARP Repayment Bonanza. See the story at the top of this piece. As part and parcel of the TARP program, the banks that received money had strict guidelines imposed on them by the state in the area of how they could raise the money to repay. TARP recipients had to issue new equity according to certain parameters, and guess who one of the only major equity underwriters left on Wall Street is? That’s right, Goldman, Sachs. So say International Reckless Dickwad Bank needs to issue $100 million in new stock to pay off TARP; they hire Goldman to do the deal, and since the fee for equity underwriting is 7%, Goldman gets, in essence, a state-mandated $7 million fee. Because so much money was lent out under TARP, the underwriters on Wall Street made a massive bonanza on all the new bank stock. As noted above, Goldman’s equity underwriting department hauled in $736 million this quarter. Does this happen without the bailouts? No. Do the bailouts happen if banks like Goldman hadn’t blown up the universe in the first place? No. You do the math; this is another subsidy.

And that’s just some of the help they’ve gotten. Should we bother to count Goldman’s status as one of just 17 remaining primary dealers in U.S. Treasuries, which naturally did a crisp business last year as the U.S. borrowed its way out of a hole the banks had themselves created? Should we count the ban on short-selling Goldman asked for and got last year? Or how about the seemingly obvious fact that the bank used all of this state assistance and guarantees as a crutch to prop up lots of new risk-taking activity, which was the exact opposite of what was supposed to have been achieved by the bailouts, which were supposed to usher in an new era of austerity and temperance?

As Felix Salmon notes, Goldman last year, after it converted to bank holding company status, announced that it was “taking steps to reduce leverage.” But what’s happened since then is that Goldman has actually been emboldened by all its state backing to borrow more and gamble more than ever. This is the equivalent of a regular casino gambler who hears that the house has doubled down on his credit line and decides to stay up at the tables all night, instead of going home and sobering up. Just look at Goldman’s VaR, or Value at Risk, which measures the amount of money the bank puts at risk on any given day: it’s soared since last year.

Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

There are going to be some people who say that some of this stuff isn’t government subsidy so much as ordinary government contracting. After all, do we criticize Boeing for making airplanes or Electric Boat for making submarines during a war? If we don’t do that, then why should we be pissed about Goldman making a profit underwriting TARP repayment stock issuances, or Treasuries?

The difference is that Boeing and Electric Boat didn’t start the war. But these guys on Wall Street causesd this crisis, and now they’re raking in money on the infrastructure their buddies in government have devised to bail them out. It’s a self-fulfilling cycle — beautiful, in a way, but at the same time sort of uniquely disgusting. That they’re going to get away with it is bad enough — that they’re getting praised for it, for being such smart guys, is damn near intolerable.

Why Eschewing Plastic Bags Won't Help...

2009-07-10T16:43:00.004-05:00

Here is a very enlightening article which cuts through the fluff engendered by the establishment concerning the actual facts of personal consumption, and why "doing your part" to limit your use of plastic bags, for example, or bicycling instead of driving, are essentially fruitless activities, if, like author Derrick Jensen, you imagine real change instead of change we just talk about. As usual, a well-written piece and almost all true (well, actually Chaos would take issue with a tiny part, i.e., that small things done by many people do cause large changes, both good and bad. In essence, this is what has caused our footprint upon the planet to be so "heavy."). Quoted in its entirety:

WOULD ANY SANE PERSON think dumpster diving would have stopped Hitler, or that composting would have ended slavery or brought about the eight-hour workday, or that chopping wood and carrying water would have gotten people out of Tsarist prisons, or that dancing naked around a fire would have helped put in place the Voting Rights Act of 1957 or the Civil Rights Act of 1964? Then why now, with all the world at stake, do so many people retreat into these entirely personal “solutions”?

Part of the problem is that we’ve been victims of a campaign of systematic misdirection. Consumer culture and the capitalist mindset have taught us to substitute acts of personal consumption (or enlightenment) for organized political resistance. An Inconvenient Truth helped raise consciousness about global warming. But did you notice that all of the solutions presented had to do with personal consumption—changing light bulbs, inflating tires, driving half as much—and had nothing to do with shifting power away from corporations, or stopping the growth economy that is destroying the planet? Even if every person in the United States did everything the movie suggested, U.S. carbon emissions would fall by only 22 percent. Scientific consensus is that emissions must be reduced by at least 75 percent worldwide.

Or let’s talk water. We so often hear that the world is running out of water. People are dying from lack of water. Rivers are dewatered from lack of water. Because of this we need to take shorter showers. See the disconnect? Because I take showers, I’m responsible for drawing down aquifers? Well, no. More than 90 percent of the water used by humans is used by agriculture and industry. The remaining 10 percent is split between municipalities and actual living breathing individual humans. Collectively, municipal golf courses use as much water as municipal human beings. People (both human people and fish people) aren’t dying because the world is running out of water. They’re dying because the water is being stolen.

Or let’s talk energy. Kirkpatrick Sale summarized it well: “For the past 15 years the story has been the same every year: individual consumption—residential, by private car, and so on—is never more than about a quarter of all consumption; the vast majority is commercial, industrial, corporate, by agribusiness and government [he forgot military]. So, even if we all took up cycling and wood stoves it would have a negligible impact on energy use, global warming and atmospheric pollution.”

Or let’s talk waste. In 2005, per-capita municipal waste production (basically everything that’s put out at the curb) in the U.S. was about 1,660 pounds. Let’s say you’re a die-hard simple-living activist, and you reduce this to zero. You recycle everything. You bring cloth bags shopping. You fix your toaster. Your toes poke out of old tennis shoes. You’re not done yet, though. Since municipal waste includes not just residential waste, but also waste from government offices and businesses, you march to those offices, waste reduction pamphlets in hand, and convince them to cut down on their waste enough to eliminate your share of it. Uh, I’ve got some bad news. Municipal waste accounts for only 3 percent of total waste production in the United States.

I want to be clear. I’m not saying we shouldn’t live simply. I live reasonably simply myself, but I don’t pretend that not buying much (or not driving much, or not having kids) is a powerful political act, or that it’s deeply revolutionary. It’s not. Personal change doesn’t equal social change.

So how, then, and especially with all the world at stake, have we come to accept these utterly insufficient responses? I think part of it is that we’re in a double bind. A double bind is where you’re given multiple options, but no matter what option you choose, you lose, and withdrawal is not an option. At this point, it should be pretty easy to recognize that every action involving the industrial economy is destructive (and we shouldn’t pretend that solar photovoltaics, for example, exempt us from this: they still require mining and transportation infrastructures at every point in the production processes; the same can be said for every other so-called green technology). So if we choose option one—if we avidly participate in the industrial economy—we may in the short term think we win because we may accumulate wealth, the marker of “success” in this culture. But we lose, because in doing so we give up our empathy, our animal humanity. And we really lose because industrial civilization is killing the planet, which means everyone loses. If we choose the “alternative” option of living more simply, thus causing less harm, but still not stopping the industrial economy from killing the planet, we may in the short term think we win because we get to feel pure, and we didn’t even have to give up all of our empathy (just enough to justify not stopping the horrors), but once again we really lose because industrial civilization is still killing the planet, which means everyone still loses. The third option, acting decisively to stop the industrial economy, is very scary for a number of reasons, including but not restricted to the fact that we’d lose some of the luxuries (like electricity) to which we’ve grown accustomed, and the fact that those in power might try to kill us if we seriously impede their ability to exploit the world—none of which alters the fact that it’s a better option than a dead planet. Any option is a better option than a dead planet.

