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Considering the gravity of the risk in Wall Street banks being too big to fail, the financial reform bill passed by the US Senate in 2010 may have been influenced too much by the financial interests. It can thus serve as a good case study for how a republic can be subject to too much influence from the moneyed interests. It could be asked, moreover, whether there is an inevitable trajectory that a polity undergoes from being a republic to becoming a plutocracy (ruled by the wealthy).

Executives and political action committees from Wall Street banks, hedge funds, insurance companies and related financial sectors showered Congressional candidates with more than $1.7 billion in the last decade, with much of it going to the financial committees that oversee the industry’s operations. In the 2010 election cycle before the financial reform bill passed the Senate, members of the financial committees far outpaced those of other committees in fund-raising parties by holding 845 events. The 14 freshmen who serve on the House Financial Services Committee raised 56 percent more in campaign contributions than other freshmen. And most freshmen on the panel, the analysis found, are now in competitive re-election fights. In return, the financial sector has enjoyed virtually front-door access and what critics say is often favorable treatment from many lawmakers. But that relationship, advantageous to both sides for many years, is now being tested in ways rarely seen, as the nation’s major financial firms seek to call in their political chits to stem regulatory changes they believe will hurt their business.

Even after the passage of the Senate’s bill, the financial industry was confident that a provision that would force banks to spin off their derivatives businesses would be stripped out, but in the final rush to pass the bill, that did not happen. The opposition came not just from the financial industry. The chairman of the Federal Reserve and other senior banking regulators opposed the provision, and top Obama administration officials said they would continue to push for it to be removed. Such officials could include Larry Summers, who along with Alan Greenspan and Robert Rubin pushed for derivatives to be left unregulated in the late 1990s while Summers and Rubin were in the Clinton Administration.

Not missing a beat, Wall Street lobbyists  began an 11th-hour effort to remove it just as House and Senate conferees were preparing to meet to reconcile their two bills. Lobbyists said they were already considering the possible makeup of the conference panel to focus on office visits and potential fund-raising.  Rep. Barney Franks, chairman of the House Financial Services Committee, signaled on May 25th that the prohibition on banks trading in deriviates using their own funds could be dropped. “I don’t see the need for a separate rule regarding derivatives because the restriction on banks engaging in proprietary activities would apply to derivatives as well as everything else,” Mr. Frank said according to The Wall Street Journal (May 22, 2010, p. A6).  However, if this were the case, why would Sen. Dodd, the White House, and the banks be so set against removing the derivative langauge?  Is redundancy really that big of a deal?  Something is rotten here; I can smell it. With Sen. Dodd retiring, I wouldn’t be surprise if he made a deal with Wall Street concerning his financial future–it being so odd how he has mellowed so much on reform. Not surprisingly, the Chamber of Commerce had already spent more than $3 million to lobby against parts of the bill, including the derivative provision, and as the Senate was passing its bill the Chamber was planning to keep fighting for a loosening of the regulatory restrictions — first in the House-Senate conference, then in the implementation phase after final passage of a bill, and “if all else fails,” in court. With all these avenues, it is no wonder that the money of Wall Street banks has such ease in Washington.

There are so many points along the line of a bill becoming a law that a provision with teeth can be targeted by well-funded parties with a vested interest against it, it would appear that no change can happen in the US that is not in an industry’s interest.  Because wealthy firms have presumably done ok under the status quo, it is not clear why they would have an interest is supporting systemic change even if systemic risk warrants it. In the case of financial reform,the financial houses have a rather obvious conflict of interest. Furthermore, the behavior of the big bankers in September of 2008 suggests that they do not view rescuing a financial system in crisis as their job.  There is no reason to suppose that the legislation that they support would be geared to repairing the system when it is in crisis. The real problem is apt to manifest on the crest of the next bubble, as the industry had already gotten much of what it wanted even with the derivatives language in the Senate bill.
According to The New York Times, “Despite the outcry from lobbyists and warnings from conservative Republicans that the legislation will choke economic growth, bankers and many analysts think that the bill approved by the Senate … will reduce Wall Street’s profits but leave its size and power largely intact. Industry officials are also hopeful that several of the most punitive provisions can be softened before it is signed into law.”  This is dangerous because so many bankers, including those at Goldman Sachs, have been in denial as to how they should behave.  According to The Wall Street Journal (May 26, 2010, p. A1), Bank of America, Deutsche Bank, and Citigroup have continued their practices of “window-dressing”: temporarily shedding debt just before reporting their finances to the public. This suggests that “the banks are carrying more risk most of the time than their investors or customers can easily see.”   As of 2010, this activity had actually increased since 2008, “when the financial crisis brought actions like these under greater scrutiny.”  For ten quarters ending March 2010, the three banks lowered their net borrowings in the repo market by an average of 41% at the end of the quarters (as compared with during them). This represents a significant misstatement, which the banks’ auditors should have highlighted. The Wall Street Journal reported in April 2010 that 18 large banks, as a group, had routinely reduced their short-term borrowings in this way.

So it appears that Wall Street went on in its old ways even after the crisis, and there was relief that financial reform would not rock the boat. According to The New York Times, “If you talk to anyone privately, there’s a sigh of relief,” said one veteran investment banker who insisted on anonymity because of the delicacy of the issue. “It’ll crimp the profit pool initially by 15 or 20 percent and increase oversight and compliance costs, but there’s no breakup of any institution or onerous new taxes.” In other words, incrementalism rather than systemic change.  Washington, in other words, had been bought–even the “real change” agent himself, Barak Obama.  Mr. Obama is not unaware of the powerful friends he will need in 2012. He received just under a million dollars from Goldman Sachs for his 2008 campaign.  How difficult it is to let go of power, and say that one term will be enough, even better, for that is what seems to be necessary for one to fight against the entrenched culprits of the status quo.  In actuality, Andrew Jackson showed in 1832 that standing up to a large bank (in his case, the Second Bank of the US) can actually be consistent with winning reelection.  But absent such faith in the people to come through, saying to hell with reelection seems to be necessary for a president to be an authentic agent of real change.  If anything called for such change, it was the financial crisis of 2008. Yet as the House and Senate compared notes on their respective bills, Wall Street was actually relieved.  That really says something.  The culprits have an effective veto on what safeguards will be put in place to keep the banks from risking the world economy again. The wolves have to accede to the design of the new chicken coop. To my fellow Americans, I say: this is our system.

Even though the financial crisis far outweighed any health-care crisis, the financial reform is far more incremental–though both are within that rubric. “The health care bill is going to transform the structure of health care exponentially more than this legislation on financial regulation is going to change Wall Street,” said Roger C. Altman, the chairman of Evercore Partners and deputy Treasury secretary in the Clinton administration. “It’s not even close.”  It could be that the added incrementalism in the health-care legislation was in the interest of the health insurance companies and hospitals, whereas less was in the interest of Wall Street.

Of course, it could be that regardless of the regulation, financial bubbles are bound to come and go, and the sheer scale of financial deals today requires large banks. Donald B. Marron, the former chief executive of PaineWebber, avers, “Despite these new rules, Wall Street will continue to provide the same important business services because the same needs are still there — creating liquidity; financing governments, corporations and individuals; and providing financial advice and products.” So perhaps the financial leverage of Wall Street in Washington doesn’t keep us from achieving a solution because the financial markets and their players are going along a trajectory that is being defined by the progression of the financial market.  Consider, for example, the pressure on banks from globalization to amass more and more capital for bigger and bigger deals.  In other words, the “too big to fail” phenonomon could be a necessary part of an increasingly globalized financial market.  Of course, this could point to the need for greater international financial regulation.  But with Europe enbroiled with a debt crisis of its own and China wearily watching its own housing bubble, there were at the time of the passage of the Senate’s bill more financial bush-fires in the world than firemen.  The problem is that the fire chiefs are too often paid off (and intimidated) by the profiteering arsonists, so we are left woefully unprotected even if the veneer of regulatory reform has the looks of an effective profilactic.

Sources:  http://www.nytimes.com/2010/05/23/us/politics/23lobby.html?scp=2&sq=financial%20lobbying&st=cse ; http://www.nytimes.com/2010/05/24/business/24reform.html?hp ; WSJ (May 26, 2010).

