Monday, May 17, 2010
War without end, with the usual suspects:NATO must be willing to fight and operate far from its borders to defend its members in a new world of terrorism, piracy and cyberattacks, according to a proposed strategy for the alliance released Monday.
The proposal, NATO 2020, also urges the alliance to restore credibility to its pledge of collective security, which it said was a prerequisite for efforts further afield.
NATO must be versatile and efficient enough to operate far from home, former Secretary of State Madeleine K. Albright, who led a team of experts in writing the report, said at a news conference in Brussels. In order to sustain the political will for operations outside its area, NATO must see that all its members are reassured about the security of their home territories.
Yes, that's a rather mild way of putting it, almost a kind of dry humor. After all, if you are French, German, Italian or another resident of the EU, the prospect of going off to fight in faraway places like Afghanistan looks less and less appealing. But there are two important things that should be mentioned.In a post-1999 world of terrorism, nuclear proliferation and the spread of missiles to more aggressive countries and even non-state actors, like Hezbollah and Hamas, and threats to the security of energy supplies and the Internet, NATO must reform to remain relevant, the report said, adding: Although NATO is busier than it has ever been, its value is less obvious to many than in the past.
First, the report is an implicit acknowledgement that the US military is stretched too thin to continue to perform the role of imperial, capitalist police unilaterally, and requires more assistance than the window dressing provided by the coalitions of the willing in Iraq and Afghanistan. Second, the participants involved in the drafting of the report are frightened by the fear that dare not speak its name, the decline of the nation state itself as a form of social organization. Hence, the emphasis upon non-state actors and the Internet as particular perils.
One can easily understand why they are concerned. Nation states emerged for many reasons, and were often consolidated through military violence, but they have persisted because of shared identities, invariably mythologically manufactured, and the belief that the citizens of them could assert control over their lives through them. Unfortunately, the institutions of these states were never able to assert the degree of social control that they presumed to impose (with the collapse of real, existing socialism exposing the limits of the state in regard to asserting authority over its peoples and boundaries), and, to the extent that such controls were successfully implemented by means of economic regulation, public education and social welfare programs, neoliberal trends have been eviscerating them, leaving only the bones behind.
It is no surprise, then, that people like Albright find themselves desperately looking towards transcontinental military alliances like NATO as a means of preserving the existing global order. Accordingly, this is a subject that deserves more attention on the left, equal to the efforts that have been expended towards understanding the roles of the World Bank and the International Monetary Fund in facilitating the expansion of global capitalism. For anarchists, who reject the necessity of organizing life through nation states, this may be an opportunity to advocate for a more benign social vision.
From a perspective based upon world systems theory, Immaneul Wallerstein places the situation within a grand context:
Along these lines, Albright and her NATO associates are working hard to refashion it as an instrument for global domination, socially, territorially and cybernetically. Meanwhile, in the UK, the Tory-Liberal Democrat coalition has promised a broad review of New Labour measures that restricted civil liberties, with the promised repeal of a plan to require national ID cards, the reiteration of the historic protections through the defense of trial by jury and the restoration of the rights of non-violent protest, but my suspicion is that many of these measures will go by the wayside as conflict over austerity within the UK and the EU intensifies. It goes against the grain of more centralized governmental control over potentially restive populations.The conjunction of the three elements—the magnitude of the normal crash, the rise in costs of production, and the extra pressure on the system of Chinese (and Asian) growth—means that we have entered a structural crisis. The system is very far from equilibrium, and the fluctuations are enormous. From now on, we will be living amidst a bifurcation of the systemic process. The question is no longer, how will the capitalist system mend itself, and renew its forward thrust?, but rather, what will replace this system? What order will emerge from this chaos?
We may think of this period of systemic crisis as an arena of struggle for the successor system. The outcome may be inherently unpredictable, but the nature of the struggle is clear. We are faced with alternative choices, which cannot be spelled out in institutional detail, but may be suggested in broad outline. We can choose collectively a new system that essentially resembles the present one: hierarchical, exploitative and polarizing. There are many forms this could take, and some could be harsher than the capitalist world-system in which we have been living. Alternatively we can choose a radically different system, one that has never previously existed—a system that is relatively democratic and relatively egalitarian. I have been calling the two alternatives the spirit of Davos and the spirit of Porto Alegre, but the names are unimportant. What is important is to see the possible organizational strategies on each side, in a struggle that has been going on in some form since 1968 and may not be resolved before circa 2050.
NOTE: The Wallerstein article is only accessible to those who have a New Left Review subscription. For those of you who do, go here.
