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SEC Roundtable on credit rating agency models today
I’ve discussed the broken business model that is the credit rating agency system in this country on a few occasions. It directly contributed to the opacity and fraud in the MBS market and to the ensuing financial crisis, for example. And in this post and then this one, I suggest that someone should start an open source version of credit rating agencies. Here’s my explanation:
The system of credit ratings undermines the trust of even the most fervently pro-business entrepreneur out there. The models are knowingly games by both sides, and it’s clearly both corrupt and important. It’s also a bipartisan issue: Republicans and Democrats alike should want transparency when it comes to modeling downgrades- at the very least so they can argue against the results in a factual way. There’s no reason I can see why there shouldn’t be broad support for a rule to force the ratings agencies to make their models publicly available. In other words, this isn’t a political game that would score points for one side or the other.
Well, it wasn’t long before Marc Joffe, who had started an open source credit rating agency, contacted me and came to my Occupy group to explain his plan, which I blogged about here. That was almost a year ago.
Today the SEC is going to have something they’re calling a Credit Ratings Roundtable. This is in response to an amendment that Senator Al Franken put on Dodd-Frank which requires the SEC to examine the credit rating industry. From their webpage description of the event:
The roundtable will consist of three panels:
- The first panel will discuss the potential creation of a credit rating assignment system for asset-backed securities.
- The second panel will discuss the effectiveness of the SEC’s current system to encourage unsolicited ratings of asset-backed securities.
- The third panel will discuss other alternatives to the current issuer-pay business model in which the issuer selects and pays the firm it wants to provide credit ratings for its securities.
Marc is going to be one of something like 9 people in the third panel. He wrote this op-ed piece about his goal for the panel, a key excerpt being the following:
Section 939A of the Dodd-Frank Act requires regulatory agencies to replace references to NRSRO ratings in their regulations with alternative standards of credit-worthiness. I suggest that the output of a certified, open source credit model be included in regulations as a standard of credit-worthiness.
Just to be clear: the current problem is that not only is there wide-spread gaming, but there’s also a near monopoly by the “big three” credit rating agencies, and for whatever reason that monopoly status has been incredibly well protected by the SEC. They don’t grant “NRSRO” status to credit rating agencies unless the given agency can produce something like 10 letters from clients who will vouch for them providing credit ratings for at least 3 years. You can see why this is a hard business to break into.
The Roundtable was covered yesterday in the Wall Street Journal as well: Ratings Firms Steer Clear of an Overhaul - an unfortunate title if you are trying to be optimistic about the event today. From the WSJ article:
Mr. Franken’s amendment requires the SEC to create a board that would assign a rating firm to evaluate structured-finance deals or come up with another option to eliminate conflicts.
While lawsuits filed against S&P in February by the U.S. government and more than a dozen states refocused unflattering attention on the bond-rating industry, efforts to upend its reliance on issuers have languished, partly because of a lack of consensus on what to do.
I’m just kind of amazed that, given how dirty and obviously broken this industry is, we can’t do better than this. SEC, please start doing your job. How could allowing an open-source credit rating agency hurt our country? How could it make things worse?
When is shaming appropriate?
As a fat person, I’ve dealt with a lot of public shaming in my life. I’ve gotten so used to it, I’m more an observer than a victim most of the time. That’s kind of cool because it allows me to think about it abstractly.
I’ve come up with three dimensions for thinking about this issue.
- When is shame useful?
- When is it appropriate?
- When does it help solve a problem?
Note it can be useful even if it doesn’t help solve a problem – one of the characteristics of shame is that the person doing the shaming has broken off all sense of responsibility for whatever the issue is, and sometimes that’s really the only goal. If the shaming campaign is effective, the shamed person or group is exhibited as solely responsible, and the shamer does not display any empathy. It hasn’t solved a problem but at least it’s clear who’s holding the bag.
The lack of empathy which characterizes shaming behavior makes it very easy to spot. And extremely nasty.
Let’s look at some examples of shaming through this lens:
Useful but not appropriate, doesn’t solve a problem
Example 1) it’s both fat kids and their parents who are to blame for childhood obesity:
Actual public campaign in Georgia
Example 2) It’s poor mothers that are to blame for poverty:
I saw this on the NYC subway
These campaigns are not going to solve any problems, but they do seem politically useful – a way of doubling down on the people suffering from problems in our society. Not only will they suffer from them, but they will also be blamed for them.
Inappropriate, not useful, possibly solving a short-term discipline problem
Let’s go back to parenting, which everyone seems to love talking about, if I can go by the number of comments on my recent post in defense of neglectful parenting.
One of my later commenters, Deane, posted this article from Slate about how the Tiger Mom approach to shaming kids into perfection produces depressed, fucked-up kids:
Hey parents: shaming your kids might solve your short-term problem of having independent-minded kids, but it doesn’t lead to long-term confidence and fulfillment.
Appropriate, useful, solves a problem
Here’s when shaming is possibly appropriate and useful and solves a problem: when there have been crimes committed that affect other people needlessly or carelessly, and where we don’t want to let it happen again.
For example, the owner of the Bangladeshi factory which collapsed, killing more than 1,000 people got arrested and publicly shamed. This is appropriate, since he knowingly put people at risk in a shoddy building and added three extra floors to improve his profits.
Note shaming that guy isn’t going to bring back those dead people, but it might prevent other people from doing what he did. In that sense it solves the problem of seemingly nonexistent safety codes in Bangladesh, and to some extent the question of how much we Americans care about cheap clothes versus conditions in factories which make our clothes. Not completely, of course. Update: Major Retailers Join Plan for Greater Safety in Bangladesh
Another example of appropriate shame would be some of the villains of the financial crisis. We in Alt Banking did our best in this regard when we made the 52 Shades of Greed card deck. Here’s Robert Rubin:
Conclusion
I’m no expert on this stuff, but I do have a way of looking at it.
One thing about shame is that the people who actually deserve shame are not particularly susceptible to feeling it (I saw that first hand when I saw Ina Drew in person last month, which I wrote about here). Some people are shameless.
That means that shame, whatever its purpose, is not really about making an individual change their behavior. Shame is really more about setting the rules of society straight: notifying people in general about what’s acceptable and what’s not.
From my perspective, we’ve shown ourselves much more willing to shame poor people, fat people, and our own children than to shame the actual villains who walk among us who deserve such treatment.
Shame on us.
Why we should break up the megabanks (#OWS)
Today is May Day, and my Occupy group and I are planning to join in the actions all over the city this afternoon. At 2:00 I’m going to be at Cooper Square, where Free University is holding a bunch of teach-ins, and I’m giving one entitled “Why we should break up the megabanks.” I wanted to get my notes for the talk down in writing beforehand here.
The basic reasons to break up the megabanks are these:
- They hold too much power.
- They cost too much.
- They get away with too much.
- They make things worse.
Each requires explanation.
Megabanks hold too much power
When Paulson went to Congress to argue for the bailout in 2008, he told them that the consequences of not acting would be a total collapse of the financial system and the economy. He scared Congress and the American people to such an extent that the banks managed to receive $700 billion with no strings attached. Even though half of that enormous pile of money was supposed to go to help homeowners threatened with foreclosures, almost none of it did, because the banks found other things to do with it.
The power of megabanks doesn’t only exert itself through the threat of annihilation, though. It also flows through lobbyists who water down Dodd-Frank (or really any policy that banks don’t like) and through “the revolving door,” the men and women who work for Treasury, the White House, and regulators about half the time and sit in positions of power in the megabanks the other half of their time, gaining influence and money and retiring super rich.
It is unreasonable to expect to compete with this kind of insularity and influence of the megabanks.
They cost too much
The bailout didn’t work and it’s still going on. And we certainly didn’t “make money” on it, compared to what the government could have expected if we had invested differently.
But honestly it’s too narrow to think about money alone, because what we really need to consider is risk. And there we’ve lost a lot: when we bailed them out, we took on the risk of the megabanks, and we have simply done nothing to return it. Ultimately the only way to get rid of that costly risk is to break them up once and for all to a size that they can reasonably and obviously be expected to fail.
Make no mistake about it: risk is valuable. It may not be quantifiable at a moment of time, but over time it becomes quite valuable and quantifiable indeed, in various ways.
One way is to think about borrowing costs and long-term default probabilities, and there the estimates have varied but we’ve seen numbers such as $83 billion per year modeled. Few people dispute that it’s the right order of magnitude.
They get away with too much
There doesn’t seem to be a limit to what the megabanks can get away with, which we’ve seen with HSBC’s money laundering from terrorists and drug cartels, we’ve seen with Jamie Dimon and Ina Drew lying to Congress about fucking with their risk models, we’ve seen with countless fraudulent and racist practices with mortgages and foreclosures and foreclosure reviews, not to mention setting up customers to fail in deals made to go bad, screwing municipalities and people with outrageous fees, shaving money off of retirement savings, and manipulating any and all markets and rates that they can to increase their bonuses.
The idea of a financial sector is to grease the wheels of commerce, to create a machine that allows the economy to work. But in our case we have a machine that’s taken over the economy instead.
They make things worse
Ultimately the best reason to break them up right now, the sooner the better, is that the incentives are bad and getting worse. Now that they live in a officially protected zone, there is even less reason for them then there used to be to rein in risky practices. There is less reason for them to worry about punishments, since the SEC’s habit of letting people off without jailtime, meaningful penalties, or even admitting wrongdoing has codified the lack of repercussions for bad behavior.
If we use recent history as a guide, the best job in finance you can have right now is inside a big bank, protected from the law, rather than working at a hedge fund where you can be nabbed for insider trading and publicly displayed as an example of the SEC’s new “toughness.”
What we need to worry about now is how bad the next crash is going to be. Let’s break up the megabanks now to mitigate that coming disaster.