The EU and US can be seen to differ markedly in the degree to which the interests of big business are etched in the respective societies and polities.  That is to say, the difference goes beyond the question of the relative influences of the lobbyists. I contend that the relative proclivity toward business in the American states tilts the political playing field in the direction of the financial interests. This difference reflects a more basic subterranean difference on how much wealth and its manifestation as business are valued.  That is to say, it is easier for financial sector lobbyists in the United States because the societal values lean in their favor. This can be seen from the respective financial reforms in the EU and US after the financial crisis of 2008. This case bears strongly on my thesis because in both economies the financial sector was viewed as culpable. So one would expect the ensuing laws to come down on the banks rather than be conducive to their interests, unless a societal value on the profit-motive were still in force.

On March 10, 2010, the EU Parliament adopted a Resolution (536 votes in favour to 80 against) calling for the financial sector to contribute fairly towards economic recovery since the costs of the crisis are being borne by taxpayers. On 25 March, Members of Parliament’s special “Financial, Economic and Social Crisis Committee” debated the rationale behind a possible financial transaction tax. Stephan Schulmeister of the Austrian Institute for Economic Research in Vienna said short-term financial transactions can make short-term prices of currencies and other financial products such as derivatives and shares vary wildly. Schulmeister claimed that a tax on financial transactions of just 0.05% would eliminate these short-term transactions, bring greater stability and bring €300 billion of additional revenues to the EU. While the tax would undoubtedly bring in revenue, it is not clear to me that short-term transactions would be eliminated, as they can be worthwhile even with such a tax. Moreover, the financial crisis of 2008 shows us that the volitility can come from the market mechanism itself (in so far as it magnifies irrational exuberance). At any rate, even as there has been division on the matter of such a tax in the parliament, that the proposal has been made distiguishes the legislative body of the EU from the Congress in the US, where such a proposal would undoubted by blocked. Indeed, the EU Parliament has gone ever further.

On July 7, 2010, the EU Parliament approved some of the strictest rules in the world on bankers’ bonuses.  In the legislation, caps are imposed on upfront cash bonuses and at least half of any bonus will have to be paid in contingent capital and shares. MEPs also toughened rules on the capital reserves that banks must hold to guard against any risks from their trading activities and from their exposure to highly complex securities. “Two years on from the global financial crisis, these tough new rules on bonuses will transform the bonus culture and end incentives for excessive risk-taking. A high-risk and short-term bonus culture wrought havoc with the global economy and taxpayers paid the price. Since banks have failed to reform we are now doing the job for them”, said British MEP Arlene McCarthy. Upfront cash bonuses are capped at 30% of the total bonus and to 20% for particularly large bonuses.  Between 40 and 60% of any bonus must be deferred for at least three years and can be recovered if investments do not perform as expected. Moreover at least 50% of the total bonus would be paid as “contingent capital” (funds to be called upon first in case of bank difficulties) and shares. Bonuses also have to be capped as a proportion of salary. Each bank must establish limits on bonuses related to salaries, on the basis of EU wide guidelines, to help bring down the overall, disproportionate, role played by bonuses in the financial sector. Finally, bonus-like pensions are also covered. Exceptional pension payments must be held back in instruments such as contingent capital that link their final value to the overall strength of the bank. This is to avoid situations, similar to those experienced in the wake of the financial crisis of 2008 in which some bankers retired with substantial pensions unaffected by the crisis their bank was facing. The rules apply to foreign banks operating in the EU and to subsidiaries of EU banks operating abroad. The law gives state regulators in the 27 EU states binding powers to take action against banks that fail to comply with the new rules (contrast this with the US Gov’t going after Arizona for trying to enforce US immigration law).

Clearly, the US financial reform does not go this far. Notably, it does not put much of a crimp in the American bankers’ life. This is no accident. The feeling among big bankers in the US is that they dodged a bullet concerning what could have been in the bill. That is to say, there was no “too big to fail” limit put on a bank’s capital or size generally speaking, or on the bankers’ compensation. The American media and President Obama have been strangely silent on why.  Perhaps it is as in the case of the health reform, where the President removed his objection to an insurance mandate and dropped his desire for a public option after the lobbyist for the American health insurance companies told him that her support was contingent on these changes. My point is simply this: Were not American society leaning in a pro-business direction (e.g., economic liberty being salient in how liberty itself is viewed), the President might not have felt the need to be bent in the lobbyist’s direction. That is to say, the lobbyist would not have had so much leverage. Wall Street no doubt had massive influence in the crafting of the financial reform as it was making its way through Congress (even though the banks were culpable in the financial crisis—which is itself telling). I submit that the reasons go beyond the sheer power of money. Fortunately, we can look across the pond for a better look at ourselves.

Sources: http://www.europarl.europa.eu/news/public/story_page/044-71441-088-03-14-907-20100329STO71433-2010-29-03-2010/default_en.htm
http://www.europarl.europa.eu/news/public/focus_page/008-76988-176-06-26-901-20100625FCS76850-25-06-2010-2010/default_p001c011_en.htm
http://www.dw-world.de/dw/article/0„5769943,00.html

See related:http://euandus3.wordpress.com/2010/06/23/regulating-financial-and-commercial-derivatives/ (for a look at the US financial reform—esp. derivatives) and http://euandus3.wordpress.com/2010/07/01/immigration-and-federalism/ (contrast this federalism with that of the EU wherein the states are to enforce the bank bonus limits passed by the EU Parliament).

Senator Kirsten Gillibrand, D-NY, claimed in July of 2010 that the UK government should investigate what role BP played in Britain’s decision to free Abdel Baset al-Megrahi in August 2009. Al-Megrahi is the only person convicted of carrying out the 1988 bombing of a Pan Am airliner in which 270 people were killed over Lockerbie, Scotland. This is not to say that he acted alone. In February, 2011, Gadhafi's justice minster, Mustafa Abdel-Jalil, who resigned in protest against Gadhafi's massacre of unarmed protesters, told a Swedish newspaper that Gadhafi had ordered the attack. Abdel-Jalil also claimed that Megrahi threatened to "spill the beans" unless his return to Libya were secured. It would appear that BP, a publically-traded stock corporation, played a vital role between Gadhafi and the British government. If so, then aside from Gadhafi's sordid role, this case presents us with an issue of business ethics. Specifically, does a corporation, which is essentially private wealth but with responsibility befitting the power that comes with such wealth, cross a line when its employees engage in foreign policy? The ethical problem inherent in interfering in a juridical sentence is troubling enough; if an unelected corporation becomes so powerful that it can affect international relations between (and foreign policies of) countries, then the issue involves not only business ethics, but also democratic governance. As the line between private and public blurs, the respective bases of legitimacy can become conflated or transposed.

In May 2007, BP signed a $900 million exploration agreement with Libya. Also that month, Britain and Libya signed an agreement that paved the way for al-Megrahi’s release from a Scottish prison. A spokesman for BP has admitted that people at the company lobbied the British government over the prisoner transfer deal with Libya in late 2007, but the company’s spokesman denied that the lobbying played any role in the government’s decision to release al-Megrahi nearly two years later. Senator Charles Schumer, D-N.Y., argued that ”the whole thing has deep circumstantial evidence that points to the fact that there was a trade-off — release the terrorist in exchange for an oil contract.” Schumer and three other US senators — Kirsten Gillibrand, Robert Menendez and Frank Lautenberg — wrote to Secretary of State Hillary Clinton asking that the State Department investigate whether BP had a hand in the release. “Evidence in the Deepwater Horizon disaster seems to suggest that BP would put profit ahead of people — its attention to safety was negligible and it routinely underestimated the amount of oil gushing into the Gulf,” they wrote. “The question we now have to answer is, was this corporation willing to trade justice in the murder of 270 innocent people for oil profits?” The answer appears to be “yes.”

In an interview with the Daily Telegraph (September 4, 2009), Jack Straw admits that when he was considering in 2007 whether the bomber should be included in a prisoner transfer agreement (PTA) with Libya, Britain’s trade interests were a crucial factor. When asked in the interview if trade and BP were factors, Mr Straw admits: “Yes, [it was] a very big part of that. I’m unapologetic about that … Libya was a rogue state… . We wanted to bring it back into the fold. And yes, that included trade because trade is an essential part of it and subsequently there was the BP deal.” In short, BP employees have admitted to the lobbying and Jack Straw has admitted that BP’s contract was a factor—the two sides meet and the knot is tied.