Besides being ineffective at causing the sorts of changes necessary to stop this culture from killing the planet, there are at least four other problems with perceiving simple living as a political act (as opposed to living simply because that’s what you want to do). The first is that it’s predicated on the flawed notion that humans inevitably harm their landbase. Simple living as a political act consists solely of harm reduction, ignoring the fact that humans can help the Earth as well as harm it. We can rehabilitate streams, we can get rid of noxious invasives, we can remove dams, we can disrupt a political system tilted toward the rich as well as an extractive economic system, we can destroy the industrial economy that is destroying the real, physical world.

The second problem—and this is another big one—is that it incorrectly assigns blame to the individual (and most especially to individuals who are particularly powerless) instead of to those who actually wield power in this system and to the system itself. Kirkpatrick Sale again: “The whole individualist what-you-can-do-to-save-the-earth guilt trip is a myth. We, as individuals, are not creating the crises, and we can’t solve them.”

The third problem is that it accepts capitalism’s redefinition of us from citizens to consumers. By accepting this redefinition, we reduce our potential forms of resistance to consuming and not consuming. Citizens have a much wider range of available resistance tactics, including voting, not voting, running for office, pamphleting, boycotting, organizing, lobbying, protesting, and, when a government becomes destructive of life, liberty, and the pursuit of happiness, we have the right to alter or abolish it.

The fourth problem is that the endpoint of the logic behind simple living as a political act is suicide. If every act within an industrial economy is destructive, and if we want to stop this destruction, and if we are unwilling (or unable) to question (much less destroy) the intellectual, moral, economic, and physical infrastructures that cause every act within an industrial economy to be destructive, then we can easily come to believe that we will cause the least destruction possible if we are dead.

The good news is that there are other options. We can follow the examples of brave activists who lived through the difficult times I mentioned—Nazi Germany, Tsarist Russia, antebellum United States—who did far more than manifest a form of moral purity; they actively opposed the injustices that surrounded them. We can follow the example of those who remembered that the role of an activist is not to navigate systems of oppressive power with as much integrity as possible, but rather to confront and take down those systems.

A Must Read, By Matt Taibbi (Part 1)

2009-06-26T18:33:00.002-05:00

This person, writer for Rolling Stone, and channeler of Hunter S. Thompson, has written a daring piece that deserves to be read by everyone, even those who usually refuse to read. Here's Part 1:

THE GREAT AMERICAN BUBBLE MACHINE

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression - and they're about to do it again

By MATT TAIBBI

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who's Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup - which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the rear end in a top hat chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York - which, incidentally, is now in charge of overseeing Goldman - not to mention ...

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain - an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere - high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth - pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s - and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went - and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long - including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.

IF AMERICA IS NOW CIRCLING THE DRAIN, GOLDMAN SACHS HAS FOUND A WAY TO BE THAT DRAIN.

BUBBLE #1 - THE GREAT DEPRESSION
Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids - just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to small-time vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman's disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got into the investment-trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund - which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah - which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line; The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leverage-based investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."

BUBBLE #2 - TECH STOCKS
Fast-Forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "long-term greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair - but 'long-term greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliche that whatever Rubin thought was best for the economy - a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE COMMITTEE TO SAVE THE WORLD. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy - beginning with Rubin's complete and total failure to regulate his old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system - one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."

The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of
the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price - let's say Bullshit.com's starting share price is $15 - in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day-trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit - a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nichol as Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television rear end in a top hat Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation - manipulated up - and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations - a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price - ensuring that those "hot" opening price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business - effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! co-founder Jerry Yang and two of the great slithering villains of the financial-scandal age - Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" - shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

GOLDMAN SCAMMED HOUSING INVESTORS BY BETTING AGAINST ITS OWN CRAPPY MORTGAGES.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits - an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent - they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3 - THE HOUSING CRAZE
Goldman's role in the sweeping disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that poo poo out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those lovely mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con's mortgage on its books, knowing how likely it was to fail. You can't write these mortgages, in other words, unless you can sell them to someone who doesn't know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the lovely ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance - known as credit-default swaps - on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won't.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated - and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

More regulation wasn't exactly what Goldman had in mind. "The banks go crazy - they want it stopped," says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. "Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped."

Clinton's reigning economic foursome - "especially Rubin," according to Greenberger - called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn't end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities - a third of which were subprime - much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation - no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners - old people, for God's sake - pretending the whole time that it wasn't grade-D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions .... However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

"That's how audacious these assholes are," says one hedge-fund manager. "At least with other banks, you could say that they were just dumb - they believed what they were selling, and it blew them up. Goldman knew what it was doing." I ask the manager how it could be that selling something to customers that you're actually betting against - particularly when you know more about the weaknesses of those products than the customer - doesn't amount to securities fraud.

"It's exactly securities fraud," he says. "It's the heart of securities fraud."

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck ho1ding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million - about what the bank's CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known - it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It hosed the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and hosed the taxpayer by making him payoff those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion - an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down - and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4 - $4 A GALLON
By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years - the notion that housing prices never go down - was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market - stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

GOLDMAN TURNED A SLEEPY OIL MARKET INTO A GIANT BETTING PARLOR - SPIKING PRICES AT THE PUMP.

But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling - which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help - there were other players in the physical-commodities market - but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures - agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission - the very same body that would later try and fail to regulate credit swaps - to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops - Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap - the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market - driven there by fear of the falling dollar and the housing crash - finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers - and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

"1 had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you
have to clear it with Goldman Sachs?'"

The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index - which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil - became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions - meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedge-fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities-trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."

But it wasn't the consumption of real oil that was driving up prices - it was the trade in paper oil. By the summer of2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."

Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."

A Must Read, By Matt Taibbi (Part 2)

2009-06-26T18:28:00.002-05:00

BUBBLE #5 - RIGGING THE BAILOUT
After the oil bubble collapsed last fall, there was no new bubble to keep things humming - this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers - one of Goldman's last real competitors - collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment-banking competitor, Lehman, goes away.") The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding - most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs - and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman - New York Fed president William Dudley - is yet another former Goldmanite.

The collective message of all this - the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds - is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 - with its $1.3 billion in pretax losses - off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 - which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first-quarter results six ways from Sunday," says one hedge-fund manager. "They hid the losses in the orphan month and called the bailout money profit."