Alternative Banking news (#OWS): Left Forum, Citigroup coverage, Occupy Finance
The Alternative Banking group of OWS is still meeting every Sunday at Columbia from 3-5pm to discuss financial reform. We also often have pre-meeting talks open to the public. The normal meeting is open to the public as well, but it can get pretty wonky. This week’s pre-meeting talk is an update on Greece.
Please join us! Details are here, on our blog. You can also sign up for the normal meeting and pre-meeting through Meetup here.
Left Forum
We just found out our proposal for a panel at the Left Forum got accepted (here we are on their website). In case you don’t know much about the Left Forum, it’s a conference taking place on June 7-9th at Pace University in New York, which brings together a huge number of lefties and progressives and activists together to talk about their work. It used to be called the Socialist Scholars Conference. Noam Chomsky and Cornel West are scheduled to be there this year.
Our plan for the panel is to have a “regular meeting” at the conference. So anyone in our group can come (I think they have to register first), which means anyone at all, since our group is open to the public. Our probably topic will be “Breaking up the megabanks” or something along those lines.
I’ll update when we find out when we’re scheduled to go on. Here’s a full list of approved panel topics.
Citigroup coverage
While I was away in D.C. attending a congressional hearing on big data (blog post on that will come soon!) my Alt Banking peeps staged a protest outside the Citigroup annual shareholder meeting in New York. Here’s some coverage:
- Financial Times
- Dealbreaker: Spandex-clad roller-girl
- Dealbreaker: Spandex-Clad Roller Girl Was Not Only Prepared To Put Citi Execs Over Her Knee But Read Them Their Rights
- La Jornada
- Marni’s recent essay in the Huffington Post
Here’s a picture of the whole group:
And here’s a picture of Marni, who was a huge hit:
Occupy Finance
Final thing: we’re writing a book in Alt Banking, called Occupy Finance, and modeled after the Debt Resistor’s Operation Manual, which we adore. Please volunteer to be a writer or an editor if you have time!
Note: you don’t need to be a specialist in finance to be an editor, that’s the point. We’re writing it for the interested public. Email me if you want to be part of it – my email is on the “About” page.
10 reasons to protest at Citigroup’s annual shareholder meeting tomorrow (#OWS)
The Alternative Banking group of #OWS is showing up bright and early tomorrow morning to protest at Citigroup’s annual shareholder meeting. Details are: we meet outside the Hilton Hotel, Sixth Avenue between 53rd and 54th Streets, tomorrow, April 24th, from 8-10 am. We’ve already made some signs (see below).
Here are ten reasons for you to join us.
1) The Glass-Steagall Act, which had protected the banking system since 1933, was repealed in order to allow Citibank and Traveler’s Insurance to merge.
In fact they merged before the act was even revoked, giving us a great way to date the moment when politicians started taking orders from bankers – at the time, President Bill Clinton publicly declared that “the Glass–Steagall law is no longer appropriate.”
2) The crimes Citi has committed have not been met with reasonable punishments.
From this Bloomberg article:
In its complaint against Citigroup, the SEC said the bank misled investors in a $1 billion fund that included assets the bank had projected would lose money. At the same time it was selling the fund to investors, Citigroup took a short position in many of the underlying assets, according to the agency.
The SEC only attempted to fine Citi $285 million, even though Citi’s customers lost on the order of $600 million from their fraud. Moreover, they were not required to admit wrongdoing. Judge Rakoff refused to sign off on the deal and it’s still pending. Citi is one of those banks that is simply too big to jail.
3) We’d like our pen back, Mr. Weill. Going back to repealing Glass-Steagall. Let’s take an excerpt from this article:
…at the signing ceremony of the Gramm-Leach-Bliley, aka the Glass Steagall repeal act, Clinton presented Weill with one of the pens he used to “fine-tune” Glass-Steagall out of existence, proclaiming, “Today what we are doing is modernizing the financial services industry, tearing down those antiquated laws and granting banks significant new authority.”
Weill has since decided that repealing Glass-Steagall was a mistake.
4) Do you remember the Plutonomy Memos? I wrote about them here. Here’s a tasty excerpt which helps us remember when the class war was started and by whom:
We project that the plutonomies (the U.S., UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization… Since we think the plutonomy is here, is going to get stronger… It is a good time to switch out of stocks that sell to the masses and back to the plutonomy basket.
5) Robert Rubin – enough said. To say just a wee bit more, let’s look at the Bloomberg Businessweek article, “Rethinking Robert Rubin”:
Rubinomics—his signature economic philosophy, in which the government balances the budget with a mix of tax increases and spending cuts, driving borrowing rates down—was the blueprint for an economy that scraped the sky. When it collapsed, due in part to bank-friendly policies that Rubin advocated, he made more than $100 million while others lost everything.
That $100 million was made at Citigroup, which was later bailed out because of bets Rubin helped them make. He has thus far shown no remorse.
6) The Revolving Door problems Citigroup has. Bill Moyers has a great article on the outrageous revolving door going straight from banks to the Treasury and the White House. What with Rubin and Lew, Citigroup seems pretty much a close second behind Goldman Sachs for this sport.
7) The bailout. Citigroup took $100 billion from the Fed at the height of the bailout in January 2009.
8) The bailout was actually for Citigroup. If you’ve read Sheila Bair’s book Bull by the Horns, you’ll see the bailout from her inside perspective. And it was this: that Citigroup was really the bank that needed it worst. That in fact, the whole bailout was a cover for funneling money to Citi.
9) The ongoing Fed dole. The bailout is still going on – and Citigroup is currently benefitting from the easy money that the Fed is offering, not to mention the $83 billion taxpayer subsidy. WTF?!
10) Lobbying for yet more favors. Citi spent $62 million from 2001 to 2010 on lobbying in Washington. What’s their return on that investment, do you think?
Join us tomorrow morning! Details here.
Tax haven in comedy: the Caymans (#OWS)
This is a guest post by Justin Wedes. A graduate of the University of Michigan with degrees in Physics and Linguistics with High Honors, Justin has taught formerly truant and low-income youth in subjects ranging from science to media literacy and social justice activism. A founding member of the New York City General Assembly (NYCGA), the group that brought you Occupy Wall Street, Justin continues his education activism with the Grassroots Education Movement, Class Size Matters, and now serves as the Co-Principal of the Paul Robeson Freedom School.
Yesterday was tax day, when millions of Americans fulfilled that annual patriotic ritual that funds roads, schools, libraries, hospitals, and all those pesky social services that regular people rely upon each day to make our country liveable.
Millions of Americans, yes, but not ALL Americans.
Some choose to help fund roads, schools, libraries, hospitals in other places instead. Like the Cayman Islands.
Don’t get me wrong – I love Caymanians. Beautifully hospitable people they are, and they enjoy arguably the most progressive taxes in the world: zero income tax and only the rich pay when they come to work – read “cook the books” – on their island for a few days a year. School is free, health care guaranteed to all who work. It’s a beautiful place to live, wholly subsidized by the 99% in developed countries like yours and mine.
When they stash their money abroad and don’t pay taxes while doing business on our land, using our workforce and electrical grids and roads and getting our tax incentives to (not) create jobs, WE pay.
We small businesses.
We students.
We nurses.
We taxpayers.
I went down to the Caymans myself to figure out just how easy it is to open an offshore tax haven and start helping Caymanians – and myself – rather than Americans.
Here’s what happened:
Bob Fischer talks about climate modeling at Occupy today
I’m really excited to be going to the pre-meeting talk of my Occupy group today. We’re having a talk by Bob Fischer, who is a post-doc at NASA GISS, a laboratory focused largely on climate change up here in the Columbia neighborhood.
He is coming to talk with us about his work investigating the long-term behavior of ice sheets in a changing climate. Before joining GISS, Dr. Fischer was a quant on Wall Street, working on statistical arbitrage, trade execution, simulation/modeling platforms, signal development, and options trading. I met him when we were both students at math camp in 1988, but we reconnected this past summer at the reunion.
The actual title of his talk is “The History of CO2: Past, Present and Future” and it’s open to the public, so please come if you can (it’s at 2:00 pm in room 409 here but more details are here).
After Bob, we’ll be having our usual Occupy meeting. Topics this week include our plans for a Citigroup and HSBC picket later this month, our panel submissions to the Left Forum in June, our plans for May Day, and continued work on writing a book modeled after the Debt Resistor’s Operations Manual.
Housekeeping – RSS feed for mathbabe broken, possibly fixed
I’ve been trying to address the problem people have been having with their RSS feed for mathbabe. Thanks to my nerd-girl friend Jennifer Rubinovitz, I’ve changed some settings in my WordPress settings and now I can view all of my posts when I open up RSSOwl. But in order for your reader to get caught up I have a feeling you’ll need to somehow refresh it or maybe get rid of mathbabe and then re-subscribe. I’ll update as I learn more (please tell me what’s working for you!).
Guest Post SuperReview Part III of VI: The Occupy Handbook Part I and a little Part II: Where We Are Now
Whattup.
Moving on from Lewis’ cute Bloomberg column reprint, we come to the next essay in the series:
The Widening Gyre: Inequality, Polarization, and the Crisis by Paul Krugman and Robin Wells
Indefatigable pair Paul Krugman and Robin Wells (KW hereafter) contribute one of the several original essays in the book, but the content ought to be familiar if you read the New York Times, know something about economics or practice finance. Paul Krugman is prolific, and it isn’t hard to be prolific when you have to rewrite essentially the same column every week; question, are there other columnists who have been so consistently right yet have failed to propose anything that the polity would adopt? Political failure notwithstanding, Krugman leaves gems in every paragraph for the reader new to all this. The title “The Widening Gyre” comes from an apocalyptic William Yeats Butler poem. In this case, Krugman and Wells tackle the problem of why the government responded so poorly to the crisis. In their words:
By 2007, America was about as unequal as it had been on the eve of the Great Depression – and sure enough, just after hitting this milestone, we lunged into the worst slump since the Depression. This probably wasn’t a coincidence, although economists are still working on trying to understand the linkages between inequality and vulnerability to economic crisis.