Analysis:

Even BP’s lobbying effort was not decisive in the exchange agreement, the involvement of BP managers even as they and BP stood to gain from an oil exploration contract evinces a conflict of interest that should have been barred by ethics guidelines at the company. Moreover, the company had no standing in the prisoner exchange matter such that it had any business in lobbying. At most, the legal person legal doctrine and the associated “money as free speech” doctrine pertain to a company’s main business. The doctrines ought not give a company all rights of citizens because corporate charters are delimited to particular domains or functions. Furthermore, to expect a company to put ethics ahead of profits is to conflate a firm with a human being.  To be sure, a company is made of people (and capital). However, the association is focused rather pointedly on one thing: maximizing shareholder value through profits. Accordingly, managers know legal requirements, whereas ought and should are more difficult to translate into cost-benefit analyses. In other words, a company is like a shark in that both are single-minded feeding machines. To expect a machine to obviate its next feeding because of an ought is to treat it as something other than what it is.  I suspect that as onlookers we tend to project our own values onto company managements—even companies themselves—instead of coming to terms with what a company is.  It is a feeding machine with one directionality and an expansive appetite, which includes venturing into other domains such as (hypothetically)  lobbying for an exchange of prisoners in exchange for a lucrative oil contract. In other words, companies are designed to transgress even their own charters. They are like Hal in the film 2001—the computer that took on a life of its own. Ideally, a company would convert anything in a given society into a commodity, with price being the universal measure. The US senators are objecting, in effect, to the commodization of the prisoner exchange, and to the “boundary issues” of BP.

The “so what” of this analysis is the following: it is particularly dangerous for a company or industry to be so powerful that it can unduly influence a government both in terms of a judicial sentence and in relation to other countries. Given the expansive nature of a company, society must have a means of keeping corporations within their proper domain of providing goods and services.  In a plutocracy (rule by wealth),  private wealth is the basis of government. This is not the case in republics, which are characterized by representative democracy.

Sources:
http://www.msnbc.msn.com/id/38256677/ns/world_news-africa/
http://www.heraldscotland.com/news/home-news/megrahi-threat-to-reveal-truth-over-lockerbie-1.1087516?utm_source=twitterfeed&utm_medium=twitter

Related (on BP): http://euandus3.wordpress.com/2010/05/17/business-society-bp-clips-societal-norms/
http://euandus3.wordpress.com/2010/06/22/bp-and-mms-complicating-the-different-demons-of-the-democratic-and-republican-parties/
 http://euandus3.wordpress.com/2010/06/17/tony-hayward-sticking-to-script-safety-is-bps-priority/ http://euandus3.wordpress.com/2010/06/10/bp-dividends-to-stockholders/  http://mole45.wordpress.com/2009/09/05/jack-straw-admits-lockerbie-bombers-release-was-linked-to-oil-well-thats-a-shock-if-we-can-go-to-war-for-it/

According to The New York Times, Wall Street bankers were busy working on how to weaken the regulations or otherwise profit from them before the ink was dry on the financial reform law of 2010 . First, regarding trying to profit from the new regulations, BOA, Wells Fargo and other big banks that were faced with new limits on fees associated with debit cards were imposing fees on checking accounts. Compelled to trade derivatives in the daylight of closely regulated clearinghouses rather than in murky over-the-counter markets, titans like J.P. Morgan Investment Bank and Goldman Sachs were building up their derivatives brokerage operations. Their goal was to make up any lost profits — and perhaps make even more money than before — by becoming matchmakers in the vast market for these instruments. That critics were pointing to them as a principal cause of the financial crisis made no difference to those bankers. Even when it comes to what is perhaps the biggest new rule — barring banks from making bets with their own money — banks found what they thought was a solution: allowing some traders to continue making those wagers as long as they also work with clients.

Lest one conclude from the banks’ stretegic responses that the new law passed in the wake of the financial crisis of 2008 goes strongly against their interests, it is important to remember that the reform is more geared to giving government officials adequate power to mop up a future mess than to enabling them to prevent one in the first place by clamping down on the banks. The devil is in the details. This in itself can be an opportunity for banking lobbyists to work over regulators who depend on information from the industry and can be swayed by legislators who have received campaign contributions and fund-raisers from the bankers. Regulators are tasked under the new law with writing the specific rules of the road governing limits on risk-taking by financial firms and previously unregulated trading. By leaving so much to the discretion of existing regulators, the new law is “a boon to Wall Street lobbyists, who will now be working behind the scenes to influence the regulators,” according to John Taylor, president & CEO of the National Community Reinvestment Coalition. Furthermore, in enforcement, there is evidence that regulators are apt to look the other way. The wave of predatory lending that sank the housing market, for example, could have been largely prevented if the Federal Reserve had enforced existing rules on mortgage lending, according to Cornelius Hurley, director of the Morin Center for Banking and Financial Law at Boston University.

Under the financial reform law of 2010, banks and other financial institutions are overseen by a council of  regulators. That group is charged with identifying the kinds of “systemic” risks that spun out of control in the collapse of Bear Stearns and Lehman Bros. in the financial panic of September 2008. But there’s little to be gained by entrusting that task to the same regulators who failed to spot the causes of the panic the first time, said Isaac, the former FDIC head. “If a bank went to the regulators and said, ‘We’ve got a good idea: we’re going to put our lending officers in charge of risk management,’ that bank would be put out of its misery immediately,” said Isaac. “That’s what the government just did. It put the regulators in charge of assessing their own performance. It’s a very bad system.” While the law creates a separate agency with a single consumer mandate, even it remains beholden to those regulators, who retain the power to veto its regulations and enforcement actions. That setup, said Taylor, could seriously hamper the board’s effectiveness. “That club of regulators is very insular, and usually in agreement,” he said. “They can kill serious reform, and the financial lobby remains much more influential with regulators than consumer advocates.”

The problem can be broadened by considering that President Obama brought to head his economic team people like Larry Summers, who while in the Clinton Administration lobbied against regulating derivatives, and Tim Geithner, who had been appointed as President of the New York Federal Reserve at the urging of Citigroup and its major stockholder. In other words, it is not just a matter of relying on the same regulators; the construction of the law involved the same advisors.  Indeed, that members of Congress listened to the banking lobby at all even as the banks were complicit in the financial crisis of 2008 can be viewed as going back to the same. At a fundamental level, the banking industry may have too much leverage over top government offiicals, whether legislators or regulators.

Sadly, according to Newsweek, “the bill does more to help regulators detect and defuse the next financial crisis than to actually stop it from happening. In that way, it’s like the difference between improving public health and improving medicine: The bill focuses on helping the doctors who figure out when you’re sick and how to get you better rather than on the conditions (sewer systems and air quality and hygiene standards and so on) that contribute to whether you get sick in the first place.” This might be because it is in the big bankers’ interest that the government come in and clean up, but not restrict them in the meantime.  In the 1980s, the financial sector’s share of total corporate profits ranged from about 10 to 20 percent. By 2004, it was about 35 percent. According to Newsweek, “What you get for that money is favors. The last financial crisis fades from memory and the public begins to focus on other things. Then the finance guys begin nudging. They hold some fundraisers for politicians, make some friends, explain how the regulations they’re under are onerous and unfair. And slowly, surely, those regulations come undone.”

In the wake of the financial crisis, the American people had a chance to brake up the banks too big for our republics, but even then the bankers were able to quietly get this option off the airwaves. I contend that the too big to fail systemic risk is actually greater with respect to the viability of the US than to the financial system. That is to say, the ability of Wall Street to dodge the bullet even when it was culpable for a near melt-down of the financial markets may mean that we are living in a plutocracy rather than a democracy—the latter being mere window-dressing. Even when Wall Street is “bad,” it owns Congress, according to Sen. Dick Durbin of Illinois.  This ought to tell us that the game is over, yet with regard to the regulators I suspect the games will go on for some time.