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first-quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money - suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC - which Goldman Sachs had already done, a week or two before."

And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion - yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely hosed corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage - but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

BUBBLE #6 - GLOBAL WARMING
Fast-Forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs - its employees paid some $981,000 to his campaign - sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

AS ENVISIONED BY GOLDMAN, THE FIGHT TO STOP GLOBAL WARMING WILL BECOME A "CARBON MARKET" WORTH $1 TRILLION A YEAR.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits - a booming trillion-dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carbon-credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes; there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billions worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand-new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of an electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate-change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that 'Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech ... the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy-futures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe - but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax-collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil-futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees - while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

No Health Care Reform Reason #23: Geography is Destiny

2009-06-19T17:22:00.002-05:00

Here's an outstanding example of why there won't be any significant health care reform (already, of course, single payer is off the table, so you can already see that nobody's really serious here), to wit: the Senate committee charged with producing something on the issue absolutely refuses to listen to any talk about other countries and their solutions to the problem. Along the way, we get an interesting peek at a new book about to emerge, comparing the various healthcare systems around the world. It should pretty much go without saying that there is no possibility here of anything besides mere window dressing, which means that anything that emerges will: a. cost everyone some money, and b. not do much at all, either in terms of changing the current system or providing any more care or coverage. There are comparisons to be made with the financial debacle and the plans to "regulate" that have emerged recently, but Chaos will refrain from those at this moment. For now, it's enough to note that Chaos will take credit for being entirely correct that the US healthcare system is politically untouchable, and thus, not one for anyone to rely upon.

Super Doomer Porn: Interview With Mike Ruppert

2009-05-27T09:12:00.003-05:00

A recurring theme here at the Edge is exposure to true doomers: those who are certain that collapse of industrial civilization is inevitable and imminent. Here's one who's not been featured previously: Mike Ruppert, former head of From the Wilderness, an outstanding doomer website and resource. As always, the insights gained in this interview are bracing and mind altering. Just a short one, it nonetheless contains many subjects for thought. Give it a try...

Staring Into The Abyss: Wicked Problems Revisited

2009-05-27T08:22:00.003-05:00

Chaos has posted before on one sentient being's take on wicked problems, but the subject deserves a second look, since these are becoming ever so much more visible to the naked eye (and by naked eye, Chaos is referring to visibility by the great masses of unconscious individuals who make up most of the public). Specifically, industrialized society is now faced with multiple predicaments that resist solutions or even an honest appraisal of the scope of the problems, i.e., global heating, the exhaustion of fossil fuels, overpopulation, habitat destruction, water depletion, and many more. In the US, wicked problems continue to manifest in the area of drug "wars," the healthcare system, major and growing inequality, and quite recently, the economic debacle. Chaos finds the discussions and attempted "solutions" to wicked problems to be fascinating, since they illuminate the black holes of industrialized society: areas of nonmatter which suck up energy and resources without any tangible reward. The very nature of wicked problems ensures that most efforts to solve or at least mitigate them are doomed to failure at best, and might even be counterproductive.

The New York Times Catches Up...

2009-05-15T08:06:00.003-05:00

Nothing new here, to readers of the Edge and other aware individuals, that the country of Norway has not succumbed to the bubblicious greedfest that permeated the US and rest of the world's economies in the last few (or many) years. The culture of that country dictated that, since its oil resources were limited (as of course, are all natural resources, but this is necessary to state, since the idea of limits is a startling one for many people), provisions should be made for the eventual running out, resulting in an actual (as opposed to say, the US Social Security fund) trust fund for the benefits of all citizens. This in addition to the many many social benefits and real security enjoyed by the country's citizens. Of course, the purpose of the piece is to highlight that vast differences between the US and Norway, which it does, but there's another interesting comparison that's not being made, and it lies in oil production and decline. Since the nations of Norway and Great Britain are owners of one-half each of the oil resource (the North Sea), it's quite instructive to note that while Norway prudently managed its inevitable decline in oil production (and this is undisputed, that the North Sea has reached and past peak), Great Britain played the grasshopper role, and heedlessly squandered its resource on frivolities.

In Chaos' opinion, the fact that the nation's paper of record has now noticed the situation in Norway is an interesting and revealing sign that the US is now in an entirely different place, economically, at least, and probably in many more ways than just that.

An Answer To Technocopians

2009-05-11T07:02:00.002-05:00

Of all those living in denial, there are few who Chaos finds so completely annoying as the Kurzweil technocopians, those who have an unshakable faith that technology will enable humanity to transcend laws of nature, physics, and arithmetic. The smug ignorance of these beings simply defies rational and logical thought, simply because they are true believers in a different kind of religious cult. To debunk this ridiculous system, here's a nice rebuttal, albeit written a few years back. Funny stuff, and true, as well.

The Real Mother's Day...

2009-05-10T10:09:00.003-05:00

Chaos has long suspected that Mother's Day (and Father's Day as well, for that matter) are simply degraded "hallmark holidays" that benefit primarily the floral and greeting card industries by taking advantage of human herding behavior (google it) and inertia, while sucking the meaning out of the whole enterprise. Here's the real history of mother's day...in brief, this started out in the late 1800's as a way of protesting inhuman working conditions, morphed slightly into an antiwar event, then gradually declined into yet another commercial holiday. The piece contains a recommendation to support the Ploughshares Fund, either monetarily or by signing an online request to rid the planet of nuclear weapons. Try that one on for size, instead of a purchased bauble or cheaply bought sentiment. Though it may be ultimately futile, it least it won't be supporting a deeply corrupt and exploitative system.

A Request...

2009-05-10T09:52:00.002-05:00

If, after reading the Edge, you're still desirous of increasing your collection of durable goods (or frivolous wants) through the amazing marketplace (tongue in cheek) of Amazon.com, Chaos kindly requests you to click through the links provided here to shop there...it won't do much to cover the costs or time spent, but it's something. In anticipation, thank you.

The Fall Of Nauru: A Warning...

2009-05-03T11:55:00.006-05:00

This fascinating article concerning the environmental destruction and consequent economic collapse of the tiny island nation offers an instructive lesson on several levels. Briefly, the people of this Pacific island enjoyed a resource-based bounty for a time: phosphate derived from bird guano. The birds were attracted by the rich coral reefs, but changing migratory patterns caused a long anticipated decline in the resource base (it's also quite likely that the resource was mined much faster than replenishment). Islanders had invested in a trust fund intended to provide financial security for leaner times, but corruption and mismanagement depleted the fund prematurely. In addition to leaving the population destitute, the phosphate mining produced vast environmental damage. Sadly, there apparently is still some phosphate to be mined from Nauru's soil, and this time, promises are made that a new trust fund will be properly managed. In the meantime, the island population has shrunk dramatically as those able to leave have departed permanently.