Here, however, we want to focus on a different question: why has the response to crisis been so inadequate? Before financial crisis struck, we think it’s fair to say that most economists imagined that even if such a crisis were to happen, there would be a quick and effective policy response [editor's note: see Kautsky et al 2016 for a partial explanation]. In 2003 Robert Lucas, the Nobel laureate and then president of the American Economic Association, urged the profession to turn its attention away from recessions to issues of longer-term growth. Why? Because he declared, the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”
Famous last words from Professor Lucas. Nevertheless, the curious failure to apply what was once the conventional wisdom on a useful scale intrigues me for two reasons. First, most political scientists suggest that democracy, versus authoritarian system X, leads to better outcomes for two reasons.
1. Distributional – you get a nicer distribution of wealth (possibly more productivity for complicated macro reasons); economics suggests that since people are mostly envious and poor people have rapidly increasing utility in wealth, democracy’s tendency to share the wealth better maximizes some stupid social welfare criterion (typically, Kaldor-Hicks efficiency).
2. Information – democracy is a better information aggregation system than dictatorship and an expanded polity makes better decisions beyond allocation of produced resources. The polity must be capable of learning and intelligent OR vote randomly if uninformed for this to work. While this is the original rigorous justification for democracy (first formalized in the 1800s by French rationalists), almost no one who studies these issues today believes one-person one-vote democracy better aggregates information than all other systems at a national level. “Well Leon,” some knave comments, “we don’t live in a democracy, we live in a Republic with a president…so shouldn’t a small group of representatives better be able to make social-welfare maximizing decisions?” Short answer: strong no, and US Constitutionalism has some particularly nasty features when it comes to political decision-making.
Second, KW suggest that the presence of extreme wealth inequalities act like a democracy disabling virus at the national level. According to KW extreme wealth inequalities perpetuate themselves in a way that undermines both “nice” features of a democracy when it comes to making regulatory and budget decisions.* Thus, to get better economic decision-making from our elected officials, a good intermediate step would be to make our tax system more progressive or expand Medicare or Social Security or…Well, we have a lot of good options here. Of course, for mathematically minded thinkers, this begs the following question: if we could enact so-called progressive economic policies to cure our political crisis, why haven’t we done so already? What can/must change for us to do so in the future? While I believe that the answer to this question is provided by another essay in the book, let’s take a closer look at KW’s explanation at how wealth inequality throws sand into the gears of our polity. They propose four and the following number scheme is mine:
1. The most likely explanation of the relationship between inequality and polarization is that the increased income and wealth of a small minority has, in effect bought the allegiance of a major political party…Needless to say, this is not an environment conducive to political action.
2. It seems likely that this persistence [of financial deregulation] despite repeated disasters had a lot do with rising inequality, with the causation running in both directions. On the one side the explosive growth of the financial sector was a major source of soaring incomes at the very top of the income distribution. On the other side, the fact that the very rich were the prime beneficiaries of deregulation meant that as this group gained power- simply because of its rising wealth- the push for deregulation intensified. These impacts of inequality on ideology did not in 2008…[they] left us incapacitated in the face of crisis.
3. Conservatives have always seen seen [Keynesian economics] as the thin edge of the wedge: concede that the government can play a useful role in fighting slumps, and the next thing you know we’ll be living under socialism.
4. [Krugman paraphrasing Kalecki] Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense. Under a laissez-faire system the level of employment to a great extend on the so-called state of confidence….This gives capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be avoided because it would cause an economic crisis.
All of these are true to an extent. Two are related to the features of a particular policy position that conservatives don’t like (countercyclical spending) and their cost will dissipate if the economy improves. Isn’t it the case that most proponents and beneficiaries of financial liberalization are Democrats? (Wall Street mostly supported Obama in 08 and barely supported Romney in 12 despite Romney giving the house away). In any case, while KW aren’t big on solutions they certainly have a strong grasp of the problem.
Take a Stand: Sit In by Phillip Dray
As the railroad strike of 1877 had led eventually to expanded workers’ rights, so the Greensboro sit-in of February 1, 1960, helped pave the way for passage of the Civil Rights Act of 1964 and the Voting Rights Act of 1965. Both movements remind us that not all successful protests are explicit in their message and purpose; they rely instead on the participants’ intuitive sense of justice. [28]
I’m not the only author to have taken note of this passage as particularly important, but I am the only author who found the passage significant and did not start ranting about so-called “natural law.” Chronicling the (hitherto unknown-to-me) history of the Great Upheaval, Dray does a great job relating some important moments in left protest history to the OWS history. This is actually an extremely important essay and I haven’t given it the time it deserves. If you read three essays in this book, include this in your list.
Inequality and Intemperate Policy by Raghuram Rajan (no URL, you’ll have to buy the book)
Rajan’s basic ideas are the following: inequality has gotten out of control:
Deepening income inequality has been brought to the forefront of discussion in the United States. The discussion tends to center on the Croesus-like income of John Paulson, the hedge fund manager who made a killing in 2008 betting on a financial collapse and netted over $3 billion, about seventy-five-thousand times the average household income. Yet a more worrying, everyday phenomenon that confronts most Americans is the disparity in income growth rates between a manager at the local supermarket and the factory worker or office assistant. Since the 1970s, the wages of the former, typically workers at the ninetieth percentile of the wage distribution in the United States, have grown much faster than the wages of the latter, the typical median worker.
But American political ideologies typically rule out the most direct responses to inequality (i.e. redistribution). The result is a series of stop-gap measures that do long-run damage to the economy (as defined by sustainable and rising income levels and full employment), but temporarily boost the consumption level of lower classes:
It is not surprising then, that a policy response to rising inequality in the United States in the 1990s and 200s – whether carefully planned or chosen as the path of least resistance – was to encourage lending to households, especially but not exclusively low-income ones, with the government push given to housing credit just the most egregious example. The benefit – higher consumption – was immediate, whereas paying the inevitable bill could be postponed into the future. Indeed, consumption inequality did not grow nearly as much as income inequality before the crisis. The difference was bridged by debt. Cynical as it may seem, easy credit has been used as a palliative success administrations that been unable to address the deeper anxieties of the middle class directly. As I argue in my book Fault Lines, “Let them eat credit” could well summarize the mantra of the political establishment in the go-go years before the crisis.
Why should you believe Raghuram Rajan? Because he’s one of the few guys who called the first crisis and tried to warn the Fed.
A solid essay providing a more direct link between income inequality and bad policy than KW do.
The 5 Percent by Michael Hiltzik
The 5 percent’s [consisting of the seven million Americans who, in 1934, were sixty-five and older] protests coalesced as the Townsend movement, launched by a sinewy midwestern farmer’s son and farm laborer turned California physician. Francis Townsend was a World War I veteran who had served in the Army Medical Corps. He had an ambitious, and impractical plan for a federal pension program. Although during its heyday in the 1930s the movement failed to win enactment of its [editor's note: insane] program, it did play a critical role in contemporary politics. Before Townsend, America understood the destitution of its older generations only in abstract terms; Townsend’s movement made it tangible. “It is no small achievment to have opened the eyes of even a few million Americans to these facts,” Bruce Bliven, editor of the New Republic observed. “If the Townsend Plan were to die tomorrow and be completely forgotten as miniature golf, mah-jongg, or flinch [editor's note: everything old is new again], it would still have left some sedimented flood marks on the national consciousness.” Indeed, the Townsend movement became the catalyst for the New Deal’s signal achievement, the old-age program of Social Security. The history of its rise offers a lesson for the Occupy movement in how to convert grassroots enthusiasm into a potent political force – and a warning about the limitations of even a nationwide movement.
Does the author live up to the promises of this paragraph? Is the whole essay worth reading? Does FDR give in to the people’s demands and pass Social Security?!
Yes to all. Read it.
Hidden in Plain Sight by Gillian Tett (no URL, you’ll have to buy the book)
This is a great essay. I’m going to outsource the review and analysis to:
http://beyoubesure.com/2012/10/13/generation-lost-lazy-afraid/
because it basically sums up my thoughts. You all, go read it.
What Good is Wall Street? by John Cassidy
If you know nothing about Wall Street, then the essay is worth reading, otherwise skip it. There are two common ways to write a bad article in financial journalism. First, you can try to explain tiny index price movements via news articles from that day/week/month. “Shares in the S&P moved up on good news in Taiwan today,” that kind of nonsense. While the news and price movements might be worth knowing for their own sake, these articles are usually worthless because no journalist really knows who traded and why (theorists might point out even if the journalists did know who traded to generate the movement and why, it’s not clear these articles would add value – theorists are correct).
The other way, the Cassidy! way is to ask some subgroup of American finance what they think about other subgroups in finance. High frequency traders think iBankers are dumb and overpaid, but HFT on the other hand, provides an extremely valuable service – keeping ETFs cheap, providing liquidity and keeping shares the right level. iBankers think prop-traders add no value, but that without iBanking M&A services, American manufacturing/farmers/whatever would cease functioning. Low speed prop-traders think that HFT just extracts cash from dumb money, but prop-traders are reddest blooded American capitalists, taking the right risks and bringing knowledge into the markets. Insurance hates hedge funds, hedge funds hate the bulge bracket, the bulge bracket hates the ratings agencies, who hate insurance and on and on.