Labels: American Empire, Anarchism, Europe, NATO, Neoliberalism, New Left Review, US Military
Tuesday, April 27, 2010
A Belated Five Year Anniversary
None of the above. After being invited by Joe Wezorek, the creator of this blog, to post here after having participated avidly in the comments section, I sent him a post about . . . the death of Pope John Paul II: How Does a Secular Leftist Respond to the Pope's Death. Reading it again after five years, I am struck by how I emphasized one of my enduring themes, the capacity of people to think and act for themselves:
Over the course of time, such a perspective lead me to a recognition of anarchism and an embrace of its identification of hierarchical social relations within capitalism as the source of much of the world's violence and oppression. It was the end of a long journey, with only the final stages documented on this blog. In my 20s and 30s (the 1980s and 1990s), I could best be described as an anti-imperialist liberal, a liberal who considered the technological transformation of that time favorably, if not inevitable, with the hope that it would result in a vibrant economy that would result in the downsizing of the US military around the world. If only we could elect a Democratic President, and there would be no tactical nuclear weapons or troops on the ground in Central Europe, no more aid to the Contras and support for pluralistic, economically independent countries in Eastern Europe and the former republics of the USSR.This is the terrain upon which the record of this Pope and this Church must be confronted. By rejecting the Church's insistence that people, if left to their own devices in their own communities, will invariably abuse and exploit one another, we can say that, on the contrary, people can intelligently use contraception, while expressing a profound respect for life as we show compassion for all around us. We can assert that our open acknowledgement of homosexuality and the civil marriage of gays and lesbians will not impair the Church's ministry. We can persuasively contend that a vibrant, diverse culture, and all of its artistic creations, even the most abrasive and confrontational, enrich our lives in every respect, even spiritually.
Yes, I was rather naive, wasn't I? Upon his election in 1992, President Clinton instead proceeded to exploit all the opportunities for expansion of the reach of the American Empire. Shock therapy in the East reduced the countries that had just liberated themselves from the autocracy of really existing socialism to dependent creditors of transnational banks and investors centered in Western Europe and the US. With NAFTA, Clinton shattered the remaining power of the American working class while simultaneously opening Mexico to US investment, intensifying the flow of undocumented immigrants. He was extraordinarily successful because of his emphasis upon economic coercion instead of military force. Or, as the amoral academics would say, he emphasized soft power instead of hard power. Because of this, Chalmers Johnson was on the money when he said that Clinton was a better imperialist than his successor.
But the most disturbing aspect of the 1990s was the willingness of liberals to not only accept Clinton policy, but celebrate it in the name of political expediency. With a lot of liberals having become middle to upper middle class during the Reagan era, they now had no trouble espousing socially progressive economic views while supporting a Democratic President that was privileging capital over the proletariat to a degree not experienced since Grover Cleveland. Not surprisingly, they also supported US air strikes against what remained of Yugoslavia, appeasing liberals by characterizing it as a humanitarian intervention to protect the Kosovars from genocide and ethnic cleansing. But, after Clinton had rendered the Serbs prostrate, neither he nor his liberal supporters expressed any concern, much less took any action, to stop the ethnic cleansing of Serbs by Kosovars. With the opening of the Serbian economy to foreign investment and a new, state of the art military base, Camp Bondsteel in Kosovo, US policy objectives had been achieved. And, anyway, as Thomas Friedman, always at the ready to advocate for collective punishment when it doesn't involve Americans or Israelis, said, the Serbs were getting exactly what they deserved. Both the air war in Kosovo and Serbia and the Iraqi sanctions foreshadowed subsequent interventions in Afghanistan, Iraq and Pakistan. Meanwhile, the people of Balkans remain amongst the poorest on the European continent.
As the sun set on the Clinton presidency, the United States was the world's preeminent economic and military power. His economic advisors, Robert Rubin and Larry Summers, along with Federal Reserve Board Chair, Alan Greenspan, freed speculative capital from the chains of the US regulatory system. There was no longer any separation between investment and commercial banking, and transnational firms were now free to create a proliferation of exotic financial instruments for investors for distribution all over the world. Meanwhile, these same instituitons, through the US controlled World Bank and International Monetary Fund, forced countries all around the world to reduce spending on essential public services like health, education and welfare, so as to create conditions favorable to speculative investment. And, then, seemingly out of nowhere, the lightening bolt struck in Seattle in November 1999.
The protests against the World Trade Organization were a warning sign that the newly created neoliberal order was too turbulent to be sustainable over the long term. But liberal democracies like the US and those of the EU no longer had any place for social democratic reform. Political figures like Blair, Clinton, Schroeder and Chirac interred the prospect of achieving Social Democracy within representative democratic systems initially advocated by the German SDP at the dawn of the 20th Century. Lenin may have been discredited as a consequence of the authoritarianism of the old USSR, but his condemnations of electoral political processes ring as true today as they did when he made them. One finds an echo of this perspective in my Vote or Die series on the failings of the US political system. But I could never be a Bolshevik. So, I began to engage with the social vision of anarchism, a socialist alternative equally suspicious of the false claims of social inclusion put forward by liberal democrats.
It didn't happen right away, though. In 2000, I hoped that Ralph Nader could garner a sufficient percentage of the vote to obtain federal campaign funds for the Green Party, and thus provide a stronger, institutionalized left alternative to the two major parties. In other words, I still placed too much emphasis upon the political process as the primary means for transforming American society. Given the capture of the Democratic Party by finance capitalists, I wasn't surprised when Democrats provided only token opposition to the Bush program of war, curtailment of civil liberties, centralization of the media and increased subsidization of the wealthy. All, to varying degrees, were at the center of the Clinton project, and, in the aftermath of 9/11, probably would have been pursued in a similar fashion. Greenspan remained at the head of the Federal Reserve with bipartisan support, where, after the bursting of the stock market bubble he blew in the mid to late 1990s, he proceeded to inflate an even larger one in real estate. The bubble generated enough money to be distributed all around, especially in the Congress, until the music stopped in 2007.