Sources:
http://www.msnbc.msn.com/id/38266914/ns/business-eye_on_the_economy/  http://www.newsweek.com/2010/07/15/five-problems-financial-reform-doesn-t-fix.html  http://www.cnbc.com/id/38272518

See Related:
http://euandus3.wordpress.com/2010/07/09/is-the-us-too-banker-friendly-relative-to-the-eu/
http://euandus3.wordpress.com/2010/06/23/regulating-financial-and-commercial-derivatives/

In October of 2009, the U.S. House Financial Services Committee voted to give the federal government the power to block the states from regulating large national banks in some circumstances. The compromise approved by the House allows the Comptroller of the Currency to override the states, but only if that office found that the state law “significantly” interfered with federal regulatory policies.  This clears the way for a new federal agency to protect consumers from abusive or deceptive credit cards, mortgages and other loans.  Adoption of the compromise was a partial setback for the banking industry, which would have preferred to avoid having to comply with state laws that are sometimes stricter than federal rules.  Barak Obama and Barney Frank were pushing in the other direction—for subjecting banks to the relatively strict state laws with no chance of appeal to the US. Government.

This case of compromise points to the influence of large corporations on the Congress as a culprit in the on-going eclipse of federalism.  Large corporations operating in many of the American republics would rather have one regulatory infrastructure, so they push the U.S. Government to assert itself at the expense of the State governments using pre-emption.  Even where the federal government is silent in a policy domain, it can keep the State governments out. This is not to say that industry is the only force behind the march toward consolidation.  Obama and Frank were no doubt assuming that health-care and education are properly directed at the level of the U.S. Government rather than by the States.  This involves adding strings to the spending clause of the U.S. Constitution.

While it might be more convenient to have Washington as the point-person, we might miss the checks and balances permitted by a viable federal system wherein the State governments can hold back an encroaching federal government.  Moreover, we might wonder whether one legislative size fits all in a Union of republics that spans a continent.  There is a reason why the delegates in the constitutional convention designed a federal system; they weren’t just acting on a whim.

So here is my basic point: the present holders of power might have incentives to use it at the expense of the long-term viability of our system of public governance.  In other words, it might not be in the interest of our federal officials and corporation executives and boards to maintain the viability of our federal system. To the extent that their interest prevails in spite of the inherent diversity in the United States, this could be the empire’s undoing before our eyes.

Source:  Compromise Bill Could Block States on Bank Rules http://www.nytimes.com/2009/10/22/business/22comptroller.html?ref=politics

Even though people the world over instinctively recoiled as reports came in of Gadhafi's violent retaliation against Libyan protests on February 21, 2011, the official reaction from the US Government was muted at best. The refusal to act on an intuitive response to immediately remove the Libyan dictator's ability to wantonly kill people resisting his right to rule may have come from concerns that the mounting tumult of a change of government in a major oil-producing region of North Africa could cause even just a disruption in the supply of crude. Indeed, even the mere possibility was prompting a spike in the price of oil (and gas)--what one might call a risk premium. Even the prospect of an ensuing nasty electoral backlash from consumers having to face a possible increase in their largely non-discretionary gas expense was not lost on their elected representative in chief at the White House.  Even five days later, after some serious press on the rising price of gasoline hitting American consumers, the most the president would do is proffer a verbal "demand" from afar that Gadhafi leave Libya.  "When a leader's only means of staying in power is to use mass violence against his own people, he has lost the legitimacy to rule and needs to do what is right for his country by leaving now," the White House said in a statement. The dictator must have been shaking in his boots.  In actuality, Gadhafi had lost his legitmacy to rule five days earlier, and by the day of the statement the American administration could have been actively involved with willing EU states in stopping him inside Libya. Given the progress of the protesters-turned rebels and the behavior of Brent crude that week, the interests of the American consumer (and Western oil companies, as well as the business sector over all) were by then firmly in line with an enforced regime change in Libya.  Oddly, the old dogma of an absolute governmental sovereignty was colluding with an inherently excessive risk-averse corporate political risk methodology to hold America back from acting as midwife to a new political awareness breaking out in the Middle East.

On the day of Gadhafi's self-vaunted shooting spree, Brent crude benchmark vaulted past $108 a barrel (settling at $105.74, a two-year high).  On the following day, it rose to $111.25. On the first day of March, the Dow Jones Industrial Average dropped 168.32 points, or 1.38%, to finish at 12058.02, its third triple-digit decline in the past week. Oil futures on the New York Mercantile Exchange, already up 6% this year, jumped 2.7% to settle at $99.63 a barrel.  Brent Crude in London hit $115.42 a barrel, the highest settlement since Aug. 27, 2008.The graph below shows the change in oil, though the change looks astounding in part simply because the graph only goes to 15%; were it to go to 100%, the picture might seem less dramatic.

The Wall Street Journal had reported already on February 21st that the rise was "driven by increasing unrest in the Middle East." Specifically, worries that the turmoil in Libya was curtailing output of that country's oil were said to be driving the price climb. However, USA Today cites Darin Newsome, an energy analyst at DTN, as pointing to the role of speculators around the world as propelling the price of oil. "The flow of money plays an enormous role in the direction, speed and volatility of these markets." In fact, the market mechanism itself may be flawed because speculators could push commodity prices out of sync with the underlying supply of the respective commodities. Turmoil in Libya cannot be blamed for the ensuing “creation” of artificial value (such an increase, by the way, had fueled the housing bubble in the US that came in for a hard landing in 2008). In fact, the rise in world oil prices began before the final third of 2010—before the prospect of widespread popular protest in the Middle East was realized. Indeed, the climb during the last third of 2010 looks a lot like that which took place in the first third of 2009 (during a recession). It was not until well into February, 2011, that the turmoil in the Middle East appeared, according to MSNBC, “to pose limited risk to global oil supplies. Neither Tunisia nor Egypt produce oil or gas.” Such “limited risk,” besides being mitigated, cannot very well be projected back well into 2010 to explain the rise in the price of gas.


Incidentally, another interesting feature of this graph is the sustained drop in 2008, before the financial crisis in September (and the U.S. Presidential election in November!).  The “V” pattern at the end of 2008 is classic “electoral.” It suggests that the price of gas may be very attuned to the electoral interests of those in power, and therefore to government policy. My contention in this essay is that this dynamic was alive and well in Washington when Gadhafi was turning on his own people.

In any event, The Wall Street Journal observed on the day after the massacre that rising oil prices "could have big implications for the U.S. economy." Although perhaps overreacting from the day's news, it is true that the price of oil has a big impact on a consumer-driven economy. Energy expenses, like food, are nondiscretionary, Howard Ward of GAMCO Growth Fund told MSNBC. “And they’re now poised to take a bigger share of wages than we’ve seen in several years. That will have a dampening impact on discretionary spending. We still have an economy that is 70 percent consumer spending.” In such an economy, how could politicians turn a blind eye to domestic consumer interests, even at the expense of defending human rights abroad? Arjun Murti, an oil analyst at Goldman Sachs, told The Wall Street Journal that even as people "put so much emphasis on the U.S., . . . what is going on in the rest of the world matters as much if not more."  However, elected representatives are inclined by their desire to stay in power to put world news through the prism of their constituents' pocket-books, and thus to frame foreign policy to protect their consumers. In other words, an elected representative is apt to be more finely attuned to the grievances of his or her electorate than to stopping human rights violations abroad. Perhaps it is such politics that keeps heads of democratic governments from agreeing on an intergovernmental or international military mechanism that would act to stop a regime once it has violently turned on its own people.

Besides the political implications from consumers being even potentially shell-shocked by higher gas prices, the business sector can be expected to be averse to political instability in a region of the world in which so much oil is produced.  This aversion is, in my view, overly risk averse. As MSNBC points out, it is unlikely that any new regime in an oil-producing country would withhold supply as a matter of policy because “any new government would badly need those oil revenues.”  Libya produces only 2% of global supply of crude, and the Saudi-controlled OPEC cartel would make up for any loss.  “OPEC is ready to meet any shortage in supply when it happens,” the Saudi oil minister, Ali al-Naimi, said at a news conference after an OPEC meeting, according to The New York Times on February 23rd. “There is concern and fear, but there is no shortage.” In my view, the minister’s statement reflects the excessive risk aversion in corporate political risk departments, for while fear is perfectly understandable for a protester who is being gunned down in the streets, the emotion represents or points to an over-reaction among managers assessing the political risk in financial terms from the vantage point of their carpeted offices in the steel fortresses of the modern cities.