You can spit out dozens of articles about these catty and tedious rivalries (invariably claiming that financial sector X, rivals for institutional cash with Y, “adds no value”) and learn nothing about finance. Cassidy writes the article taking the iBankers side and surprises no one (this was originally published as an article in The New Yorker).
Your House as an ATM by Bethany McLean
Ms. McLean holds immense talent. It was always pretty obvious that the bottom twenty-percent, i.e. the vast majority of subprime loan recipients, who are generally poor at planning, were using mortgages to get quick cash rather than buy houses. Regulators and high finance, after resisting for a good twenty years, gave in for reasons explained in Rajan’s essay.
Against Political Capture by Daron Acemoglu and James A. Robinson (sorry I couldn’t find a URL, for this original essay you’ll have to buy the book).
A legit essay by a future Nobelist in Econ. Read it.
A Nation of Business Junkies by Arjun Appadurai
Anthro-hack Appadurai writes:
I first came to this country in 1967. I have been either a crypto-anthropologist or professional anthropologist for most of the intervening years. Still, because I came here with an interest in India and took the path of least resistance in choosing to retain India as my principal ethnographic referent, I have always been reluctant to offer opinions about life in these United States.
His instincts were correct. The essay reads like an old man complaining about how bad the weather is these days. Skip it.
Causes of Financial Crises Past and Present: The Role of This-Time-Is-Different Syndrome by Carmen M. Reinhart and Kenneth S. Rogoff
Editor Byrne has amazing powers of persuasion or, a lot of authors have had some essays in the desk-drawer they were waiting for an opportunity to publish. In any case, Rogoff and Reinhart (RR hereafter) have summed up a couple hundred studies and two of their books in a single executive summary and given it to whoever buys The Occupy Handbook. Value. RR are Republicans and the essay appears to be written in good faith (unlike some people *cough* Tyler Cowen and Veronique de Rugy *cough*). RR do a great job discovering and presenting stylized facts about financial crises past and present. What to expect next? A couple national defaults and maybe a hyperinflation or two.
Government As Tough Love by Robert Shiller as interviewed by Brandon Adams (buy the book)!
Shiller has always been ahead of the curve. In 1981, he wrote a cornerstone paper in behavioral finance at a time when the field was in its embryonic stages. In the early 1990s, he noticed insufficient attention was paid to real estate values, despite their overwhelming importance to personal wealth levels; this led him to create, along with Karl E. Case, the Case-Shiller index – now the Case-Shiller Home Prices Indices. In March 2000**, Shiller published Irrational Exuberance, arguing that U.S. stocks were substantially overvalued and due for a tumble. [Editor's note: what Brandon Adams fails to mention, but what's surely relevant is that Shiller also called the subprime bubble and re-released Irrational Exuberance in 2005 to sound the alarms a full three years before The Subprime Solution]. In 2008, he published The Subprime Solution, which detailed the origins of the housing crisis and suggested innovative policy responses for dealing with the fallout. These days, one of his primary interests is neuroeconomics, a field that relates economic decision-making to brain function as measured by fMRIs.
Shiller is basically a champ and you should listen to him.
Shiller was disappointed but not surprised when governments bailed out banks in extreme fashion while leaving the contracts between banks and homeowners unchanged. He said, of Hank Paulson, “As Treasury secretary, he presented himself in a very sober and collected way…he did some bailouts that benefited Goldman Sachs, among others. And I can imagine that they were well-meaning, but I don’t know that they were totally well-meaning, because the sense of self-interest is hard to clean out of your mind.”
Shiller understates everything.
Verdict: Read it.
And so, we close our discussion of part I. Moving on to part II:
In Ms. Byrne’s own words:
Part 2, “Where We Are Now,” which covers the present, both in the United States and abroad, opens with a piece by the anthropologist David Graeber. The world of Madison Avenue is far from the beliefs of Graeber, an anarchist, but it’s Graeber who arguably (he says he didn’t do it alone) came up with the phrase “We Are the 99 percent.” As Bloomberg Businessweek pointed out in October 2011, during month two of the Occupy encampments that Graeber helped initiate and three moths after the publication of his Debt: The First 5,000 Years, “David Graeber likes to say that he had three goals for the year: promote his book, learn to drive, and launch a worldwide revolution. The first is going well, the second has proven challenging and the third is looking up.” Graeber’s counterpart in Chile can loosely be said to be Camila Vallejo, the college undergraduate, pictured on page 219, who, at twenty-three, brought the country to a standstill. The novelist and playwright Ariel Dorfman writes about her and about his own self-imposed exile from Chile, and his piece is followed by an entirely different, more quantitative treatment of the subject. This part of the book also covers the indignados in Spain, who before Occupy began, “occupied” the public squares of Madrid and other cities – using, as the basis for their claim on the parks could be legally be slept in, a thirteenth-century right granted to shepherds who moved, and still move, their flocks annually.
In other words, we’re in occupy is the hero we deserve, but not the hero we need territory here.
*Addendum 1: Some have suggested that it’s not the wealth inequality that ought to be reduced, but the democratic elements of our system. California’s terrible decision-making resulting from its experiments with direct democracy notwithstanding, I would like to stay in the realm of the sane.
**Addendum 2: Yes, Shiller managed to get the book published the week before the crash. Talk about market timing.
Guest Post SuperReview Part II of VI: The Occupy Handbook Part I: How We Got Here
Whatsup.
This is a review of Part I of The Occupy Handbook. Part I consists of twelve pieces ranging in quality from excellent to awful. But enough from me, in Janet Byrne’s own words:
Part 1, “How We Got Here,” takes a look at events that may be considered precursors of OWS: the stories of a brakeman in 1877 who went up against the railroads; of the four men from an all-black college in North Carolina who staged the first lunch counter sit-in of the 1960s; of the out-of-work doctor whose nationwide, bizarrely personal Townsend Club movement led to the passage of Social Security. We go back to the 1930s and the New Deal and, in Carmen M. Reinhart and Kenneth S. Rogoff‘s “nutshell” version of their book This Time Is Different: Eight Centuries of Financial Folly, even further.
Ms. Byrne did a bang-up job getting one Nobel Prize Winner in economics (Paul Krugman), two future Economics Nobel Prize winners (Robert Shiller, Daron Acemoglu) and two maybes (sorry Raghuram Rajan and Kenneth Rogoff) to contribute excellent essays to this section alone. Powerhouse financial journalists Gillian Tett, Michael Hilztik, John Cassidy, Bethany McLean and the prolific Michael Lewis all drop important and poignant pieces into this section. Arrogant yet angry anthropologist Arjun Appadurai writes one of the worst essays I’ve ever had the misfortune of reading and the ubiquitous Brandon Adams make his first of many mediocre appearances interviewing Robert Shiller. Clocking in at 135 pages, this is the shortest section of the book yet varies the most in quality. You can skip Professor Appadurai and Cassidy’s essays, but the rest are worth reading.
Advice from the 1 Percent: Lever Up, Drop Out by Michael Lewis
Framed as a strategy memo circulated among one-percenters, Lewis’ satirical piece written after the clearing of Zucotti Park begins with a bang.
The rabble has been driven from the public parks. Our adversaries, now defined by the freaks and criminals among them, have demonstrated only that they have no idea what they are doing. They have failed to identify a single achievable goal.
Indeed, the absurd fixation on holding Zuccotti Park and refusal to issue demands because doing so “would validate the system” crippled Occupy Wall Street (OWS). So far OWS has had a single, but massive success: it shifted the conversation back to the United States’ out of control wealth inequality managed to do so in time for the election, sealing the deal on Romney. In this manner, OWS functioned as a holding action by the 99% in the interests of the 99%.
We have identified two looming threats: the first is the shifting relationship between ambitious young people and money. There’s a reason the Lower 99 currently lack leadership: anyone with the ability to organize large numbers of unsuccessful people has been diverted into Wall Street jobs, mainly in the analyst programs at Morgan Stanley and Goldman Sachs. Those jobs no longer exist, at least not in the quantities sufficient to distract an entire generation from examining the meaning of their lives. Our Wall Street friends, wounded and weakened, can no longer pick up the tab for sucking the idealism out of America’s youth.We on the committee are resigned to all elite universities becoming breeding grounds for insurrection, with the possible exception of Princeton.
Michael Lewis speaks from experience; he is a Princeton alum and a 1 percenter himself. More than that however, he is also a Wall Street alum from Salomon Brothers during the 1980s snafu and wrote about it in the original guide to Wall Street, Liar’s Poker. Perhaps because of his atypicality (and dash of solipsism), he does not have a strong handle on human(s) nature(s). By the time of his next column in Bloomberg, protests had broken out at Princeton.
Ultimately ineffectual, but still better than…
Lewis was right in the end, but more than anyone sympathetic to the movement might like. OccupyPrinceton now consists of only two bloggers, one of which has graduated and deleted all his work from an already quiet site and another who is a senior this year. OccupyHarvard contains a single poorly written essay on the front page. Although OccupyNewHaven outlasted the original Occupation, Occupy Yale no longer exists. Occupy Dartmouth hasn’t been active for over a year, although it has a rather pathetic Twitter feed here. Occupy Cornell, Brown, Caltech, MIT and Columbia don’t exist, but some have active facebook pages. Occupy Michigan State, Rutgers and NYU appear to have had active branches as recently as eight months ago, but have gone silent since. Functionally, Occupy Berkeley and its equivalents at UCBerkeley predate the Occupy movement and continue but Occupy Stanford hasn’t been active for over a year. Anecdotally, I recall my friends expressing some skepticism that any cells of the Occupy movement still existed.