In 2004, I took the Trotskyite advice of Tariq Ali, and urged a vote for John Kerry, despite his many flaws, persuaded by Ali's claim that the electoral defeat of the neoconservatives would energize global opposition to US imperialism. Somewhere along the line, Ali and I forgot to notice that there are a lot of Democratic neoconservatives, too, or, even worse, failed to recognize that the term itself is used to deflect attention from the imperial aspirations that have defined the US since its inception. I guess that I still couldn't let go of the glamour associated with the political process, one of the great spectacles ever produced, it puts Cecil B. DeMille to shame. If his most recent New Left Review article is any indication, Ali gets it now, at least as far as the Democratic Party is concerned.
During the period, I paid close attention to developments in South America, more so than liberals and even many leftists, and it was there that I began to perceive an alternative. Bolivia, Venezuela, Brazil and Argentina have all been known for the prominence of direct action social movements that have pushed their countries to the left. Accordingly, I periodically post on events in these countries, but more from a social than a political perspective. Each country has moved left to varying degrees, but none of them have decentralized power and attacked the concentration of wealth necessary to effectively challenge the global capitalist order. I have drawn two lessons from the South American experience. First, that any meaningful change within the US and the world will result from mass, direct action social movements, organized around non-hierarchical collective values, and, second, that such movements will only succeed if they confront the core principles of capitalism, private property, wage labor and commodification.
The collapse of the global financial system in 2007 and 2008 has brought this conflict into sharp relief. Everywhere (with the possible exception of the People's Republic of China), the solution is the same, the expropriation of wealth from the bottom 90% to 95% for the top 5% to 10%, with the expectation that their recapitalization will regenerate the investment capital required to finance the reignition of the global economy. Perhaps, it will work, but the social turmoil associated with the effort will be extreme, so extreme that the social control measures required to contain may be too costly for the system to sustain itself. At this time, anarchism is the only credible socialist alternative, one unencumbered with the autocratic baggage of Marxist-Leninism and the accomodation of Social Democracy. Capitalism took centuries to attain its preemince, so, too, it may take centuries for the prefigurative collective social vision of anarchism to take root. People will have to rediscover their capacity to collectively organize themselves within their communities, and relinquish their attachment to the hierarchies and gratification associated with nationalism, private property and wage labor. It will take many collaborative, visionary projects, and many will fail before such a powerful, entrenched social order is overcome. But is there enough time?
Labels: Activism, American Empire, Anarchism, Elections, Marxism, Neoliberalism, New Left Review, Sub-Proletarianization of America, Vote or Die
Thursday, February 18, 2010
As activists know, splits within political groups can be as painful, and sometimes even more painful, than the end of a relationship. Invariably, the personal and political become confused, as ideological, tactical and organizational differences are enmeshed with an accumulation of personal resentments. For this reason, it is difficult for people on the outside to initially understand the reasons for the split as the differences don't appear very significant in the absence of the personal dimension. The comment sections of the posts linked above are full of ones in which the dirty laundry is hung out to dry in full public view. Quite consciously, I don't call them petty disputes, because, for people who have dedicated their lives to radical politics within a particular group or party, such personal conflicts have a centrality in their lives that they otherwise wouldn't.
Despite over 100 years of trying to figure it out, Marxist-Leninists have not found a way round this intersection of the personal and the political and the destructive consequences that often ensue. Far Left at Splintered Sunrise lays it out for us:
The Platypus Affliated Society encourages us to return to Marx, Lenin, Luxemborg, Trotsky and Adorno to understand why the current left is dead, and what sort of new left can emerge to replace it. But Far Left may have already shortened the path to understanding considerably. A leftism that encourages its most prominent activists and intellectuals, such as, according to Far Left, Tony Cliff in the 1960s and 1970s, to paint a social portrait of Lenin that conforms to them, so as to justify otherwise contradictory and self-aggrandizing actions, no longer has any allure, if it ever really did. After all, if your activist experience reveals to you that the vanguard is composed of several people that you don't consider personally reliable in your daily life, you might just have some apprehension about collectivizing the economy and turning it over to their control.So, are we just scraping the barrel in terms of human material, or are there explicable reasons? I like to think it’s the latter. It’s not innate but a learned behaviour, traceable back to the left’s social isolation but also ensuring it can’t escape that isolation. There are issues about groups with fantastically grandiose perspectives – small far-left groups most real people have never heard of, but who aspire to overthrow every government in the world – but whose lack of impact in society at large means their posturing carries with it very little in the way of consequences. Allied to that is a cod-Leninism – which is really a cod-Machiavellianism without the merits of either Lenin or Machiavelli – which disdains personal probity as just bourgeois moralism, which preaches that the ends justify any means, and which carries with it a highly elitist view of leadership. There are many worse examples out there than Lindsey German, but when I hear talk about bending the stick, seizing the key link in the chain or the small cog moving the big cog, a shiver runs up my spine and I wonder who’s about to be shafted.