What's equally interesting about this piece is not just the bald facts of resource depletion and devastating environmental damage, but the author's astounding assertion that the fault lies in "failure to invest in economic growth." Here's some key evidence of this flawed logic:

"It's a cautionary lesson in the perils of failing to reinvest in the economy. There is no country in the world, not Nauru and not the United States, that can possibly sustain itself indefinitely on the proceeds of yesterday's economic successes.

There is no substitute for economic growth. Making some really bad investments was clearly one of the Nauruans' big mistakes. But over the long run, neither a big, well-managed trust fund nor a small, badly managed one will survive in the face of a shrinking economy."

Well. Some really amazing editorializing here, mostly just ignoring the undeniable fact that humans cannot exist without natural resources. This is typical of most of the material one reads in the MSM these days...completely clueless and without any context whatsoever. The author describes the overshoot and collapse of a civilization in miniature, without for a moment realizing what is being depicted in this unfortunate scenario or the implications for the rest of the planet. For a more accurate picture, try substituting the words "exploitation of natural resources" for "economic growth." Articles like the one posted should be serving as screaming warnings, but alas, no one pays attention.

A Timely Song (For All You Financial Types)

2009-04-26T13:46:00.003-05:00

An Interesting Poem, By An Interesting Poet

2009-04-25T09:34:00.004-05:00

Chaos has long been an admirer of the films of Joel and Ethan Coen, but until recently was unaware that they possessed other talents. Here's an appropriate and clever example of said talent, by one of the brothers:

'The Drunken Driver Has the Right Of Way'

by Ethan Coen

The loudest have the final say,
The wanton win, the rash hold sway,
The realist's rules of order say
The drunken driver has the right of way.

The Kubla Khan can butt in line;
The biggest brute can take what's mine;
When heavyweights break wind, that's fine;
No matter what a judge might say,
The drunken driver has the right of way.

The guiltiest feel free of guilt;
Who care not, bloom; who worry, wilt;
Plans better laid are rarely built
For forethought seldom wins the day;
The drunken driver has the right of way.

The most attentive and unfailing
Carefulness is unavailing
Wheresoever fools are flailing;
Wisdom there is held at bay;,
The drunken driver has the right of way.

De jure is de facto's slave;
The most foolhardy beat the brave;
Brass routs restraint; low lies high's grave;
When conscience leads you, it's astray;
The drunken driver has the right of way.

It's only the naivest who'll
Deny this, that the reckless rule;
When facing an oncoming fool
The practiced and sagacious say
Watch out — one side — look sharp — gang way.

However much you plan and pray,
Alas, alack, tant pis, oy vey,
Now — heretofore — til Judgment Day,
The drunken driver has the right of way.

Sanitized For Your Protection

2009-04-22T07:55:00.002-05:00

If you needed further evidence of how much of a bubble the residents of the Empire live, work, shop and play in, look no further than this piece appearing in the nation's paper of record. Purporting to discuss the issue of high governmental officials' involvement in the despicable practice of torturing suspects to obtain information (or, perhaps, just for the hell of it), the reporter cannot or has been forbidden to actually use the word "torture." So, what we have instead are the creative use of euphemisms: "brutal techniques," "harsh interrogation methods," "harsh treatment," "aggressive techniques," and finally, "abuse," this last coming from an actual person, Sen. Carl Levin, who should know better. Of course, this is not new, or novel, in any way; residents of the Empire do not wish to gaze upon the truth about themselves and their complicity in rape, murder, genocide, and torture in their Imperial adventures. Chaos could say a good deal more about how the words one uses defines their reality, limits their options for action, etc., but really, what would be the purpose? The most uncomfortable fact is that there exists in this benighted nation a large percentage of the population who approves of these barbaric practices, and why would anyone expect this to change?

Funny Stuff, And True (And Sad)

2009-04-14T08:27:00.002-05:00

Terrific piece here, encapsulating the somnolent, illiterate, celebrity-worshipping, tv-addicted, SUV-driving, godfearing, flagwaving, violent, obese, ignorant, and ultimately comatose US public and its complicity in the overall economic collapse of the US and world economies. Quoted in full, this makes for fun reading (in a doomerish sort of way, of course). Enjoy.

The Top Ten Signs You Are Living in a Banana Republic

As the Republic’s eyes continue their glossy stare at the trillions (with a T) being poured into the financial bailout by this thing they mention on TV called “the FED,” we at The Barricade, with a fair-use tip-of-the-hat to Letterman submit a TOP TEN LIST: Top Ten Signs You Are Living in a Banana Republic.

Why only ten? While there are certainly other signs that our country is a banana republic worthy of comparison to other ignominious, run-down, despotic regimes where the plutocracy plunders the treasury for its own interest, the American audience has an attention span of less than 30 seconds, is addicted to Ritalin and Adderall, and therefore has a penchant for lazy summaries and cliff notes. Have we lost you yet? Without further adieu:

10. Zimbabwe–the archetypal banana republic and the home of the $100 Billion omelet–praises recent US FED action. So the FED–an institution of which most Americans have no true comprehension–prints over $1.2 trillion (with a T), and Zimbabwe declares, “Banks, including those in the USA and the UK, are now not just talking of, but also actually implementing flexible and pragmatic central bank support programmes where these are deemed necessary in their national interests. That is precisely the path that we began over 4 years ago in pursuit of our own national interest and we have not wavered on that critical path despite the untold misunderstanding, vilification and demonization we have endured from across the political divide.” Not the kind of endorsement we desire to restore confidence in our financial system.

9. The Department of Energy was run by a dentist and never by anyone who has ever worked in the energy industry. Ever you wonder why we don’t have a national energy policy? Jimmy Carter named James Schlesinger—an apparatchik with no history in the energy sector—as the nation’s first Energy secretary. Ronald Reagan claimed he was going to dismantle the Department of Energy. His pick for Energy secretary was James B. Edwards, a man who understood drilling—he was a dentist. GHWB named former chief of naval operations Admiral James David Watkins as his energy secretary. Bill Clinton’s choices for the top Energy spot were: Hazel O’Leary, a lawyer; Federico Pena, another lawyer; and finally Bill Richardson, a politico and diplomat. George W. Bush’s choices to head the Department of Energy included Spencer Abraham, a lawyer who’d just lost his seat in the U.S. Senate, and Samuel Bodman, an engineer whose professional career was in investments and chemical production. Finally, Obama’s secretary of energy is Steven Chu, a Nobel Prize-winning physicist. Chu has experience in energy-related issues, including his job as director of the Lawrence Berkeley National Laboratory, but he’s never been in the energy business. “It’s the mythology of the Beltway,” one Houston energy analyst told me recently. “You are hopelessly compromised if you are anywhere close to the oil industry.”