As for Lewis’ other points, I’m extremely skeptical about “examined lives” being undermined by Wall Street. As someone who started in math and slowly worked his way into finance, I can safely say that I’ve been excited by many of the computing, economic, and theoretical problems quants face in their day-to-day work and I’m typical. I, and everyone who has lived long-enough, knows a handful of geniuses who have thought long and hard about the kinds of lives they want to lead and realized that A. there is no point to life unless you make one and B. making money is as good a point as any. I know one individual, after working as a professional chemist prior to college,who decided to in his words, “fuck it and be an iBanker.” He’s an associate at DB. At elite schools, my friend’s decision is the rule rather than the exception, roughly half of Harvard will take jobs in finance and consulting (for finance) this year. Another friend, an exception, quit a promising career in operations research to travel the world as a pick-up artist. Could one really say that either the operations researcher or the chemist failed to examine their lives or that with further examinations they would have come up with something more “meaningful”?
One of the social hacks to give lie to Lewis-style idealism-emerging-from-an attempt-to-examine-ones-life is to ask freshpeople at Ivy League schools what they’d like to do when they graduate and observe their choices four years later. The optimal solution for a sociopath just admitted to a top school might be to claim they’d like to do something in the peace corp, science or volunteering for the social status. Then go on to work in academia, finance, law or tech or marriage and household formation with someone who works in the former. This path is functionally similar to what many “average” elite college students will do, sociopathic or not. Lewis appears to be sincere in his misunderstanding of human(s) nature(s). In another book he reveals that he was surprised at the reaction to Liar’s Poker – most students who had read the book “treated it as a how-to manual” and cynically asked him for tips on how to land analyst jobs in the bulge bracket. It’s true that there might be some things money can’t buy, but an immensely pleasurable, meaningful life do not seem to be one of them. Today for the vast majority of humans in the Western world, expectations of sufficient levels of cold hard cash are necessary conditions for happiness.
In short and contra Lewis, little has changed. As of this moment, Occupy has proven so harmless to existing institutions that during her opening address Princeton University’s president Shirley Tilghman called on the freshmen in the class of 2016 to “Occupy” Princeton. No freshpeople have taken up her injunction. (Most?) parts of Occupy’s failure to make a lasting impact on college campuses appear to be structural; Occupy might not have succeeded even with better strategy. As the Ivy League became more and more meritocratic and better at discovering talent, many of the brilliant minds that would have fallen into the 99% and become its most effective advocates have been extracted and reached their so-called career potential, typically defined by income or status level. More meritocratic systems undermine instability by making the most talented individuals part of the class-to-be-overthrown, rather than the over throwers of that system. In an even somewhat meritocratic system, minor injustices can be tolerated: Asians and poor rural whites are classes where there is obvious evidence of discrimination relative to “merit and the decision to apply” in elite gatekeeper college admissions (and thus, life outcomes generally) and neither group expresses revolutionary sentiment on a system-threatening scale, even as the latter group’s life expectancy has begun to decline from its already low levels. In the contemporary United States it appears that even as people’s expectations of material security evaporate, the mere possibility of wealth bolsters and helps to secure inequities in existing institutions.
Lewis continues:
Hence our committee’s conclusion: we must be able to quit American society altogether, and they must know it.The modern Greeks offer the example in the world today that is, the committee has determined, best in class. Ordinary Greeks seldom harass their rich, for the simple reason that they have no idea where to find them. To a member of the Greek Lower 99 a Greek Upper One is as good as invisible.
He pays no taxes, lives no place and bears no relationship to his fellow citizens. As the public expects nothing of him, he always meets, and sometimes even exceeds, their expectations. As a result, the chief concern of the ordinary Greek about the rich Greek is that he will cease to pay the occasional visit.
Michael Lewis is a wise man.
I can recall a conversation with one of my Professors; an expert on Democratic Kampuchea (American: Khmer Rouge), she explained that for a long time the identity of the oligarchy ruling the country was kept secret from its citizens. She identified this obvious subversion of republican principles (how can you have control over your future when you don’t even know who runs your region?) as a weakness of the regime. Au contraire, I suggested, once you realize your masters are not gods, but merely humans with human characteristics, that they: eat, sleep, think, dream, have sex, recreate, poop and die – all their mystique, their claims to superior knowledge divine or earthly are instantly undermined. De facto segregation has made upper classes in the nation more secure by allowing them to hide their day-to-day opulence from people who have lost their homes, job and medical care because of that opulence. Neuroscience will eventually reveal that being mysterious makes you appear more sexy, socially dominant, and powerful, thus making your claims to power and dominance more secure (Kautsky et. al. 2018).*
If the majority of Americans manage to recognize that our two tiered legal system has created a class whose actual claim to the US immense wealth stems from, for the most part, a toxic combination of Congressional pork, regulatory and enforcement agency capture and inheritance rather than merit, there will be hell to pay. Meanwhile, resentment continues to grow. Even on the extreme right one can now regularly read things like:
Now, I think I’d be downright happy to vote for the first politician to run on a policy of sending killer drones after every single banker who has received a post-2007 bonus from a bank that received bailout money. And I’m a freaking libertarian; imagine how those who support bombing Iraqi children because they hate us for our freedoms are going to react once they finally begin to grasp how badly they’ve been screwed over by the bankers. The irony is that a banker-assassination policy would be entirely constitutional according to the current administration; it is very easy to prove that the bankers are much more serious enemies of the state than al Qaeda. They’ve certainly done considerably more damage.
Wise financiers know when it’s time to cash in their chips and disappear. Rarely, they can even pull it off with class.
The rest of part I reviewed tomorrow. Hang in there people.
Addendum 1: If your comment amounts to something like “the Nobel Prize in Economics is actually called the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel” and thus “not a real Nobel Prize” you are correct, yet I will still delete your comment and ban your IP.
*Addendum 2: More on this will come when we talk about the Saez-Delong discussion in part III.
A blogging parliament
Last night I found myself watching Steve Waldman’s talk at the 2011 Economic Bloggers Forum at the Kaufman Foundation. I’m a big fan of Waldman’s blog Interfluidity. His talk was interesting and thought-provoking, like his writing. I suggest you watch it.
After expressing outrage at the failure of control systems and the political system after the financial crisis, Waldman asks the question, why are we where we are? His answer: there’s a monopoly of power in this country even as information itself is increasingly available. The monopoly of power is extremely correlated, of course, to the rising wealth inequality, beautifully visualized in this recent video (h/t Leon Kautsky, Debika Shome) by Politizane.
The solution, he hopes, may include the blogosphere (although it’s not a perfect place either, with its own revolving doors, weird incentives and possibly conflicts of interest). The work of bloggers is valuable social capital, Steve argues, so how do we deploy it?
Steve introduced the concept of policy entrepreneurs, which have three characteristics:
- They are sources of information in the form policy ideas. They possible even write laws.
- They have some kind of certification in order to cover the policy maker’s ass.
- They exert some kind of influence on policy makers, to create incentives for their policy goals.
In other words, a policy entrepreneur is someone in the business of shaping policy makers’ agendas.
If you stop there, you might think “lobbyist,” and you’d be right. But the problem with our current lobbyist system is not the above three characteristics, but rather that it’s a such a closed system. In other words, you essentially need to be rich to be an influential lobbyist (or at least, as an influential lobbyist, you are backed by enormous wealth), but then that increases the monopolistic nature of political power. It doesn’t solve our “monopoly of power” problem.
The question becomes, is there a way for normal people, or groups of people, to be policy entrepreneurs?
One possible solution, Waldman suggests, is to from a parliament of bloggers. Since groups are taken seriously, can bloggers form official groups in which they gain consensus around a topic and issue policy?
An intriguing idea, and I like it because it’s not really abstract: if bloggers decided to try this, they could literally just form a group, call ourselves a name, and start issuing policy proposals. Of course they’d probably not get anywhere unless we had influence or leverage.
Does something like this already exist? The closest thing I can think of is the hacker group Anonymous - although they might not be bloggers, they might be. They’re anonymous. I’m going to guess they are active on the web even if they don’t specifically blog. In any case, let’s see if they qualify as policy entrepreneurs in the above sense.
- They don’t issue specific policy proposals, but they certainly object clearly to policies they don’t like.
- Their credentials lie in their unparalleled ability to take control of information systems.
- Likewise, their leverage is fierce in this domain.
In all, I don’t think Anonymous fits the bill – they’re too devoted to anarchy to deliver policy in the sense that Waldman suggests, and their tools are too crude to make fine points. This might have to do with the nature of hackers in general (keeping in mind that Anonymous stand for something far more extreme than the average hacker), which I read about in an essay by Paul Graham yesterday (h/t Chris Wiggins):
Here’s another problem: aren’t bloggers in general kind of their own 1%? Is policy via a “parliament of bloggers” not enough of an improvement to the current system of insiders?
What about if Occupy got into the idea of being a vehicle of policy entrepreneurship? Even though we tend not to support specific political candidates in Occupy, we do consistently think about policy and decide whether to endorse a given bill or policy proposal. Could we, instead of commenting on existing policy, start thinking about proposing new policy, even to the point of writing new laws?
On the one hand such work requires enormously long discussions and difficult-to-obtain consensus, but on the other hand we have the knowledge, the abilities, and the moral persuasion. Do we have the influence? And would Occupiers think exerting influence on policy in the current corrupt system tantamount to selling out?
HSBC Action today at noon
Here’s what I’m doing today at lunch time.
——
FOR IMMEDIATE RELEASE Monday, March 4, 2013
Occupy Wall Street Pickets At HSBC in New York
The action
HSBC To Issue Annual Earnings Report on Monday, March 4, 2013. These are the same unindicted criminals that admitted to money-laundering for drug cartels.
We Demand Justice for Executive Criminals & An End to “Too Big to Jail”!
Picket at HSBC New York Headquarters – Noon to 1:30pm
Gather on the steps of the New York Public Library Main Branch, 41st St. & Fifth Ave. See more at #OWSaltbanking and at our Facebook page for the event.