This is the hidden pillar that buttresses capitalism, the willingness of people to accept its grotesque excesses as the price for preserving their limited and conditional personal autonomy. The outward appearance of its fragmentation provides a reassuring contrast to the concentrated egoism of Marxist-Leninism. It is a form of class consciousness in the negative, based upon an acceptance of the tyranny of capital over the assumption of power by a few who claim a special, scientific insight into how society should be structured.
Of course, this is not a new perspective. Anarchists have been saying something along these lines since the Bolsheviks began to concentrate power within themselves after the October Revolution. But it deserves repetition. In theory, anarchists consider the means by which the revolution is carried out as important as the outcome, because they believe that a better, alternative society cannot be created by a recourse to the methods of coercion that make capitalism objectionable. Now, in practice, things don't always turn out that way, human nature being what it is, but at least, they recognize the problem, and strive to overcome it. There are no shortage of anarchist publications, such as this and this, focused upon the theme of democratizing decision making processes and social relations.
But is there a more profound dimension to it? One anarchist novelist recently said, I distrust any activists who don't read fiction. The remark struck a nerve with me, because I have had a similar experience with political activists generally, that the ones who were disinterested in various forms of cultural expression, like theatre, film and literature, were the most rigid and intolerant. There is a relativism in such creations that enhances one's perception of the world and one's place in it. Such relativism is not incompatible with radical left beliefs, one need only look at the novels of Tariq Ali and Victor Serge as examples of the harmonization of it. One of the reasons that I post book reviews and film notes on this site is to encourage people to recognize that politics and culture are interrelated aspects of a broader social vision. If only I could get visitors to the site to read them as much as my political posts.
The development of such a vision is certainly urgent. As Eric Hobsbawm said in the most recent New Left Review:
Is this not an acknowledgement, by one of the most highly regarded leftist intellectuals of the 20th Century, that Marxist-Leninism is now an antiquated form of political action? For, if the working class as understood by Marx no longer exists, and cannot be reconstituted, then how can it be effectively mobilized by a revolutionary vanguard? It would seem that a new integration of theory and practice is required to adapt to contemporary conditions.Can you envisage any political recomposition of what was once the working class?
Not in traditional form. Marx was undoubtedly right in predicting the formation of major class parties at a certain stage of industrialization. But these parties, if they were successful, were operating not purely as working-class parties: if they wanted to extend beyond a narrow class, they did so as people’s parties, structured around an organization invented by and for the purposes of the working class. Even so, there were limits to class consciousness. In Britain, the Labour Party never got beyond 50 per cent of the vote. The same is true in Italy, where the pci was much more of a people’s party. In France, the left was based on a relatively weak working class, but one which happened to be politically reinforced by the great revolutionary tradition, of which it managed to make itself the essential successor—and that gave it and the left far more leverage.
The decline of the manual working class in industry does seem terminal. There are, or will be, plenty of people left doing manual work, and defence of their conditions remains a major task for all left governments. But it can no longer be the principal foundation of their hopes: they no longer have, even in theory, political potential, because they lack the potential for organization of the old working class. There have been three other major negative developments. One is, of course, xenophobia—which, for most of the working class is, as Bebel once put it, ‘the socialism of fools’: safeguard my job against people who are competing with me. The weaker the labour movement is, the more xenophobia appeals. Second, a lot of manual labour and work in what the British Civil Service used to call ‘minor and manipulative grades’ is not permanent, it’s temporary: students or migrants, working in catering, for instance. And therefore it’s not easy to see it as potentially organizable. The only readily organizable form of that kind of labour is that employed by public authorities, and this is because those authorities are politically vulnerable.
The third and most important development, in my view, is the growing divide produced by a new class criterion—namely, passing examinations in schools and universities as an entry ticket into jobs. This is, if you like, meritocracy; but it is measured, institutionalized and mediated by educational systems. What this has done is to divert class consciousness from opposition to employers to opposition to toffs of one kind or another—intellectuals, liberal elites, people who are putting it over on us. America is a standard example of this, but it’s not absent in the uk, if you look at the British press. The fact that, increasingly, getting a PhD or at least being a postgraduate also gives you a better chance of getting millions complicates the situation a bit.
FOOTNOTE: Long time readers may also be amused by the discovery that the purported ultra-leftism of Left Platform advocate, and former SWP member, Lindsey German manifests itself practically by an insistence upon the importance of voting Labour in the anticipated election in the United Kingdom.