8. The Treasury Department is a wholly owned subsidiary of Goldman Sachs and the other Wall Street mega-firms that are too big (or too connected) to fail. No explanation needed here. This is obvious to even the dopiest of Americans which leads us to …

7. The complicit failure of the national media to call out the Treasury Department’s clear conflicts of interest when it comes defrauding the Treasury at the expense of the US Taxpayer. Rachel Madow, Keith Olbermann, Daily Kos, Huffington Post, Fox News, anyone? Is there anybody out there? Just nod if you can hear me. This is easy and it makes the KBR/Haliburton/Iraqi war connection look complicated by comparison. When KBR was a wholly owned subsidiary of Haliburton and Cheney was the former CEO of Haliburton, we were confused with the KBR/Haliburton relationship and Cheney’s ties (people had a hard time making that second jump, not sure how we were confused, but we were). This one is so simple even my almost two year old niece understands it: Sec. of Treasury and former CEO of Goldman Sachs Hank Paulson has funneled billions to his old firm and his friends via DIRECT CHECKS and checks to AIG which is run by a former director of Goldman Sachs Edward Liddy. The money spent “bailing out” AIG will be shuffled over mostly to the CDS counterparites, GS et al. Liddy is only taking $1 of salary because he is such a public service saint. He has an acute financial stake in one of AIG’s counterparties—namely, his $3.2 million personal investment in Goldman Sachs stock. Mainstream Media, please call me and I will help you connect the dots…finance is not that complicated, just ask my adorable niece.

6. Only 53% of Americans feel capitalism is better than socialism. Two main points to note here: (1) We have never had free market capitalism in this country, because our government has always encouraged obfuscation and lack of transparency, by selective disclosure and favoritism; and (2) failure of large institutions is not allowed (even though it is an essential part of capitalism). So, we don’t have failure in America. Failure would be upsetting. We are all living in one big Lake Wobegon - where all of our businesses are above average. I didn’t get a chance to vote in this poll, but if I had to choose I would prefer the Scandinavian Socialist model over the Latin American version that we seem to be veering into. Instead, the U.S. gets the worst of both worlds - no public education or health care, high taxes, privatized gains shared by plutocrats and socialized losses shared by taxpayers. If that is your definition of American capitalism - I am amazed the polling numbers were as close as they were.

5. The bankruptcy process has becomes a political process. If this is the worst economy since the great depression, why aren’t there more bankruptcies? When did bondholders–which own a risky asset class called, ahem, “bonds”–become a guaranteed non risk asset class? It is obvious that my college professors were mistaken in teaching that the only RISK FREE asset class was US GOVERNMENT DEBT SECURITIES. They are going to have to rewrite a ton of economics and corporate finance textbooks to include Bear Stearns bondholders and preferred stock holders, Fannie and Freddie bondholders, any bond or preferred instrument held by Bill Gross/PIMCO (the official fourth branch of the US govt.) and any bonds or preferred stocks of the too-politically-connected-to-fail group of financials including AIG, GS, MS, WFC, C, JPM, et al as part of the risk-free asset classes in 21st century American capitalism. And, maybe they should hold off publishing until June because GM and Chrysler debt and preferred holders may be on that list as well. At least all of the rewriting of the books on financial institutions, markets, and money will stimulate the publishing industry. Which leads us directly to…

4. Both politcal parties are beholden to the financial oligarchs–And yes, that includes the Democratic Party. The Democratic Party, the party of FDR, Kennedy, LBJ, Carter and Obama, the party of the little people, the common man, the disadvantaged, the party of farmers, laborers, labor unions, and religious and ethnic minorities continues the same misguided policies and cronyism of the former Republican regime in BAILING OUT BANKERS and INDENTURING GENERATIONS for what will end up being tens of trillions (with a T). We are either in bizzarro world or a banana republic or both. “The Democrats have replaced the Republicans as the big benefactors to the financial community,” said Kevin Phillips, author of “Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.” Philips writes, “The financial community is donating more to Democrats than ever before and you’ve got more Democrats in the financial community, creating a very powerful pattern there. I don’t think you’re going to see the Obama administration and Congress willing to be tough enough in dealing with these things.” So, let’s get this straight: none of the big banks and financial companies’ bondholders are taking any hit, and they refuse to go into bankruptcy or receivership, however GM and Chrysler may go into the not so delicate arms of bankruptcy. Is Obama more loyal to his wall street friends in the Democratic monopolies in the Northeast and California, or to his hard working lower/middle class constituents in the Midwest which is usually a coin flip in terms of party loyalty–see, Michigan, Ohio and Indiana? To quote John Lennon, strange days indeed, most peculiar momma. That or we are living in a banana republic. Which is easy to accept.

3. William Black, the former Chief Fraud Investigator at the Federal Home Lending Bank and Office of Thrift Supervision during the Savings and Loan scandal, calls the current bank stress tests ” A COMLETE SHAM.” The FHLB is a very big institution, with $1.3 trillion (with a T) in loans, and its Chief Fraud Investigator during the S&L scandal, says a pillar of Federal banking reform policy is “a complete sham.” A complete sham. In addition to comparing the stress tests of our nations’ financial system to a counterfeit, fraud, flimflam, ruse (is that emphatic enough for you America, or do I need naked women shooting you with lasers to make you pay attention? I know, I do. Can we get some graphics of naked ladies in here, please?)

Mr. Black also called the stress test “a Potemkin model. Built to fool people.” Like many others, Black believes the “worst case scenario” used in the stress test don’t go far enough. Black also said, “There is no real purpose [of the stress test] other than to fool us. To make us chumps,” Black says. Noting policymakers have long stated the problem is a lack of confidence, Black says Treasury Secretary Tim Geithner is now essentially saying: “’If we lie and they believe us, all will be well.’ It’s Orwellian.” “The fact bank stocks have been rising since Geithner unveiled his plan is “bad news for taxpayers,” he says. “It’s the subsidy of all history.”

2.William Black the former Chief Fraud Investigator and Federal Regulator during the S&L scandal uses the following words to describe the STRESS TEST of capital ratios for our NATIONS’ LARGEST BANKS:
(A)“A COMPLETE SHAM”
(b) “POTEMKIN MODEL” - fancy Russian word for SHAM
(c)“Reason for STRESS TESTS is to FOOL US and to make US CHUMPS”
(d) “’If we lie and they believe us, all will be well.’ It’s Orwellian.”
(e) the Geithner debt plan is “bad news for taxpayers”
If confidence is all we need to restore the financial system, then we should just nominate Tony Robbins as Secretary of Treasury.
OBTW, William Black’s book The Best Way to Rob a Bank is to Own One, is a must read about financial fraud and regulatory capture and for the glossy eyed it has a catchy and cool title. Paul Volker wrote this about the book, “Bill Black has detailed an alarming story about financial - and political - corruption. The specifics go back twenty years, but the lessons are as fresh as the morning newspaper. One of those lessons really sticks out: one brave man with a conscience could stand up for us all.” Robert Kuttner of Business Week proclaimed, “Black’s book is partly the definitive history of the savings-and-loan industry scandals of the early 1980s. More important, it is a general theory of how dishonest CEOs, crony directors, and corrupt middlemen can systematically defeat market discipline and conceal deliberate fraud for a long time — enough to create massive damage.”