NEW YORK CITY – The “Occupy Wall Street – Alternative Banking” working group today continues its campaign to call on local, state and federal criminal and financial authorities to pursue prosecutions of executives at HSBC responsible for the bank’s admitted record of laundering money for drug cartels and alleged terrorists.
On Monday, March 4, as HSBC announces its annual earnings for 2012, OWS Alt Banking will rally at noon on the steps of the New York Public Library, Main Branch, across the street from HSBC’s New York headquarters.
The Story In Brief
In a recent settlement with the US Department of Justice, HSBC admitted to laundering billions of dollars for Mexican and Colombian drug cartels over many years. HSBC also admitted violating US sanctions regimes on Iran and on entities that the US government designates as “terrorist.”
Under the deal with DOJ, HSBC was forced to pay a $1.9 billion institutional penalty, which represents only six weeks worth of HSBC’s 2011 profits. The Justice Department agreed not to prosecute bank officials and other persons responsible for the admitted severe criminal conduct. All executive salaries and bonuses will be paid in full – some on deferred schedules. US financial authorities also declined to pull the criminal bank’s license to operate in the US.
Reportedly, authorities feared that jailing any of the megabank’s executives or shutting down its operations would cause its collapse and set off other bank collapses. This highlights the continuing systemic danger of “Too Big To Fail,” which also means “Too Big To Jail.” Thus OWS Alternative Banking is also calling on regulatory and legislative authorities finally to break up the big banks that dominate financial markets and can act with such impunity thanks to their sheer size.
Additional Context
OWS Alternative Banking Group points out that not to prosecute the HSBC executives responsible for money laundering to the full extent of the law diminishes the law and sends the wrong message. It creates an incentive for other banks to engage in the same criminal conduct.
Banks are being told that if they are big enough, they can commit any institutional crime without fear that personal punishments will follow, and in the confidence that institutional penalties will be minor in comparison to the profits made by breaking the law.
What message does this send to the American people, and to the world? “The war on drugs” and “the war on terror” rage on as centerpieces of US global policy.
In the United States, hundreds of thousands of people, predominantly people of color, have been imprisoned for often minor drug offenses. This has destroyed the futures of many young people and contributed to the biggest prison-industrial complex in the world.
In Mexico and Colombia, the US government supports a “drug war” in which literally thousands of people are murdered, often by the military personnel of those nations acting as death squads. In Pakistan, Yemen and other nations, US military drones bomb targeted persons – often killing their families or neighbors – on suspicion of “terrorism,” without trial or appeal.
In the US, executives at Islamic charities accused of funneling money to organizations designated as terrorist have received multiple life sentences. How is this different from HSBC’s conduct in helping to maintain the finances of drug cartels and alleged terrorists? Money laundering is absolutely essential to the business of the illegal drug trade. Furthermore, money launderers make the fattest profits out of all participants in the illegal drug trade.
Why are the banker-criminals getting a free pass? Why do we allow a two-tier justice system, with harsh punishments for minor drug offenders and rewards and impunity for the biggest offenders of all?
Therefore OWS Alternative Banking is asking for fair prosecution of the HSBC criminals and for ethical practices and staffing to replace the blatant abuse of customer money and good will. HSBC’s license to operate in the United States must be pulled.
The further message is to break up the big banks. They can no longer be considered too big too fail and allowed to commit blatant crimes of fraud and money laundering at US taxpayers’ expense.
Given the United Nations estimate of $400 billion in drug money laundered annually, it is nearly impossible that this enormous volume of dirty cash does not in large part go through the other big Wall Street and City of London banks.
“IT IS A DARK DAY FOR THE RULE OF LAW.” – New York Times, 12/11/2012
“Apparently non-violent demonstration against corrupt banking is subject to more criminal scrutiny than actual corrupt banking.” – Village Voice, 12/26/2012
Is mathematics a vehicle for control fraud?
Bill Black
A couple of nights I ago I attended this event at Columbia on the topic of ”Rent-Seeking, Instability and Fraud: Challenges for Financial Reform”.
The event was great, albeit depressing – I particularly loved Bill Black‘s concept of control fraud, which I’ll talk more about in a moment, as well as Lynn Turner‘s polite description of the devastation caused by the financial crisis.
To be honest, our conclusion wasn’t a surprise: there is a lack of political will in Congress or elsewhere to fix the problems, even the low-hanging obvious criminal frauds. There aren’t enough actual police to take on the job of dealing with the number of criminals that currently hide in the system (I believe the statistic was that there are about 1,000,000 people in law enforcement in this country, and 2,500 are devoted to white-collar crime), and the people at the top of the regulatory agencies have been carefully chosen to not actually do anything (or let their underlings do anything).
Even so, it was interesting to hear about this stuff through the eyes of a criminologist who has been around the block (Black was the guy who put away a bunch of fraudulent bankers after the S&L crisis) and knows a thing or two about prosecuting crimes. He talked about the concept of control fraud, and how pervasive control fraud is in the current financial system.
Control Fraud
Control fraud, as I understood him to describe it, is the process by which a seemingly legitimate institution or process is corrupted by a fraudulent institution to maintain the patina of legitimacy.
Once you say it that way, you recognize it everywhere, and you realize how dirty it is, since outsiders to the system can’t tell what’s going on – hey, didn’t you have overseers? Didn’t they say everything was checking out ok? What the hell happened?
So for example, financial firms like Bank of America used control fraud in the heart of the housing bubble via their ridiculous accounting methods. As one of the speakers mentioned, the accounting firm in charge of vetting BofA’s books issued the same exact accounting description for many years in the row (literally copy and paste) even as BofA was accumulating massive quantities of risky mortgage-backed securities (update: I’ve been told it’s called an “Auditors Report” and it has required language. But surely not all the words are required? Otherwise how could it be called a report?). In other words, the accounting firm had been corrupted in order to aid and abet the fraud.
“Financial Innovation”
To get an idea of the repetitive nature and near-inevitability of control fraud, read this essay by Black, which is very much along the lines of his presentation on Tuesday. My favorite passage is this, when he addresses how our regulatory system “forgot about” control fraud during the deregulation boom of the 1990′s:
On January 17, 1996, OTS’ Notice of Proposed Rulemaking proposed to eliminate its rule requiring effective underwriting on the grounds that such rules were peripheral to bank safety.
“The OTS believes that regulations should be reserved for core safety and soundness requirements. Details on prudent operating practices should be relegated to guidance.
Otherwise, regulated entities can find themselves unable to respond to market innovations because they are trapped in a rigid regulatory framework developed in accordance with conditions prevailing at an earlier time.”
This passage is delusional. Underwriting is the core function of a mortgage lender. Not underwriting mortgage loans is not an “innovation” – it is a “marker” of accounting control fraud. The OTS press release dismissed the agency’s most important and useful rule as an archaic relic of a failed philosophy.
Here’s where I bring mathematics into the mix. My experience in finance, first as a quant at D.E. Shaw, and then as a quantitative risk modeler at Riskmetrics, convinced me that mathematics itself is a vehicle for control fraud, albeit in two totally different ways.
Complexity
In the context of hedge funds and/or hard-core trading algorithms, here’s how it works. New-fangled complex derivatives, starting with credit default swaps and moving on to CDO’s, MBS’s, and CDO+’s, got fronted as “innovation” by a bunch of economists who didn’t really know how markets work but worked at fancy places and claimed to have mathematical models which proved their point. They pushed for deregulation based on the theory that the derivatives represented “a better way to spread risk.”
Then the Ph.D.’s who were clever enough to understand how to actually price these instruments swooped in and made asstons of money. Those are the hedge funds, which I see as kind of amoral scavengers on the financial system.
At the same time, wanting a piece of the action, academics invented associated useless but impressive mathematical theories which culminated in mathematics classes throughout the country that teach “theory of finance”. These classes, which seemed scientific, and the associated economists described above, formed the “legitimacy” of this particular control fraud: it’s math, you wouldn’t understand it. But don’t you trust math? You do? Then allow us to move on with rocking our particular corner of the financial world, thanks.
Risk
I also worked in quantitative risk, which as I see it is a major conduit of mathematical control fraud.
First, we have people putting forward “risk estimates” that have larger errorbars then the underlying values. In other words, if we were honest about how much we can actually anticipate price changes in mortgage backed securities in times of panic, then we’d say something like, “search me! I got nothing.” However, as we know, it’s hard to say “I don’t know” and it’s even harder to accept that answer when there’s money on the line. And I don’t apologize for caring about “times of panic” because, after all, that’s why we care about risk in the first place. It’s easy to predict risk in quiet times, I don’t give anyone credit for that.
Never mind errorbars, though- the truth is, I saw worse than ignorance in my time in risk. What I actually saw was a rubberstamping of “third part risk assessment” reports. I saw the risk industry for what it is, namely a poor beggar at the feet of their macho big-boys-of-finance clients. It wasn’t just my firm either. I’ve recently heard of clients bullying their third party risk companies into allowing them to replace whatever their risk numbers were by their own. And that’s even assuming that they care what the risk reports say.
Conclusion
Overall, I’m thinking this time is a bit different, but only in the details, not in the process. We’ve had control fraud for a long long time, but now we have an added tool in the arsenal in the form of mathematics (and complexity). And I realize it’s not a standard example, because I’m claiming that the institution that perpetuated this particular control fraud wasn’t a specific institution like Bank of America, but rather then entire financial system. So far it’s just an idea I’m playing with, what do you think?
Break up the megabanks already (#OWS)
For the past few months at Occupy we’ve been focusing more and more on having a single message and goal. That has been to break up the big banks.
What’s great about this goal is that it’s a non-partisan issue; there is growing consensus (among non-bankers) from the left and the right that the current situation is outrageous and untenable. What’s not great, of course, is that the situation is so easy to spot because it’s so heinous.