Labels: Activism, Anarchism, Marxism, Neoliberalism, New Left Review, Postmodernism, United Kingdom
Wednesday, October 07, 2009
Labels: Activism, Neoliberalism, New Left Review, Obituaries, Tariq Ali
Wednesday, May 13, 2009
Chinese Capitalism in a Nutshell
Indeed, capitalism is increasingly a global, and not a nationalistic phenomenon. Without a recognition of the interweaving of these economic, cultural and political features, one cannot properly understand it, much less resist it with plausible alternatives.In the mid-1980s, in line with the central government's orientation toward market reform and global integration, Tsinghua opened a School of Law and a School of Economics and Managment (SEM). The latter was founded by Zhu Rongji, the Tsinghua alumnus who later--as China's premier--would direct the privatization of much of China's economy. The SEM, the first of its kind in China, became the largest and most popular school of the university. It was modeled after the leading business schools in the United States and it embraced economic doctrines and business and management theories popular in those schools. Today, it offers MBA degrees and high priced executive-training programs in collaboration with Harvard Business School and MIT's Sloan School of Management. In 2000, leading government officials, academics and business executives from both China and abroad were invited to join a newly created advisory board. The foreign dignitaries on SEM's advisory board include top executives from Intel, Goldman Sachs, Nissan, GM, NASDAQ, McKinsey, BP, Temasek Holdings, Morgan Stanley, Merrill Lynch, Nokia, Citigroup, the Carlyle Group and Blackstone. Zhu Rongji serves as the honorary chairman of the board and the chairman is H. Lee Scott, the president and CEO of Wal-Mart Stores, which in 2004 donated US$1,000,000 to SEM to help open the Tsinghua University China Retail Research Center.
Labels: American Empire, China, Neoliberalism, New Left Review
Sunday, December 28, 2008
From the Archives: Obama and the Existential Crisis of American Capitalism
On Tuesday, Barack Obama was elected as the 44th President of the United States. On Wednesday, US forces in Afghanistan launched an airstrike that killed at least 40 civilians and probably many more. Drones continue to launch missile strikes within the nearby border regions of Pakistan, although it is unclear whether these strikes are being done with the approval of the Pakistani government. Meanwhile, approximately 150,000 US forces remain in Iraq as the US and Iraqi government negotiate over the terms of over their future presence.
Today, the Labor Department announced that the US economy lost 240,000 jobs in October, and revised the number of jobs lost in September from an initially reported 159,000 to 284,000, in addition to revising the number jobs lost in August from initially reported 73,000 to 127,000. Accordingly, it is quite reasonable to suspect that the total number of jobs lost in October is in excess of 350,000. Both GM and Ford are hemorraghing cash, and an anticipated merger of GM and Chrysler may result in the loss of 200,000 jobs. The federal deficit is now over 10 trillion dollars and growing as the bailout is implemented.
Accordingly, as the euphoria over his decisive victory fades, the contours of the challenge facing Obama are coming sharply into focus. A country experiencing one of the most severe economic downturns in its history simultaneously finds itself militarily overextended around the world. It is tempting to construe them, as most liberals do, as the consequences of the policy failures of the Bush presidency. Bush, like LBJ, pursued utopian policies in both the domestic and foreign policy spheres, acting as if American resources to achieve its goals were unlimited.
Domestically, as Robin Blackburn observed, Bush substituted the promiscuous extension of credit for governmental expenditure as a means of constructing his own Great Society:
Internationally, an even more grandiose Bush went far beyond the messianic anti-communism of LBJ in Southeast Asia and launched a self-described global war on terror that has resulted in two open ended wars in the Middle East and the prospect of a third. The US military budget is currently about one trillion dollars, and nearly equals the military spending of all other countries in the world. It constitutes about 8% to 9% of US gross domestic product.The Bush administration’s vision of the ‘ownership society’ somehow latched onto codicils of Johnson’s ‘Great Society’ to encourage the poor to take on housing debt at the pinnacle of a property bubble. The quality of the arrangements made for poorer mortgagees was manifestly inadequate—they had no insurance provision—and also avoided the real problem, which is the true extent of poverty in the United States and the folly of imagining that it can be banished by waving the magic wand of debt creation.
It is therefore tempting to blame Bush for a deindustrialized, bankrupt domestic economy and military entanglements that have spun out of control, but such a personalized analysis obscures the real nature of the problem. In her concise book, Empire of Capital, Ellen Meiksins Wood describes the current capitalist order, one that aspires that impose itself upon the entire world, as one that requires the US to maintain and deploy the most expensive and most technologically advanced military ever created. It is essential, in her view, for the US to preserve unquestioned military supremacy as a means of effectively arbitrating disputes between competing nation states, all of whom accept the necessity of this supremacy.
Of course, there are ancillary features associated with this order, such as the use of the US military to intimidate what the US rather theatrically defines as rogue states, and the need to periodically display the frightening destructive capability of the military to discourage any country that might be inclined to resist the softer aspects of US coercion as exercised through social and financial institutions like the United Nations, the World Bank and the International Monetary Fund, that, while important, should not distract us from recognizing the fundamental problem at hand.
The US is broke, and, as already recognized by Giovanni Arrighi in 2005, it has failed in this endeavor to impose neoliberal capitalist values upon the world. Soft power, as exercised by US dominance within global institutions, such as the ones already mentioned, along with the financial clout of banking firms like Goldman Sachs, Morgan Stanley and Citicorp, has been curtailed by a financial crisis that has grown into the first global recession since the 1970s. Hard power, in the form of the US military, has been degraded by the conflicts in Iraq and Afghanistan.