In another piece in The New York Times on February 23rd, Clifford Krauss put forth the argument that the relative quality of Libya’s reserves magnified its importance in the price spike.  Saudi Arabia has more than 4 million barrels in spare capacity, but it includes “heavier grades of crude that are higher in sulfur content and more expensive to refine.” Larry Goldstein, a director of the Energy Policy Research Foundation, an organization partly financed by the oil industry, argues that “Quality matters more than quantity.”  Furthermore, should Europe need to buy sweet crude from Algeria and Nigeria, that could push prices higher. “Nigeria and Algeria are already producing flat out so they can’t come up with another million barrels a day,” Michael Lynch of the Strategic Energy and Economic Research consultancy firm, said. “That means there will be a scramble for lighter crude supplies.” The last time there had been a shortage of sweet crude (in 2007 and early 2008), oil prices soared to more than $140 a barrel, although the cause then was spiraling demand. Moreover, placing quality before quantity seems questionable to me  in looking at supply as it interacts with demand. Furthermore, the analysts are discounting the impact of the Saudis and OPEC to counter for any increase in costs by increasing supply. The New York Times reported on February 23rd that “Tom Kloza, the chief oil analyst at the Oil Price Information Service, estimated that the Saudis could pump an additional 1 million to 1.5 million barrels in a matter of days.” Additionally, OPEC has “a reserve capacity to deliver an additional four million to five million barrels to the world markets after several weeks of preparation. That is more than twice the oil that world markets would lose if production were halted completely by unrest in Libya.”  In other words, in the wake of Gadhafi’s massacre as Brent crude hit $110, the business analysts should have realized that the Saudis would have to virtually agree or otherwise go along with any cost-induced spikes. Or course, the political risk analysts have also argued that the Saudi royal family could fall, given the spread of protests throughout the region. To be sure, that is a possibility, but not necessarily as the analysts play it out or with a cut off in Saudi oil.

On March 2nd, The Wall Street Journal ascribed the previous day's market jidders to fears of unrest intensifying in Saudi Arabia as authorities there arrested a prominent Shiite cleric who had been calling for political reforms. "If there are problems in Saudia Arabia, we will feel it and that's causing concern, obviously," said Marc Pado, a U.S. market strategist at Cantor Fitzgerald. Also, Iran reported clashes between protestors and security forces in Tehran. Concerning Saudi Arabia, which seems to have been the epicenter for the worry, analysts believed at the time that the political instability in Bahrain meant that Saudi Arabia itself could be at risk. Indeed, the political risk argument may have come down to this contingency.  Kloza points out that unless the unrest were to spread to the streets of Jeddah and Riyadh, “I think it’s a very manageable situation and prices are closer to cresting than they are to exploding higher.” Even he could be overstating the risk, for besides discounting the financial appetite that a republic in Arabia would have in selling oil, his analysis projects too much based on a kinship between Saudi Arabia and Bahrain. The New York Times article also points to oil experts who argued at the time that the “island nation has a majority Shiite population with cultural and religious ties to the Saudi Shiite minority that lives close to some of the richest Saudi oil fields.” However, there are a number of “ifs” that must first be satisfied before this fuse could have gone off.  For one thing, Saudi oil fields are well defended. Also, that a majority population might do something does not mean that as a minority population it would do likewise (and in a different and much larger country). Were the unrest sweeping the Middle East to hit Saudi Arabia and turn it too into a republic, it would be a part of the broader sweep. In other words, I think the analysts overstate the significance of Bahrain and, moreover, miss the bigger picture (i.e., the transformation of the Middle East into democracies from autocracies). Such a historical transformation of the entire region could well be happening. but that doesn't necessarily mean that a significant sustained cut-off in the supply of oil would result. Indeed, such a conclusion ignores a basic fixture in human nature: greed. It is ironic that political risk analysts in business would miss that element. In short, they are over-reacting via over-projecting.

Going overboard in making projections is one indication of an excessive aversion to risk in a personality.  I suspect that this bias in corporate political risk analysis comes not only from like personalities, but also from corporate culture, which eschews controversy of any sort. In the rarified corporate office, conflicting values are willowed away in favor of the hegemony of efficiency and the associated business technique. This cultural aversion to uncertainty impacts business practice, including political risk analysis. A well-run corporation would have someone in that department saying, in effect, “hey, loosen up, guys.”  When it really is bad, such as it was in September, 2008 when the financial system almost collapsed, business is typically caught off guard just like the rest of us.  In terms of the protests in the Middle East, we can take it to the bank that business was on the side of political stability, and thus, the extant regimes.

The price of oil affects so many industries that virtually any industry can be expected to lobby for foreign policies that give priority to the stability in the status quo (rather than to revolution).  That is, both consumer and business interests could be expected to have pressured elected representatives in the U.S. Government to resist giving too much support to the protesters in the Middle East. For example, President Obama’s policy was that Mubarak should stay in power through the transition even as events in Egypt were rapidly forcing him out of office. Whereas strategic interests such as the Suez canal might have been foremost in Obama’s calculation regarding Egypt, oil, and thus American consumers and business, might have been primary in his muted statements in the wake of Gadhafi’s retaliation. This sets up an interesting dilemma. While the immediate reaction of most people worldwide who were recoiled in horror at the atrocities in Libya on February 21^st was for something to be done right away to stop Gadahfi even if it meant more chaos in the short-run, business political risk analysis proffered an alternative course--that of reducing the turmoil immediately even if that meant retaining Gadhafi in power. Whereas proponents of democracy and human rights viewed the protests in Libya as a good thing, such people would be surprised to find the activity portrayed from the business standpoint in negative terms even in our midst. For example, USA Today reported Peter Beutel, of Cameron Hanover, as saying, "We have all the wrong things working together at the right time: an economic recovery, (stocks) making new highs, a lower dollar, strong seasonal demand and unrest in the heart of oil production" (italics added).  Libyans putting their lives on the line is also unrest in the heart of oil production. It is the starkness in the vector of valuation (i.e., very good vs. very bad) that is striking here. That a person in one house could have been viewing the spreading protests in the Middle East as instantiating a much overdue development in government while a person next door was disdainful of all the unrest attests to how differently the same event can be viewed.

 From the standpoint of the environment of international business, standing on human rights is not as much of a priority as an observer might want. In other words, what is good for GM is not necessarily good for the world.  The theory that increasing international business (e.g., trade and foreign direct investment) leads to or guarantees peace suddenly looks insufficient as a sufficient philosophy of international business.  An implication is that if corporate lobbyists have real sway over governments, the latter can be expected to shy away from policies and actions that would increase short-term political instability even where such turmoil were a good thing from the standpoint of democracy and human rights. Politicians who allow themselves to be controlled by corporate executives can be expected to overstate stability and shortchange leadership (and real change).  It may be that even the very existence of large corporations in a republic could thus be problematic from this standpoint. Corporations, and even ironically elected representatives, may be predisposed to advocate policies that are at odds with expanding democracy in the world.

In general terms, I contend that both toady politicians and the timid business executives who do not want to rock the boat for financial reasons are short-sighted even by their own rather narrow criteria.  In the case of Libya, were an overwhelming multinational military force to have descended on Libya as Gadhafi's men were ravaging Libyans on the streets rather than waiting for the U.N. Security Council to act, Gadhafi could have been stopped in his tracks in short order and thus order and civilians preserved (i.e., oil supplies undisturbed and a slaughter averted). Of course, as with any military action, things can go wrong.  To be sure, military action is always risky. For example, Gadhafi could sabotage the Libyan oil wells as Saddam did in Iraq in the first Gulf War (1992). However, the failure of the world to take first initiative could have given Gadhafi time to set up explosives ready at the touch of a finger in Tripoli. Indeed, there were reports on the day following the massacre of Gadhafi intending to blow up the oil wells anyway.  So the destruction of Libyan oil production could have come either from the world acting or failing to act in the wake of Gadafhi's violence against the protesters. Given the ambiguity of such risk, corporate political risk analysis would probably still come down in favor of retaining Gadhafi because the status quo is typically presumed to proffer the most stability. This I would call the fallacy of the status quo, which I believe dominates bureaucratic and state department thinking.