Yesterday another voice joined the Break-Up-The-Big-Banks chorus in the form of an editorial at Bloomberg (hat tip Hannah Appel). They wrote a persuasive piece on breaking up the big banks based on simple arithmetic involving bank profits and taxpayer subsidy. Even the title fits that description: “Why Should Taxpayers Give Big Banks $83 Billion a Year?”. Here’s an excerpt from the editorial (emphasis mine):
…Banks have a powerful incentive to get big and unwieldy. The larger they are, the more disastrous their failure would be and the more certain they can be of a government bailout in an emergency. The result is an implicit subsidy: The banks that are potentially the most dangerous can borrow at lower rates, because creditors perceive them as too big to fail.
Lately, economists have tried to pin down exactly how much the subsidy lowers big banks’ borrowing costs. In one relatively thorough effort, two researchers — Kenichi Ueda of the International Monetary Fund and Beatrice Weder di Mauro of the University of Mainz — put the number at about 0.8 percentage point. The discount applies to all their liabilities, including bonds and customer deposits.
Big Difference
Small as it might sound, 0.8 percentage point makes a big difference. Multiplied by the total liabilities of the 10 largest U.S. banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s tantamount to the government giving the banks about 3 cents of every tax dollar collected.
The top five banks — JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Goldman Sachs Group Inc. – - account for $64 billion of the total subsidy, an amount roughly equal to their typical annual profits (see tables for data on individual banks). In other words, the banks occupying the commanding heights of the U.S. financial industry — with almost $9 trillion in assets, more than half the size of the U.S. economy – would just about break even in the absence of corporate welfare. In large part, the profits they report are essentially transfers from taxpayers to their shareholders.
Next time someone tells me I want to take money out of rich people’s pockets (and that makes me a free market hater), I’m going to remind them that every time I pay taxes, 3 cents out of every dollar (that I know of) goes directly to the banks for no good reason whatsoever except the fact that they have the lobbyists to support this system. They’re bullies, and I hate bullies.
So no, I’m not suggesting we take honestly earned money out of the pockets of those who deserve it, I’m suggesting we stop stuffing insiders’ pockets with our money. Big difference.
But it’s not just money I object to – it’s future liability. There’s now an established track record of discovered criminal acts that don’t get anyone at the big banks in trouble. We are setting ourselves up for an even bigger bailout of some form soon, one that we taxpayers really may not be able to afford.
I think of the too-big-to-fail problem as like having an alcoholic brother-in-law who not only sleeps on your couch every night but also knows the PIN code on your ATM card. The money is irksome, no doubt, but what if that guy fell asleep smoking a cigarette and me and my kids die in the resulting fiery inferno? And it’s not that I think all addicts could be magically cured, but I don’t want them to have access to my personal stuff. Get them out of my house.
So can we break up the megabanks already? I’d really like to stop worrying about them because I have better things to do.
NYC data hackathons, past and future: Politics, Occupy, and Climate change (#OWS)
The past: Money in politics
First thing’s first, I went to the Bicoastal Datafest a few weekends ago and haven’t reported back. Mostly that’s because I got sick and didn’t go on the second day, but luckily other people did, like Kathy Kiely from the Sunlight Foundation, who wrote up this description of the event and the winning teams’ projects.
And hey, it turns out that my new company shares an office with Harmony Institute, whose data scientist Burton DeWilde was on the team that won “Best in Show” for their orchestral version of the federal government’s budget.
Another writeup of the event comes by way of Michael Lawson, who worked on the team that set up an accounting fraud detection system through Benford’s Law. I might be getting a guest blog post about this project through another one of its team members soon.
And we got some good progress on our DataKind/ Sunlight Foundation money-in-politics project as well, thanks to DataKind intern Pete Darche and math nerds Kevin Wilson and Johan de Jong.
The future one week from now: Occupy
Next up, on March 1st and 2nd at CUNY Graduate Center is this data hackathon called OccupyData (note this is a Friday and Saturday, which is unusual). You can register for the event here.
It’s a combination of an Occupy event and a datafest, so obviously I am going to try to go. The theme is general – data for the 99% – but there’s a discussion on this listserv as to the various topics people might want to focus on (Aaron Swartz and Occupy Sandy are coming up for example). I’m looking forward to reporting back (or reporting other people’s report-backs if my kids don’t let me go).
The future two weeks from now: Climate change
Finally, there’s this datathon, which doesn’t look open to registration, but which I’ll be participating in through my work. It’s stated goal is “to explore how social and meteorological data can be combined to enhance social science research on climate change and cities.” The datathon will run Saturday March 9th – Sunday March 10th, 2013, starting noon Saturday, with final presentations at noon Sunday. I’ll try to report back on that as well.
Five false myths that make liberals feel good
1. The U.S. has a progressive tax code
Actually, no. Not when you include all kinds of taxes. From this Economist column, which states “The fact of the matter is that the American tax code as a whole is almost perfectly flat.”
2. The U.S. is a land of opportunity
Actually, the mobility of the U.S. is worse than Canada’s or anywhere in Western Europe. From the NY Times article:
Despite frequent references to the United States as a classless society, about 62 percent of Americans (male and female) raised in the top fifth of incomes stay in the top two-fifths, according to research by the Economic Mobility Project of the Pew Charitable Trusts. Similarly, 65 percent born in the bottom fifth stay in the bottom two-fifths.
3. The bailout worked
Actually, the bailout is still happening, as we see from monthly discoveries such as this recent back-door bailout, and it hasn’t worked for the majority of the people it was intended for, namely people stuck with unreasonable mortgages (people forget this sometimes, but the first half of TARP was for the banks, the second half was for mortgage holders). From a NY Times Op-ed by Elizabeth Lynch (emphasis mine):
So a lender can forgive a second mortgage — which in the event of foreclosure would be worthless anyway — and under the settlement claim credits for “modifying” the mortgage, while at the same time it or another bank forecloses on the first loan. The upshot, of course, is that the people the settlement was designed to protect keep losing their homes.
4. Our private data is protected by our government
Although on the one hand the CIA recently admitted to full monitoring of Facebook using fake personas (h/t Chris Wiggins), the U.S. government does not in fact take great pains to protect the data they collect about its citizens. Moreover, government workers who complain about the porous data protection are punished instead of protected, as is explained in this Times piece. My favorite quote is this bit of common sense:
Susan Landau, a Guggenheim fellow in cyber security, privacy and public policy, says companies and agencies are unlikely to improve data security without the threat of penalty.
“What are the personal consequences for employees who allow data breaches to happen?” Ms. Landau asks. “Until people lose their jobs, nothing is going to change.”
5. We are recovering from the great recession
From 2009-2011, the top 1% captured 121% of all income gains (h/t Matt Stoller).
Who says you can’t perform at 121%? Turns out you can if other people are actually losing income while you’re getting increasingly rich.
Don’t get me wrong, corporate profits have done even better – a 171% gains since we’ve had Obama. But I’d go by things that matter to the 99%, so payrolls and jobs. Payrolls are flat and we still have 5 million fewer jobs, so I’d say it’s not much of a recovery.
HSBC protest yesterday (#OWS)
Here’s a picture from yesterday (thanks Pam!):
This was near the end when some people had already left. We met on the steps of the NYPL as above but in between we went across the street and marched in front of HSBC, which was barricaded by the police. Indeed there were as many police, or more, as protesters. We chanted things like, “Stop and Frisk HSBC!” or “The banks got bailed out, we got sold out” but my favorite chant was a song Nick and Manny made up during the event:
Bankers and drug lords sittin’ in a tree
K-I-S-S-I-N-G
First comes love, then comes prrofit,
Then comes a settlement from the Justice De-partment!
Here’s a pic from the marching part with an appropriate Valentine’s Day theme (note the barricades behind the protesters):
And here’s me with my sandwich board. The front (note the long line of police motorcycles behind me):
And the back:
Also check out Taibbi’s HSBC article from yesterday.
Occupy HSBC: Valentine’s Day protest at noon #OWS
Protest with #OWS Alternative Banking Group
I’m writing to invite you to a protest against mega-bank HSBC at noon on Valentine’s Day (Thursday) starting on the steps of the New York Public Library at 42nd and 5th. Details are here but it’s the big green box on the map on the Fifth Avenue side:
Why are we protesting?
Like you, I’m sure, I’d like nothing more than to stop worrying about shit that goes on in our country’s banks.
We have better things to do with out time than to get annoyed over enormous bonuses being given to idiots for their repeated failures. We’re frankly exhausted from the outrage.
I mean, the average person doesn’t have a job where they get an $11 million bonus instead of a $22 million dollar bonus when they royally screw up. Outside the surreal realm of international banking, the normal response to screw-ups on that level is to get fired.
You might expect a company that has been caught criminally screwing minorities out of fair contracts might be at risk of being closed down, but in this day and age you’d know that big banks, or TIBACO (too interconnected, big, and complex to oversee) institutions, as we in Alt Banking like to call them, are immune to such action.
There’s a clear evolving standard of treatment in the banking sector when it comes to criminal activity:
- the powers that be (SEC, DOJ, etc.) make a huge production over the severity of the fine,
- which is large in dollar amounts but
- usually represents about 10% of the overall profit the given banks made during their exploit.
- Nobody ever goes to jail, and
- the shareholders pay the fine, not the perpetrators.
- The perps get somewhat diminished bonuses. At worst.
The bottomline: we have an entire class of citizens that are immune to the laws because they are considered too important to our financial stability.
But why HSBC?
HSBC is a perfect example of this. An outrageous example.
HSBC didn’t get a bailout in 2008 like many other banks, even though they were ranked #2 in subprime mortgage lending. But that’s not because they didn’t lose money – in fact they lost $6 billion but somehow kept afloat.