Hence, Obama finds himself taking office when the principle around which his campaign was organized, his intention to marry neoliberalism with multiculturalism, is no longer relevant. Walter Benn Michaels has enunciated this principle most precisely:
Thus, acutely aware of the tensions lying beneath the surface of American capitalism in its present neoliberal manifestation, it was Obama's intention to construct a winning electoral coalition around the concept of releasing them, or at least the ones associated with racial and gender bias. He obviously succeeded, but failed to take power before contradictions of a more serious nature erupted. Now, as FDR did, he finds himself compelled to preside over an attempt to reform American capitalism in order to save it.This is also why the real (albeit very partial) victories over racism and sexism represented by the Clinton and Obama campaigns are not victories over neoliberalism but victories for neoliberalism: victories for a commitment to justice that has no argument with inequality as long as its beneficiaries are as racially and sexually diverse as its victims. That is the meaning of phrases like the ‘glass ceiling’ and of every statistic showing how women make less than men or African-Americans less than whites. It is not that the statistics are false; it is that making these markers the privileged object of grievance entails thinking that, if only more women could crash through the glass ceiling and earn the kind of money rich men make, or if only blacks were as well paid as whites, America would be closer to a just society.
It is the increasing gap between rich and poor that constitutes the inequality, and rearranging the race and gender of those who succeed leaves that gap untouched. In actually existing neoliberalism, blacks and women are still disproportionately represented both in the bottom quintile—too many—and in the top quintile—too few—of American incomes. In the neoliberal utopia that the Obama campaign embodies, blacks would be 13.2 per cent of the (numerous) poor and 13.2 per cent of the (far fewer) rich; women would be 50.3 per cent of both. For neoliberals, what makes this a utopia is that discrimination would play no role in administering the inequality; what makes the utopia neoliberal is that the inequality would remain intact.
FDR is, naturally, the optimistic scenario, one that invokes that American positivism that the country can overcome any crisis. There are, however, gloomier ones. For example, that old anti-semitic Communist, Vladimir Zhironovksy, has apparently described Obama as an American Gorbachev, a figure that, in his view, will destroy the country through his naive efforts to reform it. While the notion that Obama will destroy the country is over the top, there is some merit to what Zhironovsky says.
Gorbachev initially tried to revitalize Soviet society through mild reforms that did not imperil the Communist monopoly of power. As each successive reform effort failed, he was forced to adopt more and more aggressive policies that reached higher and higher into the leadership. Radicals found such efforts inadequate, and moved into open opposition, while conservatives eventually sought to remove him from office. He was never able to reinvigorate the moribund Soviet economy and the apparat, having masterfully aligned themselves with nationalist forces in the provinces, compelled the dissolution of the USSR in 1991. By the time he recognized this threat, he no longer possessed the capability of forcibly preventing it.
Obama is likely to follow a similar trajectory initially, but with different, unpredictable outcomes. His economic policies are awowedly neoliberal, and, if he persists with them, as is likely, he will fail. In order to move forward, he must bring resources home for economic development by downsizing the US military, but, instead, he has said that he will increase defense spending to provide for an additional 90,000 troops in addition to his commitment to send more troops to Afghanistan. An escalation of the conflict in Afghanistan and Pakistan could entrap Obama, rendering it impossible for him to dedicate any meaningful resources to domestic renewal. Such proposals are consistent with the voracious appetite for military activity associated with the global reach of American capitalism as described by Wood, but the country cannot support it.
What will Obama do then? The American left believes that he will embrace a socially progressive program, and there are at least some indications that his advisors are considering a substantial public works program. Even if they implement such a program, which remains to be seen, it is doubtful that they will eliminate subsidies to the financial sector and reduce the US military presence around the world. So, for now, we can look forward to a meek version of the sort of guns and butter that pushed the US economy into the dark days of stagflation in the 1970s.
Facing economic collapse, Gorbachev, to his credit, withdrew the Red Army from Eastern Europe. Will Obama withdraw US troops from South Korea, Germany, and even Iraq and Afghanistan, to jump start an American recovery? It seems unlikely. He looks too cautious for such a daring move. If forced to choose between aligning himself with the elite, as he has always done, and suppressing social unrest, or bending to the will of popular movements from below, and bravely transforming the power relationships within society, he would probably, unlike Gorbachev, choose the former. Furthermore, he would have to consciously implement policies that would abandon the US imperial role as the arbiter of global capitalism. In short, he would have to consciously bring down the curtain on the American empire.
No doubt, his supporters feel differently. They should, however, ponder a number of things. First, Clinton and Bush have expanded the power of the government over private individuals through surveillance, police action and incarceration. Will Obama consciously refuse to use it if challenged from the left? If so, he would be the first President to do so. Second, while the mass movement created by Obama is celebrated, and rightly so, there is a sinister side to it. Obama has a large group of people that he can call upon to not only agitate on his behalf, but, potentially, in difficult times, to intimidate those who oppose him.
Obama's personality, especially his cautiousness, makes such conduct hard to imagine, although we should not underestimate what political figures are capable of doing when pressed to the wall. In the 1970s, capital interests responded to a global crisis of similar severity by embracing neoliberal policies that rendered the lives of workers more transient and insecure, policies ultimately adopted by both Republicans and Democrats. If capital determines that a merciless regime of subproletarianization of the workforce is required, including recourse to extreme methods of suppression, why should we feel confident that Obama will resist? Obama has skillfully fused his political skills with new technologies to excite millions, but it remains to be seen whether his efforts will ultimately be empowering, alienating, or even a more refined method of social control.