Instead of placing corporate political risk analysis on center stage, I submit that business is not the focal point of society (or politics). At the societal level, the hub and spokes stakeholder framework must be replaced by a web-structure wherein there is no central entity. Corporate political risk analysis from this broader perspective should be consulted without being allowed to become dominate. Therefore, governments around the world ought to overcome the presssure from their respective corporate political risk analyses in favor of human rights to place real limits on governmental sovereignty backed up by an international or multinational force on permanent stand-by, with a mechanism for activation agreed to before any occasion.  Such a leap would of course take principled leadership. Such leadership could be partially reconciled with more immediate strategic political interests by making the mechanism go into effect after the present term of office. While not optimal, this method would indeed deliver (eventually). 

Hence, even after five days of carnage in Libya and worsening volitility and price spiking of oil, as well as gasoline and jet fuel, at the expense of the American consumer and business firm, the Obama administration--the regime of real change--could only muster a statement and a freezing of assets. "When a leader's only means of staying in power is to use mass violence against his own people, he has lost the legitimacy to rule and needs to do what is right for his country by leaving now." It would be almost a month after Gadahfi had turned on his protesting people that the U.N.'s Security Council brought itself to act in authorizing all necessary means for member countries who want to step in to protect civilians in Libya. By that time, the protesters had become armed rebels and Gadafhi's military had been on the roll, killing rebels and civilians alike. A clean cut would have been better than a period of indecision.

Sources:

Jerry DiColo and Brian Baskin, "A Stealth Comeback for $100 Crude Oil," The Wall Street Journal, February 22, 2011, pp. C1, C3.

http://online.wsj.com/article/SB10001424052748704506004576173961240139414.html?mod=ITP_moneyandinvesting_0

Gary Strauss, "If Unrest Spreads, Gas May hit $5", USA Today, February 22, 2011, p. AI.

http://www.msnbc.msn.com/id/41739499/ns/business-personal_finance/

http://www.nytimes.com/2011/02/24/business/energy-environment/24oil.html?_r=1&hp

http://www.nytimes.com/2011/02/23/business/global/23oil.html?ref=todayspaper

http://www.msnbc.msn.com/id/41785849/ns/world_news-mideastn_africa/

http://www.nytimes.com/2011/03/18/world/africa/18nations.html?hp

Our galaxy, the Milky Way, has a black hole. If this is news to you, there is no need to go hide under a rock. It turns out our black hole is not the biggest by far, and it doesn't spew out a lot of excess energy that falls into it. Even so, it is ours, and we can be glad that we have one of our very own even if it isn't the biggest one on the block. In case you are interested in seeing it’s baleful look in a picture, I’ve got bad news for you; it is invisible. No light can bounce off it.  You are probably wondering how the scientists found it.  Well, they knew that black holes are in the center of galaxies, so the crafty lab coats used ultraviolate light to find our center because there is too much gas there for much there to be visible to us.  The scientists noticed that the speed of stars speeds up around a certain point and posited the existence of a highly-dense black hole.

Using the phenomenon of black holes as an analogy, political "scientists" might investigate whether power, whethere in business, government or society, tends by its very nature to consolidate. In the Micheal Moore documentary on capitalism, two members of congress point to the immense power of an anti-democratic corporate banking elite that was able to turn around the House vote on the bank bailout (TARP) using the democratic leadership as runners. If so, such power was invisible to the public. Likewise a black hole is of course invisible. In the case of the banking elite, we couldn't point our fingers at who exactly gave the marching orders that turned around the no-questions-asked government loans to the banks too big to fail.  Nor do we, or will we, know who told the U.S. Senators: hands off meddling in foreclosures.  Indeed, we shall have no idea whether a power behind the throne told Congress not to even debate the alternative of giving the TARP money directly to home borrowers in trouble.  That this was not seriously debated for foreclosures involving mortgages that banks and mortgage companies should not have given in the first place hints of the existence of a massive albeit hidden political black hole. Finally, such a black hole may have been behind the administration's decision not to push for banks too big to fail to be carved up while extant rather than simply "orderly liquidated" once they have fallen under their own weight.

Neither the American people nor the American media companies go far enough in investigating even the existence of invisible black holes in the American political universe, let alone what damage they do from the standpoint of the public or common good.  Micheal Moore suggests that Citibank and Goldman don’t fear popular election much because they expect the 1 person, 1 vote thing won’t turn on them because most people think they could be in the elite too. The financial elite is 1% of the vote; 1% of the population holds 90% of the wealth, so if the other 99% happen to wake up and notice, they might take back the reins. The big business would be worried, but, alas, Wall Street is not shaking in its golden boots. As to why, I would add to Moore’s explanation by pointing to the extent to which Americans are manipulated without even knowing it.  Lest it be missed, the gaint media companies are corporate too.

Is it an accident, for example, that so many stories on Afganistan pop up when it is in the interest of the defence contractors? Are they simply using the people to urge Congress to support a surge?  I would call this “direct manipulation” because we are being summoned to debate what has been put on the table for us.   The other kind is “indirect,” which involves a political black hole keeping an issue or policy-option off our radar screens.  President Obama’s suggestion, for example, that the banks too big to fail be reduced in size (and money) so they would not be so dangerous in failing, quietly went away. In looking for indirect manipulation, the important thing to notice is the absence of  any visible event or change that could explain the removal of a proposal by some new issue being covered by the media. We ought to be examining what political black holes do not want us to talk about because of private interests. For instance, we now know that health insurance companies gave their surrogates "death panel scare stories" to fan out discussion of a public alternative in health insurance.  Scaring a proposal off the radar screen is among the silent weapons used by political black holes.  Again, the source of such weapons is invisible.

So like sheep, the American people is led to debate or focus on something or to forget something else, In the process, we are unwittingly giving up, or failing to grasp, our democratic power, which can be used for the public good. To be sure, there are excesses and drawbacks in democracy and these too should be discussed, but there are hidden dangers to political black holes, and we miss these if we do not even know that such things exist.  That is to say, the democracy we do have may be rather wan in comparison to the gravity of the political black hole at the center of our political society.

Perhaps the question on your mind is:  So how do we get it back?   It might involve nothing short of waking up out of the Matrix.  So many of us don’t realize how much we are being manipulated.  Realizing it, and not tailoring our thoughts and discussions along its lines will wake others.   Once people start waking, we can start to look for candidates who do not, like Obama, take a $1 million from Goldman after promising real change.  We need candidates willing to forego being bought out by the elites who sense that democracy might possibly get the upper hand in an election.  Pay particular attention to the matter of teeth in such candidates’ proposals with respect to big business…and ask at their speeches whether they are taking money from the establish that has a vested interest in the status quo.  Don’t buy the “I’m not influenced by money.”  …which should be treated as a laugh line.   If you find genuine candidates willing to effect systemic change even where it is at the expense of the big corporate players, know that the elite will offer such candidates so much if the elite view the candidates as viable and  not under their control.  Control, by the way, can be more subtle than using a leash.  This is perhaps my major point here…political black holes are invisible and yet their anti-democratic gravity is HUGE…even as it is in a tiny space, or office.

In the Roman Empire, the games in the arena (which means “sand” in Latin) were a devise to distract as well as mollify and entertain the masses.  Today, we have American Idol and the Super Bowl, as well as the World Series.  Besides their entertainment value made possible by the talent involved, these idols are effective in gravitating popular attention…and this can be useful to the extent that the US is a plutocracy (i.e. ruled in the interest of the top 1% of the wealth) and vested powers fear the 1 person, 1 vote power of democracy.  But as Micheal Moore points out, Citibank and Goldman Sachs can rest easier knowing that many of us don’t use the power of the vote to take from the banks because many of us believe we might be among the plutacracy one day. 