Now, drum roll…

1. The People Don’t Know and Don’t Care to Know. The American people are quite aware of Malawian Adoption Law, can cite the California statutes on artificial insemination, and know Octomom’s middle name, but can’t or won’t listen to one word about who controls their institutions, nor can they find William Black on any other media outlet other than the Web or Bill Moyers. We have the former Chief Fraud Investigator screaming SHAM, SWINDLE, HEIST and we just sit there glassy-eyed, wondering if the blind guy was given a fair shot on Idol. No hour slot on Larry King, no lead story on 60 minutes, not even 5 minutes on The Daily Show, which is arguably the best financial and investigative journalist show on television.

My friends and dear readers, this is your representative republic. This is the product of your popular sovereignty. This is your AMERICA.

Here's One More...

2009-04-12T16:21:00.002-05:00

If you have any curiosity at all about the government's priorities and its methods, here's an excellent piece, quoted in full, on the latest bank bailout plan. One doesn't have to be an expert in finance or economics to recognize that rotten egg smell emanating from this kind of sleight-of-hand Rube Goldberg device called the PPIP. At any rate, here's the change we didn't vote for...

Tragedy is turning into farce as the real intent of the bank rescue plan becomes apparent. Geithner and the banksters have adopted the playbook of a true fraud-and-deceit all-star: Enron.

No matter how cynical you get, it’s impossible to keep up.

- Lily Tomlin

Somewhere along the continuum, there is a point at which tragedy turns into farce. I’m starting to think we may have passed that point with this whole TARP/TALF fiasco.

From a comedy perspective, Turbo Timmy and his madcap schemes are the gift that keeps on giving. We’re scaling the heights of utter absurdity now... it’s like a Kurt Vonnegut novel come to life.

Just take this recent snippet from The Wall Street Journal, for instance:

The Treasury Department, facing criticism over its bank-rescue program, said it may allow a broader group of private investors to purchase toxic securities...

Last month, the Treasury said it would select fund managers based on certain criteria, including an ability to raise private capital and a minimum of $10 billion of eligible assets under management.

On Monday, the Treasury said a proposal won't necessarily be disqualified if firms don't meet all the criteria. The Treasury added that it is particularly interested in program participation by small, minority- or woman-owned businesses.

Hmm. Okay, so let me get this straight. First they start out with an eligibility hurdle so ridiculous, it sounds like a leftover Dr. Evil catchphrase from the Austin Powers movie. “You must have ten BILLION dollars...”

Then it hits them that gosh, ya know, that might have been a dumb idea.

So in a stroke of belated genius, they decide to 1) disregard their own proposal criteria – not change it, but just ignore it, mind you – and 2) turn the bank rescue program into some kind of warm and fuzzy feel-good “help the little guy” exercise, like an SBA loan program writ large.

Read the following in John Lovitz “liar” voice: We want to take all your money and give it to the banksters. No, wait. That sounds bad. We want to help the, ah, the billionaires. The poor, poor billionaires. No, wait – crap. That’s bad too. Here it is: We want to help minorities. Minorities and women. Yeah! Yeah, that’s the ticket...

An American Classic

The REALLY funny news, though, is that the PPIP (as it has been so christened) rescue plan now seems to be taking a page from one of the all-time greats of fraud and deceit.

I have to take this opportunity to share one of my favorite nuggets, a little story that was making its way around trading desks circa 2002:

Once there was a country bumpkin named Kenny – Kenny boy to his friends – and Kenny boy found himself in need of some money. Trouble was, he didn’t have a job and didn’t own a thing except a recently deceased pet goat. But Kenny boy was smart, and it didn’t take long for him to hatch a plan. Kenny boy called up all the farmers in the county and arranged a raffle for a blue-ribbon Holstein milking cow. On the day of the raffle, 100 farmers showed up and paid $50 per ticket, giving Kenny boy $5,000 to put in his pocket. Kenny boy drew the winning ticket and everybody went home. The next day, the raffle winner came by Kenny boy’s place to collect his prize. Kenny trotted out his expired pet. The farmer scratched his head and said “Son, that’s not a prize milking cow. That’s a dead goat.” So Kenny boy gave the farmer his fifty dollars back.

And as you might have guessed, Kenny boy’s last name was Lay and he grew up to found Enron.

Ah, Enron. Remember those guys? The giant tilted “E,” the ridiculous hubris, the bizarre commercials with the computerized “Why” voice... Classic stuff.

Enron worked hard to rip off rubes like the public officials of the state of California, who didn’t realize that deregulating electricity markets without knowing how the game was played was the rough equivalent of dumping a bucket of chum into a shark tank.

Enron also did all kinds of neat innovative things with “side pockets” and “special investment vehicles” and “off-balance-sheet partnerships,” even going so far as to use really cool Star-Wars-themed names like “Death Star” and “Chewco.”

In retrospect, who could have known that even as Enron was going down the tubes, our current crop of banksters were busy taking notes?

Move Over Darth Vader

I bring up Enron in light of new revelations that propel this whole rescue plan debacle to new heights of criminality and avarice.. Feast your eyes on this tidbit from a recent Financial Times piece, “Bail-out banks eye toxic asset buys”:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals [emphasis mine] under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls.”

Mr. Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”

“Death Star” my foot... If this true, it makes the Enron chicanery of days past look positively Ewok-scaled in comparison.

And most likely it is true... a few weeks prior to the FT exclusive, the New York Post reported that Citigroup and Bank of America had already begun using TARP funds – billions given to them by the government that they were supposed to use to make loans – to instead “aggressively scoop up” more of the very toxic assets that blew them up in the first place.

The very idea that these banks could be buying up each other’s garbage – that they are even considering it – well, it just hurts my head, it’s so mind boggling. To understand why, let’s walk through a quick analogy.

Lawn Mowers and Government Loans

Imagine, for a moment, that I have a beat-up old mini-fridge in the back of my garage. It has a coolant leak, it’s a little moldy, and it smells like stale beer, but I’m pretty sure it still works.

Meanwhile, you happen to be in possession of a rusty old lawn mower. The blade is caked beyond recognition with fossilized grass clippings, the gunk that passes for oil has never been changed, and the thing takes twenty or thirty pulls to start... but you, too, are fairly certain your lawn mower “works.”

Now imagine that you and I make a deal. I will sell you my disgusting mini-fridge for the princely sum of a hundred thousand dollars. You, in turn, will sell me your ancient lawn mower for a hundred thousand dollars. I write a six-figure check out to you, and you write a six-figure check out to me.

Nothing’s really happened, right? All we’ve done is swap two crap assets, neither one worth fifteen bucks in the real world, and furthermore swapped an identical large chunk of change ($100,000) between our respective bank accounts.

But hold on! Did I mention that we both employ highly creative accountants?