Labels: Barack Obama, Democrats, From the Archives, Global Recession, Liberals, Neoliberalism, New Left Review, Sub-Proletarianization of America
Friday, November 07, 2008
Obama and the Existential Crisis of American Capitalism (Part 1)
Today, the Labor Department announced that the US economy lost 240,000 jobs in October, and revised the number of jobs lost in September from an initially reported 159,000 to 284,000, in addition to revising the number jobs lost in August from initially reported 73,000 to 127,000. Accordingly, it is quite reasonable to suspect that the total number of jobs lost in October is in excess of 350,000. Both GM and Ford are hemorraghing cash, and an anticipated merger of GM and Chrysler may result in the loss of 200,000 jobs. The federal deficit is now over 10 trillion dollars and growing as the bailout is implemented.
Accordingly, as the euphoria over his decisive victory fades, the contours of the challenge facing Obama are coming sharply into focus. A country experiencing one of the most severe economic downturns in its history simultaneously finds itself militarily overextended around the world. It is tempting to construe them, as most liberals do, as the consequences of the policy failures of the Bush presidency. Bush, like LBJ, pursued utopian policies in both the domestic and foreign policy spheres, acting as if American resources to achieve its goals were unlimited.
Domestically, as Robin Blackburn observed, Bush substituted the promiscuous extension of credit for governmental expenditure as a means of constructing his own Great Society:
Internationally, an even more grandiose Bush went far beyond the messianic anti-communism of LBJ in Southeast Asia and launched a self-described global war on terror that has resulted in two open ended wars in the Middle East and the prospect of a third. The US military budget is currently about one trillion dollars, and nearly equals the military spending of all other countries in the world. It constitutes about 8% to 9% of US gross domestic product.The Bush administration’s vision of the ‘ownership society’ somehow latched onto codicils of Johnson’s ‘Great Society’ to encourage the poor to take on housing debt at the pinnacle of a property bubble. The quality of the arrangements made for poorer mortgagees was manifestly inadequate—they had no insurance provision—and also avoided the real problem, which is the true extent of poverty in the United States and the folly of imagining that it can be banished by waving the magic wand of debt creation.
It is therefore tempting to blame Bush for a deindustrialized, bankrupt domestic economy and military entanglements that have spun out of control, but such a personalized analysis obscures the real nature of the problem. In her concise book, Empire of Capital, Ellen Meiksins Wood describes the current capitalist order, one that aspires that impose itself upon the entire world, as one that requires the US to maintain and deploy the most expensive and most technologically advanced military ever created. It is essential, in her view, for the US to preserve unquestioned military supremacy as a means of effectively arbitrating disputes between competing nation states, all of whom accept the necessity of this supremacy.
Of course, there are ancillary features associated with this order, such as the use of the US military to intimidate what the US rather theatrically defines as rogue states, and the need to periodically display the frightening destructive capability of the military to discourage any country that might be inclined to resist the softer aspects of US coercion as exercised through social and financial institutions like the United Nations, the World Bank and the International Monetary Fund, that, while important, should not distract us from recognizing the fundamental problem at hand.
The US is broke, and, as already recognized by Giovanni Arrighi in 2005, it has failed in this endeavor to impose neoliberal capitalist values upon the world. Soft power, as exercised by US dominance within global institutions, such as the ones already mentioned, along with the financial clout of banking firms like Goldman Sachs, Morgan Stanley and Citicorp, has been curtailed by a financial crisis that has grown into the first global recession since the 1970s. Hard power, in the form of the US military, has been degraded by the conflicts in Iraq and Afghanistan.
Hence, Obama finds himself taking office when the principle around which his campaign was organized, his intention to marry neoliberalism with multiculturalism, is no longer relevant. Walter Benn Michaels has enunciated this principle most precisely:
Thus, acutely aware of the tensions lying beneath the surface of American capitalism in its present neoliberal manifestation, it was Obama's intention to construct a winning electoral coalition around the concept of releasing them, or at least the ones associated with racial and gender bias. He obviously succeeded, but failed to take power before contradictions of a more serious nature erupted. Now, as FDR did, he finds himself compelled to preside over an attempt to reform American capitalism in order to save it.This is also why the real (albeit very partial) victories over racism and sexism represented by the Clinton and Obama campaigns are not victories over neoliberalism but victories for neoliberalism: victories for a commitment to justice that has no argument with inequality as long as its beneficiaries are as racially and sexually diverse as its victims. That is the meaning of phrases like the ‘glass ceiling’ and of every statistic showing how women make less than men or African-Americans less than whites. It is not that the statistics are false; it is that making these markers the privileged object of grievance entails thinking that, if only more women could crash through the glass ceiling and earn the kind of money rich men make, or if only blacks were as well paid as whites, America would be closer to a just society.
It is the increasing gap between rich and poor that constitutes the inequality, and rearranging the race and gender of those who succeed leaves that gap untouched. In actually existing neoliberalism, blacks and women are still disproportionately represented both in the bottom quintile—too many—and in the top quintile—too few—of American incomes. In the neoliberal utopia that the Obama campaign embodies, blacks would be 13.2 per cent of the (numerous) poor and 13.2 per cent of the (far fewer) rich; women would be 50.3 per cent of both. For neoliberals, what makes this a utopia is that discrimination would play no role in administering the inequality; what makes the utopia neoliberal is that the inequality would remain intact.