I would add that we tend to be easily manipulated into following the media’s current (which, kein Zufall, tends to move around the interests of the major houses so as not to disturb the islands of capital).   We stop wondering about the distant promises to do something about the banks too big to fail because the media has conveniently stopped reminding us.  We forget that an option is to break up the banks too big to fail (which, by the way, have gotten bigger since September, 2008 and are still active at the casino).  We unthinkingly join the media in debating Obama’s banking consumer protection proposal, as though that were primary.  In other words, Goldman Sachs, which was Obama’s largest campaign contributor according to Micheal Moore (over $1 million), is content to have us debate a potentially pain so we will be appeased by Obama’s pledge of “real change” and not ask, demand, or VOTE to apply anti-trust law to financial houses.   In short, we allow ourselves to be dupped and we don’t even know it.  We don’t even realize we are taking our eyes off the eight ball.  Goldman lets Obama have four more years and 1 person, 1 vote is once again not a threat to either Goldman or the change agent that the bank bought.  Don’t expect Obama to rock the boat in bringing any real change that is not in the interests of the most powerful of the corporations.  Obama’s challenge is to show us just enough that looks like real change while not acting outside the interests of his corporate backers.  However, aren’t real change and status quo vested intersts mutually exclusive?  If so, how does Barak Obama get around this?  He gives us just enough to appear…   Meanwhile, the systemic change that is needed on the players at fault in September, 2008, goes by the wayside and we remain vulnerable even though We the People are convinced that a new consumer protection agency will do the trick.  The trick, ladies and gentlemen, is on us–and we don’t even know it.  We don’t know what we don’t know…while we presume we know it.

In 2009, Moammar Gadhafi of Libya gave a speech  at the annual opening of the General Assembly at the UN in New York City.  Substantively, he pointed to the drawbacks in having the UN remain in New York.  He also advocated a permanent seat for the African Union in the Security Council.   Fifty-three states are represented in that Union.  In an interesting twist, he remarked that the US contains fifty countries, so Africa too deserved a permanent seat.  I was utterly surprised that the man who was disorganized and sporatic in his delivery (and whose government would kill hundreds of unarmed protesters in 2011) could grasp the nature of the US in terms commensurate to the AU. He added that the EU should have a seat.   This makes a lot of sense because it is not fair for three of the EU’s states to have seats while all of the 50 United States have one. It occurred to me in listening to his speech that he understood the nature of the US as an empire-scale polity better, actually, than most contemporary Americans do. This is a bad commentary on the condition of civics classes in American high schools.  So I was surprised to find the mainstream media report the speech simply as “disorganized" without reporting any of the substance, as though there had been no serious content whatsoever.   Someone must have wanted to discredit Qaddafi for political or economic reasons.   The summary verdict was so immedate and total that none of Qaddafi’s content was covered.   The media’s treatment had all the footprints of a hidden strategy--that is, of a black hole's pull.  If I am correct, I’m left surprised that the subterfuge itself could be so blatant.  For a journalistic standpoint, the reporting was really bad.   Alternatively, the journalists could have reported what the man had said (as well as on his style and approach) and have left it to the readers to decide whether the content should be dismissed due to the style.   Something else was going on.  I’m just not sure what. I contend that something else typically goes on in terms of what is debated in the public discourse via the media. The invisible source steering and pruning what travels across our public radar screen is none other than a political black hole: a very dense concentration of private power functioning akin to an invisible elephant in a small living room. One person senses a trunk--another a leg--but we as a people miss the very existence of the elephant.  We are too distracted, and this is no accident, as it manifests by the very black hole that we do not suspect exists.

In short, both the content and frequency of topics reported by the media bear traces of the black whole that they are orbiting. As long as the source of the gravity is invisible, the black hole will continue to be quite useful.  Put another way, as long as Americans take the press reports as simply journalism, we will miss what is going on behind the scenes and therefore continue to be subject to being manipulated.  Micheal Moore asks: when will democracy ascend over the power of big business?  It is possible, but not probable.   This, by the way, is the expression that Immanual Kant uses in discussing his Kingdom of Ends (treating rational beings as ends and not just as means). Beyond the latent or actual subterranean power of corporate America over our public airwaves and legislative chambers, we ought to reflect on the threat to a republic in there simply being political black holes.
  
See: Nova on Black Holes (http://www.pbs.org/wgbh/nova/blackhole/)

“I hope we shall crush in its birth the aristocracy of our moneyed corporations.” 
       Thomas Jefferson

In Citizens United v. FEC on January 21, 2010, the US Supreme Court held by 5 to 4 that because US corporations are legal persons, they can contribute to political campaigns.   The assumption here is that corporations are more than the sum of an aggregate of persons—that is, more than citizens associating.  The corporate entity has rights in itself.  Ginsberg and Sotomeyer questioned in oral arguments whether free speech applies to spending money, and, moreover, whether corporations should be considered legal persons, much less citizens.  After all, they can’t be drafted, or vote.

A corporate is essentially privately owned wealth.  To say that wealth counts as speech seems spurious to me.  In fact, the whole legal person designation seems contrived.  Whereas the Roman republic fell to dictatorship, our republic may well have already fallen to oligarchy or corporatism.   So I agree with Barak Obama that the decision is worrisome.   Already, Dick Durbin of the US Senate said that the banking lobby owns Congress after that lobby sank Durbin’s amendment to allow bankrupcy judges to modify mortgages in foreclosure (the banks want a veto, even if they contributed to the sub-prime mess).  If Goldman Sachs can spend virtually unlimited amounts of money on political campaigns, we can expect to see that bank’s influence over the government expand even beyond what influence it has over its own alums who occupy high policy-making positions in the US Government (e.g., Hank Paulson and Neil Kashkari at Treasury under Bush II).  If our republic is already compromised under the weight of huge concentrations of private capital, the US Supreme Court’s decision may well be enough to sink the republic…ironically in the name of liberty.  But liberty for whom?  Or does “whom” even apply here…  It seems to me that corporations are not citizens associating for political purposes.  There are indeed non-profit political organizations whose function it is to influence policy.  This is not a business corporation’s function.  Nor is spending money itself political speech.  Any CEO can stand outside his or her building and give a political speech for free.  But which citizens does the CEO represent in his or her association of citizens?  Stockholders?  They don’t approve corporate public affairs spending.  Employees?  They don’t either.  Customers?   We don’t approve what a CEO says just because we have purchased a bar of soap.  The US Supreme Court’s majority might well say that the CEO represents the legal person that is the corporation, but then it is not an association of citizens because associations are not said to be persons (rather, they consist of persons).  Is this too logical?  Too reasoned?  Maybe so. But maybe it shows the duplicity involved in referring to an account of private wealth as a person.  It seems to me that it is rather blatant case of anthropomorphism.  …humans treating our artifacts as having our characteristics.  We must really think we are something.

I  ran across a poll that showed the ranks of the independents growing.  Not coincidentally, movements independent of the two major US parties seem to be springing up.  The Tea Party amd the Coffee Party are just a few.  Remembering back to Ross Perot’s movement in the early 1990’s, I must admit to a tendency to consign the movements of 2010 to a similar “wave” pattern.  However, there might be enough independents relative to the two parties that one or more of them could be around for awhile and make a difference beyond one or two election cycles.  My sense is that they will not, but independents factor could mean that my projection is too pessimistic.

In any case, there are doubtlessly many American citizens annoyed at the office-holders representing the two major parties for being inordinately interested in serving the moneyed interests at the expense of the public good and too interested (relatedly) in getting reelected.

The question is perhaps whether We the People can muster enough power to change the equation.  We are far-flung and each making up our own minds, while the moneyed interests are getting ever more concentrated (and this reflects on their ability to influence our representatives).  The deck, as it were, is stacked against us.  Yet somehow my faith still lies with the little guy—that if enough of us stand up to greed and power we will be able to exercise our own and take back the government for the People.

Of course, there are citizens whose beliefs and values dovetail with the entrenched moneyed interests, so it is not so simple as to claim that the People are alienated from our government.  I think perhaps the US is rather unique in the world for the proportion of its citizens who support the interests of the financial elite.  There was even a book whose thesis was that what was good for GM was good for America.  The citizens whose ideologies match that of the major corporations and banks, the two parties are probably performing just fine.  Even some of the independent movements, such as the Tea Party, might have an agenda that dovetails with the corporate interests (e.g., lower business taxes and less government spending on the People).