Here’s the good news about our little swap. Thanks to our exchange, I can record a massive profit on my books... to the tune of $99,900, or whatever sum is left over above and beyond the book-entry carrying cost for my fridge. And you can do the same with your lawn mower.

In the real world, the only thing that happened is junk got swapped with junk. In fantasy-land accounting world, however, you and I both just conjured up fantastic profits out of thin air.

And it gets even better... did I mention that the government has generously granted me a non-recourse loan in order to provide the funds with which to buy your $100,000 lawn mower?

I didn’t actually have to move $100K out of my bank account and into yours, because $93,000 of it was covered by government loan. The same privilege was extended to you, of course.

And of course the proceeds of my loan were sent to you as cash... and the proceeds of YOUR loan were sent to ME as cash... which means the wonderful taxpayer ponied up TWICE – to the tune of $186,000 – to fund our little phantom transaction with real dollars.

See how great this is? We swap crap assets worth zilch, pretending they are actually worth $100,000... we record a massive profit on our books... and we collect real profit in the form of a $93,000 handout to both of us (the non-recourse loan).

Of course, someone will eventually scratch their head (just like Kenny boy’s farmer) and say, “Hey. We don’t have anything worth $100,000 here. We’ve got a disgusting mini-fridge and a rusty lawn mower.”

But by the time that happens, you and I will be in clover... and by definition we never had to pay back the loans anyway! Ain’t giant handouts grand?

To understand what the banks plan to do under the guise of the PPIP “rescue plan” by way of swapping toxic assets with each other, simply replace “mini-fridge” and “lawn mower” in the above example with “toxic asset A” and “toxic asset B.”

Then up the scale from $100,000 to hundreds of billions – all the way up to a cool trillion maybe – and there you go.

This is the fabulous Enron-style solution Turbo Timmy at the Treasury and Sheila Bair at the FDIC have laid out for us: “Death Star” and “Chewco” on steroids. They want to Enronize the whole damn financial system in an effort to save their connected masters (and grateful future employers) on Wall Street.

Some Explanations...

2009-04-05T09:23:00.003-05:00

Continuing Chaos' efforts to inform readers of just exactly what is going on, as the Empire of Sorrows struggles to avoid reaping what it has sown for the last thirty years or so, PBS personality Bill Moyers conversation with former financial fraud regulator William Black is highly recommended. As with the subject of Peak Oil, what is significant here is the gap between what should be done and what is being done, which is vast. Chaos notes, once again, that pretty much all one needs to do to understand what's happening is to peruse The Automatic Earth on a daily basis. For another most informative take, involving a little history between the current "players" in the government financial area and a whistleblower, check out this most interesting article in The Asia Times.

Pitchforks, Tar and Feathers

2009-03-26T19:54:00.005-05:00

It is rare, these days, for Chaos to have to "soften" a post by explaining it in detail, but the vehemence and raw anger in this post (taken from our friend, Karl Denninger's site) cries out for some context. A day or so ago, an unfortunate executive at the notorious AIG wrote the CEO a resignation letter that found its way into print via the nation's paper of record. Purporting to provide readers with the "real story" behind the granting of corporate bonuses, it served as a kind of counterbalance to the recent mob mentality displayed by the the public and its corresponding representatives in the Legislative and Executive branches. Hence, the references in this screed to that person named above. At any rate, please note that should the US public ever become aroused to this degree, pitchforks, tar and feathers will not be a metaphor, but real. Here you go:

DEAR Wall Street,

What a bunch of whiny f**king babies. John Galt would be puking blood for 200-pages over this load of sh**, you bunch of sobbing welfare queens. You f**ked up. You ruined everything. You broke it, and we f**king bought it, because big baby was too big baby to fail.

We get it all ways from you motherf**kers. You're robbing us of our present and future now, but first you stepped on our throats on your way to the top. You raked in the money with a bunch of made up fantasyland bullsh** that wouldn't fool a counting horse on America's Funniest Home Videos, but somehow suckered in every major bank in the world.

Credit default swaps.

Those things are so f**king dumb that when you explain them to somebody and they laugh about how dumb they are you've got to act like ooooh they're so magical and complicated. Far too complex for the plebes to get. No! Wrong! Go into OTB and put fifty dollars on Rambo's Beautiful Blood. You just bought a credit default swap. Whoaaa you're blowing my simple pea brain with your fancy Wall Street talkin'. You sadsack ****ers.

So everybody bought into your big scheme, even when they didn't know they were playing, and now the whole thing has come crashing down because too many people won the f**king unbelievably obvious bet that a million illegal immigrants were going to default on million dollar home loans. Suddenly all your stupid fake money is gone, but if it's gone the whole system of bullsh** lies collapses and you look like d**kheads. So whoopty-doo, now we gotta make the fake money turn real or else the house of sh**ty c**t cards comes crashing down, only there isn't enough real money to cover all the fake money, so we're making more real money.

Then there's A.I.G., the bad seed, the carbuncle on our anus, the weeping wound in our tit, the sorry source of all our misery and woe. This is the monster garage full of miscreants that dreamed up the fire-breathing nitro-gulping predicament we're in right f**king now. Their financial products division created the derivatives market from lies and their executives raked in billions in bonuses and easy money. While they were peddling bad bets, median wages in the US stagnated and poor working schmucks leaned increasingly on credit to get by. Prices on everything were going up, but credit was easy to come by what with all that bullsh** money to throw around. And then the good days ended, for the poor sh**head in the middle class anyway. While you a**holes on Wall Street were lining up for your first round at the government trough, the poor f**kers that had been using credit cards to maintain their standard of living from the 1990s were beginning to lose everything. Their houses, cars, health care, and even their jobs were disappearing. F**kers at Merrill-Lynch, A.I.G., Citi Group, Bank of America, and on, and on, and f**king on were taking huge bonuses or executive compensation packages. They were "retiring" to third world countries where their fortunes would set them up like kings.

And listen up motherf**kers, because we f**king paid for it. Us. The f**king taxpaying public. The dudes you have been grinding beneath your heels since you first read Ayn Rand and sociopathed your way through econ 101. We're your paymasters now, f**kers. And yeah, your tools in the government and in the press are between you and us for now, but we've got one trick up our sleeve. One and only recourse while you're raping us for our last f**king dollars.

We can get ****ed. We can let the hate take over and form a f**king mob. When you take home bonuses from our money, when you get our bailouts and have your lobster luncheons or your strippers and coke parties at the Mirage, we'll be there with our torches and our f**king pitchforks. And just because you got your little crybaby letter in the New York Times, just because "the media narrative" is turning back in your favor, doesn't mean we have forgotten. We're ****ed and we know what you did.

Jake DeSantis, you f**king narcissist, don't give me that bullsh** self-pitying resignation letter. Don't tell me you weren't the dick that has been f**king this country, just the hand on its throat. Don't make me laugh with your charity donation lesson in life. Let me give you a life lesson. We'll go through the Red Cross and the March of Dimes to get to you. We'll leave Jerry's Kids mewling and thrashing in the gutters and overturn the Salvation Army Kettle to get our f**king money back.