And now we know why.
Namely, they were money-laundering, earning asstons by facilitating drugs and terrorism. This was blood money, make no mistake, and it went directly into the pockets of HSBC bankers in the form of bonuses.
When this years-long criminal mafia activity was discovered, nothing much happened beyond a fine, as per usual. Well, to be honest, they were fined $1.9 billion dollars, which is a lot of money, but is only 5 weeks of earnings for the mammoth institution – depending on the way you look at it, HSBC is the 2nd largest bank in the world.
Too big to jail
And that’s when “Too big to fail” became “Too big to jail.” Even the New York Times was outraged. From their editorial page:
Federal and state authorities have chosen not to indict HSBC, the London-based bank, on charges of vast and prolonged money laundering, for fear that criminal prosecution would topple the bank and, in the process, endanger the financial system. They also have not charged any top HSBC banker in the case, though it boggles the mind that a bank could launder money as HSBC did without anyone in a position of authority making culpable decisions.
Clearly, the government has bought into the notion that too big to fail is too big to jail. When prosecutors choose not to prosecute to the full extent of the law in a case as egregious as this, the law itself is diminished. The deterrence that comes from the threat of criminal prosecution is weakened, if not lost.
National Threat
You may recall that there was an extensive FBI investigation of OWS before Zuccotti Park was even occupied.
Ironic? As the Village Voice said, “apparently non-violent demonstration against corrupt banking is subject to more criminal scrutiny than actual corrupt banking.”
Question for you: which is the bigger national security threat, OWS or HSBC?
We demand
HSBC needs its license revoked, and there need to be prosecutions. Those who are guilty need to be punished or else we have an official invitation to criminal acts by bankers. We simply can’t live in a country which rewards this kind of behavior.
Mind you, this isn’t just about HSBC. This is about all the megabanks. Citi or BoA are exempt from prosecution, too. Our message needs to be “break up the megabanks”.
I’ll end with what Matt Taibbi had to say about the HSBC settlement:
On the other hand, if you are an important person, and you work for a big international bank, you won’t be prosecuted even if you launder nine billion dollars. Even if you actively collude with the people at the very top of the international narcotics trade, your punishment will be far smaller than that of the person at the very bottom of the world drug pyramid. You will be treated with more deference and sympathy than a junkie passing out on a subway car in Manhattan (using two seats of a subway car is a common prosecutable offense in this city). An international drug trafficker is a criminal and usually a murderer; the drug addict walking the street is one of his victims. But thanks to Breuer, we’re now in the business, officially, of jailing the victims and enabling the criminals.
Join us on Valentine’s Day at noon on the steps of the New York Public Library and help us Occupy HSBC. Please redistribute widely!
HSBC Valentine’s Day action (#OWS)
We in the Alt Banking group are planning a protest against “too big to jail” bank HSBC for Valentine’s Day. As soon as we started the planning we realized they are utterly ripe for satire with their ridiculous airport posters like this one:
Here’s a new poster for them, courtesy of Nick from our group (and crossposted from the Alt Banking blog):
Readers, can you help us come up with posters and slogans for the event? Bonus if it has to do with a Valentine’s Day theme, along the lines of “You broke my heart, HSBC!” or if it riffs on their slogan, “The World’s Local Bank”. We will be making posters and flyers with this stuff next Sunday afternoon, if you’re going to be up near Columbia you should join us.
Thanks for your help! If you tweet this, don’t forget to use the hashtag #HSBC as a gift to those guys.
update: Public Citizen in Maryland is attempting to revoke HSBC’s bank charter.
Alt-Banking calls on Senate to defend Main Street against Wall Street (#OWS)
This is crossposted from the blog of the Alternative Banking Working group of #OWS.
Dear Senators,
It is now up to you to restore the integrity of the Department of the Treasury.
As the Department’s web site states, Treasury’s job is to:
“Maintain a strong economy and create economic and job opportunities by promoting the conditions that enable growth and stability…protecting the integrity of the financial system, and manage the U.S. Government’s finances and resources effectively.”
President Obama’s nominee, Jacob Lew, does not measure up to the task.
Since the days of the Clinton Administration, the office of the Treasury Secretary has morphed into the custodian of Wall Street interests, allowing fraudulent banking practices to lead us into a recession, paying little or no heed to the concerns of Main Street about economic growth or jobs. Moreover, unlike the George W. Bush presidency where Enron executives were jailed — little has been done since the latest crisis to prosecute the people responsible for the widespread criminality and total disregard of ethics and values in finance.
The new Treasury Secretary should be an individual who looks out for the 99%, not a Timothy Geithner clone who would rather save financial players than enforce the law. We need someone who will focus on the productive economy and jobs. We need someone who will push back against Wall Street, not someone who will do their bidding.
Jacob Lew’s tenure at the original too-big-to-fail bank, Citigroup, has disqualified him. He received a $900,000 bonus from Citi in 2008, essentially paid out of the taxpayer bailout, just before he returned to government. At best this has the “appearance of impropriety”.
As HSBC’s “too big to jail’ settlement shows, the too-big-to-fail problem persists. We need a Treasury Secretary who will work to address this. Despite being near the heart of the storm, or perhaps because he was at Citigroup, Jack Lew shows no recognition that the current structure of the banking system is the heart of the problem. We must block his appointment.
Criminality and greed are embedded in the culture of the financial system and only major reform will get rid of it. Please join us in our efforts to reject Jacob Lew and ask President Obama to nominate someone who can truly live up to the mandate of the U.S. Treasury.
Sincerely,
Members of the OWS Alternative Banking Group
Marni Halasa
Josh Snodgrass
Hannah Appel
Linda Brown
Nicholas Levis
Cathy O’Neil
Anchard Scott
Yves Smith
Akshat Tewary
Is mathbabe a terrorist or a lazy hippy? (#OWS)
The Occupy narrative, put forth by mainstream media such as the New York Times and led by friends of Wall Street such as Andrew Ross Sorkin, is sad and pathetic. A bunch of lazy hippies, with nothing much in the way of organized demands, and, by the way, nothing much in the way of reasonable grievances either. And moreover, according to Sorkin, Occupy had fizzled as of its first anniversary.
To an earnest reader of the New York Times, in other words, there’s no there there, and we can move on. Nothing to see.
From my perspective as an active occupier, this approach of casual indifference has seemed oddly inconsistent with the interest in the #OWS Alternative Banking group from other nations. I’ve been interviewed by mainstream reporters from the UK, Belgium, Canada, France, Germany, and Japan, and none of them seemed as willing to dismiss the movement or our group quite as actively as the New York Times has.
And then there was the country-wide clearing of the parks, which seemed mysteriously coordinated, and the press (yes, the New York Times again) knowing when and where it would happen somehow, and taking pictures of the police gathering beforehand.
Police preparing to clear Zuccotti Park
Really it was enough to make one consider a conspiracy theory between the authorities and mainstream media.
I’m not one for conspiracy theories, though, so I let it pass. But other people were more vigilant than myself after the coordinated clearings, and, as I learned from this Naked Capitalism post, first Truthout attempted a FOIA request to the FBI, and was told that “no documents related to its infiltration of Occupy Wall Street existed at all”, and then the Partnership for Civil Justice filed a FOIA request which was served.
Turns out there was quite a bit of worry about Occupy among the FBI, and Homeland Security, even before Zuccotti was occupied. Occupy was dubbed a terrorist organization, for example. See the heavily redacted details here.
I guess to some extent this makes sense, as the roots of Occupy are outwardly anarchist, and there is a history of anarchist bombings of the New York Stock Exchange. I guess this could also explain the meetings the FBI and Homeland Security had with the banks and the stock exchange. They wanted to cover their asses in case the anarchists were violent.
On the other hand, by the time they cleared the park the movement was openly peaceful. You don’t get called lazy dirty hippies because you’re throwing bombs into buildings, after all. And the coordination of the clearing of the parks is no longer a conspiracy, it’s verified. They were clearly afraid of us.
So which is it, lazy hippy or scary terrorist? There’s a baffling disconnect.
The truth, in this case, is not in between. Instead, Occupy lives in a different plane altogether, as I’ll explain, and this in turn explains both the “lazy” and the “scary” narrative.
The “lazy” can be put to rest here and now, it’s just wrong. The response and relief efforts of Occupy Sandy has convincingly shown that laziness is not an underlying principle of Occupy.
Occupy Sandy volunteers
But Occupy Sandy did expose some principles that we occupiers have known to be true since the beginning:
- that we must overcome or even ignore structured and rigid rules to help one another at a human level,
- that we must connect directly with suffering and organically respond to it as we each know how to, depending on circumstances, and
- that moral and ethical responsibilities are just plain more important than rules.
Such a nuanced concept might seem, from the outside, to be a bunch of meditating hippies, although you’d have to kind of want to see that to think that’s all it is. So that explains the “lazy” narrative to me: if you don’t understand it, and if you don’t want to bother to look carefully, then just describe the surface characteristics.
Second, the “scary” part is right, but it’s not scary in the sense of guns and bombs – but since the cops, the FBI, and Homeland Security speak in that language, the actual threat of Occupy is again lost in translation.
It’s our ideas that threaten, not our violence. We ignore the rules, when they oppress and when they make no sense and when they serve to entrench an already entrenched elite. And ignoring rules is sometimes more threatening than breaking them.
Is mathbabe a terrorist? Is the Alternative Banking group a threat to national security because we discuss breaking up the big banks without worrying about pissing off major campaign contributors?
I hope we are a threat, but not to national security, and not by bombs or guns, but by making logical and moral sense and consistently challenging a rigged system.
I’m planning to file a FOIA request on myself and on the Alt Banking group to see what’s up.
52 Shades of Greed card decks now available for purchase!