So I don’t think I can generalize my position to say that “the People” are frustrated with the influence of the moneyed interests in our government.   Even so, I look back to US Presidents like Andrew Jackson and Teddy Roosevelt, the former taking on the banking interests and the latter taking on the giant trusts such as Rockefeller’s Standard Oil, and I wonder where those leaders are today and whether a sufficient number of supporters exist to put such leaders into office again.  It would be presumptuous of me to claim that such a mandate would be that of “the People,” though I do think it would be in line with “We the People.”

So here are some questions for your consideration. Do the entrenched vested interests of the status quo (i.e., those in line with the moneyed interests) have an exaggerated following among citizens in the US?  If so, how real, or deep, is the support?  Are those people simply being manipulated without them realizing it?  If their concurrence is superficial, can it be made transparent?  If we do not awake to the danger of “systemic risk” and “too big to fail” after having experienced the financial crisis of September, 2008 and its after-shocks, will we ever?  Or will the financial consolidation just have to take its course, capturing the US Government as it gains even more power?  We may well have a sizeable “the business of America is business” electorate that is not so because we are being manipulated by ads.  If so, it will be difficult for movements independent of the two major parties to wrestle the government from the grips of the titans.

According to Wendell Potter, a former health-insurance company lobbyist, “the new law props up the employer-based system that insurers and large corporations benefit from so greatly. It also guarantees that private insurers will get billions of dollars in new revenue.”  It is no accident that Obama’s health-insurance law works out this way. Potter points out that Republicans will back off from repealing the mandate, but will push for other changes. The reason is that the mandate is in the health-insurers’ interest whereas some other features of the law are not. Private insurance companies would like to keep the mandate that will guarantee them more customers.  At the same time, the insurers would like to go back to refusing to cover kids with preexisting conditions, canceling policyholders’ coverage when they get sick, and setting annual and lifetime limits on how much the insurers have to pay for medical care. Also, the insurance companies do not like having to spend eighty percent of their revenue from premiums on medical care, and the insurers would like to get more from the US government for private medicare plans.

Potter makes the point that it is not in the Republicans’ interest to take out the mandate; they will put on a show—acting against the mandate while being unsuccessful—while working behind the scenes to take out planks deemed unprofitable by the insurance companies. In fact, the Republicans could actually strengthen the mandate because the insurance companies want to increase the penalties for not becoming one of their customers. Interestingly, even if the courts throw out the mandate, the entire law must be deemed unconstitutional.  This caveat was undoubtedly drafted by industry lobbyists so they would not be constrained by the law without the benefit of the guaranteed expanded customer base.

Potter’s major point is that the Republicans will go with the interests of big business in a stealth manner (similar to the stealth lobbying done by the insurance lobbyists). The insurance lobbyists have already used surragates to fearmonger “death panels” to kill any reform that might hurt the bottom line. So we can now suspect that Sarah Palin’s Facebook post in August, 2009, accusing the Obama administration of creating “death panels” as part of health-care reform was not an accident even if it has been reported in Newsweek as an “offhand remark.” According to Newsweek, that remark was “as inaccurate as it was incendiary.” Furthermore, in what we can now surmise stemmed from the power of the industry with a vested interest, the remarked “helped incite weeks of embarrassing town-hall meetings for Democrats, which in turn nearly brought down” health-care reform (Newsweek, p. 58). The real power behind this roadblock was that of the health-insurance companys’ lobby. The combination of the industry with such a vested interest having the ability to sway the public and exact leverage over members of Congress and the President (witness Obama’s change on a mandate and the public option) ought to worry those people who believe in having a republic as the form of government and love liberty. Devious subterranean private corporate power is undoing our republic without us knowing it, but this is how the lobbyists such at Potter have designed their strategies. We are not supposed to see it.

Sources: Wendell Potter, “Repeal and Replace?” Newsweek, November 15, 2010, pp. 42-43; Jay Newton-Small, “What Does She Want?” Newsweek, December 20, 2010, pp. 38-47

In 2010, the EU Parliament passed a law to protect consumers in using the internet from “cookies,” which track computer usage and can thus compromise privacy. The EU’s 27 states had to codify the new law, but it was feared at the time that each state “might interpret the law differently, creating a nightmare of conflicting standards.” According to John Vassallo, Microsoft’s legal counsel in Brussels, “In the end, what matters is harmonized rules across Europe.” Ironically, it was the lobbying by Europe’s Internet-advertising industry group that led to the wiggle-room in the EU law that could spawn different state interpretations and implementations at the expense of European integration. Britain, for example, was expected to go along with the industry’s interpretation in which a browser’s settings that allow cookies would count as consent by the user. The French state Assembly, however, was leaning toward requiring that a browser ask the user upfront whether to accept future cookies. In this difference—in which the internet advertising industry preferred Britain’s approach—the “strong state / weak state” distinction can be seen. That is, the French legislature was more resistant to the influence of the industry that had a vested interest in the law.  As an aside, it can be noted that for that industry to lobby constituted a conflict of interest.

In terms of European federalism, the interest of big business in political consolidation at the EU level can be seen. At the same time, the influence of business in pulling some state governments away from a strict interpretation of an EU law not friendly to business can also be seen. Overall, the impact of big business is probably toward more governmental sovereignty being transferred to the EU (at some point being at the expense of the innate diversity within the EU).

In terms of the “cookie” law in particular, EU’s federalism seems well-suited, given the uncertainty involved in how to protect consumers on the internet. In general terms, a general law allowing a certain extent of diversity in application may be preferable to a US-style “one-size-fits-all.”  This is especially so in an empire-scale federal system such as the EU or US wherein diversity is inherent.

Source: “EU Chews on Web Cookies,” Wall Street Journal, November 22, 2010, pp. B1-2.

See my related essay on the regulation of cookies in the US and application of ethical theory to the topic:
http://thewordenreport.blogspot.com/2011/02/online-privacy-and-advertising.html

President Obama's chief of staff, William Daley, was a top executive at JPMorgan Chase, where according to The New York Times,  he was paid as much as $5 million a year and supervised the Washington lobbying efforts of the nation’s second-largest bank. Daley also served on the board of directors at Boeing, the giant military contractor, and Abbott Laboratories, the global drug company, which "has billions of dollars at stake in the overhaul of the health care system." Although some argue that the White House needed someone on the inside who has the ear of business, the conflict of interest in having someone so tied to vested commercial interests decide who gets into the Oval Office and determine the President's agenda ought to be troubling. Just one year earlier, a Wall Street reform bill had been passed that sidestepped the question of whether banks too big to fail should be allowed to exist.  Also, the enacted health-care reform law both included a mandate and excluded a public option...as per the interests of the heath insurance lobby.  Rather than worry that well-financed private interests might already have too much clout in Washington, some people suggest the need for more corporate influence in the West Wing.

In terms of the Obama administration, the appointment of Mr. Daley represents "staying the course."  Larry Summers, for example, had been instrumental in the Clinton Administration in keeping derivative securities from being regulated. Like Clinton, Obama is a pro-business Democrat, at least in practice--the charges of socialism notwithstanding. I contend that the fear over socialism is overplayed, while the ease with which corporate executives (such as Hank Paulson--Bush's Treasury Secretary and former CEO of Goldman Sachs--and William Daley) encase themselves in the White House is cause for concern.  Yet there appears to be a societal blind spot with respect to some rather obvious ways in which corporations can capture our federal government. For instance, no one suspects a tie between Daley coming on board leading up to the re-election campaign and his corporate ties. It may be that Obama did not press "too big to fail" and the public option more because he knew he would draw on corporate campaign contributes. I suspect that we are blind to this possibility because our values are largely in line with corporate interests. 

Whether corporate capture is from design or not, our corporate-friendly societal-orientation provides a bedding of sorts for structural conflicts of interest that must seem strange elsewhere in the world. William Daley is a beneficiary of a friendly American culture that enables looking the other way, or even cheerleading on behalf of greater corporate influence in Washington.

Source:http://www.nytimes.com/2011/01/07/us/politics/07daley.html?ref=politics