You're all scum. Villains. And before this is through blood will be shed. Human blood that doesn't come out of a gigantic f**king vagina like yours, DeSantis. It's not a threat, it's a promise you're making to us.

"Come get us," you're sneering.

"I hope you like to eat turds from a human butt," we're sneering right back.

Your offices will be lit from within by the fires of a thousand burning evil motherf**kers and their evil personal assistants. There will be chaos. Triple chaos. Saigon all over again. They'll be pushing G5s off the deck of an aircraft carrier to make room for the next private jet escaping New York. We'll string the filth of the NYSE from lamp posts and Rick Santelli's empty sockets will look out on the streets, choked with useless paper and cars torched for insurance money.

The orgy of our outrage will be legendary. We'll cut off hands and feet and gouge out tender parts. We'll feed chopped up guts to dogs and rotting carcasses can fertilize urban gardens. Remember that tree they put Conan on? No, that's not for you, that's for your wives! You should be so lucky!

The last of you, the scarred remnants of your horrible tribe, can read this to a congressional hearing, your voices quivering with indignation while pale fists hammer on the glass and cry to see your blood spill out in a red gush across the steps of the Capitol.

You motherf**kers had better be afraid. You haven't learned your lesson yet, but we have.

DEATH TO WALL STREET!

Sincerely and with warmest regards,

XXXX XXXXXX (name deleted)

Medical Tourism, Revisited

2009-03-23T06:16:00.002-05:00

Chaos has remarked upon this phenomenon several times in the past, both because of personal experience with the dysfunctional, expensive, highly wasteful US healthcare system and because well, there just doesn't seem to be a viable solution, now or in the future, other than going abroad for medical treatment if one is un- or under-insured. At any rate, the nation's paper of record has now "discovered" the practice, which would not be particularly notable save for the helpful hints at the bottom of the piece. Give it a read, and contemplate the implications of a civilized society whose values are such that it regards medical care as a profitable commodity, and which leaves upwards of 50 million of its citizens uninsured.

A Solution, Of Sorts...

2009-03-19T19:19:00.002-05:00

Well, Chaos realizes that this certainly will not solve all the economic woes, but it sure would make sense and stop wasting resources on something that all agree is ridiculous, but for some strange reason cannot be touched. Here it is in all its glory:

The only way to stop drug gangs is to end their monopoly on production.

By Aaron Houston

Violence in Mexico is getting worse by the day. There are reports of beheadings, killings in the several thousands, and an environment of fear that makes it impossible for Mexican officials to do their work. The country's very stability may be threatened.

It's time to put an end to U.S. policies that subsidize these murderous drug gangs. The first step, as a growing chorus of voices is arguing, is to end the quixotic policy of prohibition, a proven failure. But the United States can do even better; by empowering a domestic marijuana industry, the United States would squeeze Mexican cartels' profits, cutting off the financial lifeline that sustains organized narcocrime.

According to U.S. and Mexican officials, some 60 percent of the profits that fuel Mexican narcotrafficking come from just one drug: marijuana. Although such estimates are inherently imprecise, there is no doubt that marijuana is the cash cow that makes these gangs the powerful, dangerous force they are -- both in Mexico and in the 230 U.S. cities where cartels are thought to operate. The chief of the U.S. Drug Enforcement Administration's Mexico and Central America Section recently told the New York Times that marijuana is the "king crop" for Mexican cartels, because it "consistently sustains its marketability and profitability."

Last November, the U.S. Joint Forces Command warned in its "Joint Operating Environment" report that Mexico "bear[s] consideration for a rapid and sudden collapse" due to drug cartel violence. Some critics saw the report as unduly dire, but at a minimum, as outgoing CIA Director Michael Hayden warned, drug cartels "threaten ... the well-being of the Mexican people and the Mexican state." A further increase in instability would constitute a national security and humanitarian crisis on both sides of the U.S.-Mexico border. For now, there is no end in sight to the worsening violence and no adequate plan to address it.

This appalling situation is not just happenstance. It is the direct result of prohibitionist U.S. policies.

Like it or not, marijuana is a massive industry. One hundred million Americans admit to government survey-takers that they've used it, with nearly 15 million acknowledging use in the past month. That's a huge market -- exceeding the number of Americans who will buy a new car or truck this year, or who bought one last year. Estimates based on U.S. government figures have pegged marijuana as the No. 1 cash crop in the United States, with a value exceeding corn and wheat combined.

Current U.S. policies are based on the fantasy that Americans can somehow make this massive industry go away. But prohibition hasn't stopped marijuana use. Although marijuana use hits peaks and troughs over time, overall consumption of the drug in the United States has risen roughly 4,000 percent rise since the first national ban took effect in 1937. In other words, for 72 years, the U.S. government has in effect granted criminals, including those brutal Mexican gangs, a monopoly on production, distribution, and profits.

The solution is already apparent: Make marijuana a legal, regulated product like alcohol and tobacco are. After all, there's a reason these gangs aren't smuggling wine grapes. When you have a legal, regulated market for a product, the underground market disappears. Indeed, the United States already has an illustrative example from its own history. During the 13 dark years of alcohol prohibition, drinking didn't stop, but gangsters such as Al Capone got rich. When Prohibition ended, the bootleggers -- and the orgy of violence that accompanied them -- went away. By taking marijuana out of the criminal underground and regulating it, Americans can cut the lifeline that gives Mexican drug gangs their power.

There are benefits for the United States, too. For the first time, regulators would have a level of control over marijuana production and distribution, both of which are impossible under today's system. Over time, the domestic marijuana industry would start to look like California's wine business: a responsible industry that adds to the state's prestige, tourism, and tax coffers, rather than a source of violence and instability.

Critics have already started to object, claiming that such a move would set off a surge of marijuana use. But in the Netherlands -- where adults have been permitted to possess and purchase small amounts of marijuana from regulated businesses since the mid-1970s -- the rate of marijuana use is less than half that of the United States, according to a recent World Health Organization study. More importantly, the percentage of teens trying marijuana by age 15 in the Netherlands is roughly one third the U.S. rate. Indeed, a 2001 National Research Council report commissioned by the White House found "little apparent relationship" between criminal penalties for drug use and the prevalence or frequency of use.

Most everyone can agree on one thing: The situation today is intolerable. Three former presidents of Mexico, Colombia, and Brazil have recently joined the call for the decriminalization of marijuana in its largest market, the United States. Mainstream commentators, editorial boards, and members of U.S. Congress have begun to join in. The momentum has shifted, and a solution is at the world's fingertips.

What's needed is the political courage to grasp it.

Aaron Houston is director of government relations for the Marijuana Policy Project.

Chaos has really nothing to add, except that it seems this is just one of many issues a declining Empire faces: intractable problems (see: the health care issue).