FDR is, naturally, the optimistic scenario, one that invokes that American positivism that the country can overcome any crisis. There are, however, gloomier ones. For example, that old anti-semitic Communist, Vladimir Zhironovksy, has apparently described Obama as an American Gorbachev, a figure that, in his view, will destroy the country through his naive efforts to reform it. While the notion that Obama will destroy the country is over the top, there is some merit to what Zhironovsky says.
Gorbachev initially tried to revitalize Soviet society through mild reforms that did not imperil the Communist monopoly of power. As each successive reform effort failed, he was forced to adopt more and more aggressive policies that reached higher and higher into the leadership. Radicals found such efforts inadequate, and moved into open opposition, while conservatives eventually sought to remove him from office. He was never able to reinvigorate the moribund Soviet economy and the apparat, having masterfully aligned themselves with nationalist forces in the provinces, compelled the dissolution of the USSR in 1991. By the time he recognized this threat, he no longer possessed the capability of forcibly preventing it.
Obama is likely to follow a similar trajectory initially, but with different, unpredictable outcomes. His economic policies are awowedly neoliberal, and, if he persists with them, as is likely, he will fail. In order to move forward, he must bring resources home for economic development by downsizing the US military, but, instead, he has said that he will increase defense spending to provide for an additional 90,000 troops in addition to his commitment to send more troops to Afghanistan. An escalation of the conflict in Afghanistan and Pakistan could entrap Obama, rendering it impossible for him to dedicate any meaningful resources to domestic renewal. Such proposals are consistent with the voracious appetite for military activity associated with the global reach of American capitalism as described by Wood, but the country cannot support it.
What will Obama do then? The American left believes that he will embrace a socially progressive program, and there are at least some indications that his advisors are considering a substantial public works program. Even if they implement such a program, which remains to be seen, it is doubtful that they will eliminate subsidies to the financial sector and reduce the US military presence around the world. So, for now, we can look forward to a meek version of the sort of guns and butter that pushed the US economy into the dark days of stagflation in the 1970s.
Facing economic collapse, Gorbachev, to his credit, withdrew the Red Army from Eastern Europe. Will Obama withdraw US troops from South Korea, Germany, and even Iraq and Afghanistan, to jump start an American recovery? It seems unlikely. He looks too cautious for such a daring move. If forced to choose between aligning himself with the elite, as he has always done, and suppressing social unrest, or bending to the will of popular movements from below, and bravely transforming the power relationships within society, he would probably, unlike Gorbachev, choose the former. Furthermore, he would have to consciously implement policies that would abandon the US imperial role as the arbiter of global capitalism. In short, he would have to consciously bring down the curtain on the American empire.
No doubt, his supporters feel differently. They should, however, ponder a number of things. First, Clinton and Bush have expanded the power of the government over private individuals through surveillance, police action and incarceration. Will Obama consciously refuse to use it if challenged from the left? If so, he would be the first President to do so. Second, while the mass movement created by Obama is celebrated, and rightly so, there is a sinister side to it. Obama has a large group of people that he can call upon to not only agitate on his behalf, but, potentially, in difficult times, to intimidate those who oppose him.
Obama's personality, especially his cautiousness, makes such conduct hard to imagine, although we should not underestimate what political figures are capable of doing when pressed to the wall. In the 1970s, capital interests responded to a global crisis of similar severity by embracing neoliberal policies that rendered the lives of workers more transient and insecure, policies ultimately adopted by both Republicans and Democrats. If capital determines that a merciless regime of subproletarianization of the workforce is required, including recourse to extreme methods of suppression, why should we feel confident that Obama will resist? Obama has skillfully fused his political skills with new technologies to excite millions, but it remains to be seen whether his efforts will ultimately be empowering, alienating, or even a more refined method of social control.
Labels: American Empire, Barack Obama, Global Recession, Neoliberalism, New Left Review, Sub-Proletarianization of America
Thursday, October 09, 2008
The Neoliberalism of Barack Obama
Such a perspective is not markedly different than the one presented by the hip hop artist Immortal Technique in his incendiary rap video The Poverty of Philosophy, posted here in February 2007:After half a century of anti-racism and feminism, the US today is a less equal society than was the racist, sexist society of Jim Crow. Furthermore, virtually all the growth in inequality has taken place since the passage of the Civil Rights Act of 1965—which means not only that the successes of the struggle against discrimination have failed to alleviate inequality, but that they have been compatible with a radical expansion of it. Indeed, they have helped to enable the increasing gulf between rich and poor.
Why? Because it is exploitation, not discrimination, that is the primary producer of inequality today. It is neoliberalism, not racism or sexism (or homophobia or ageism) that creates the inequalities that matter most in American society; racism and sexism are just sorting devices. In fact, one of the great discoveries of neoliberalism is that they are not very efficient sorting devices, economically speaking. If, for example, you are looking to promote someone as Head of Sales in your company and you are choosing between a straight white male and a black lesbian, and the latter is in fact a better salesperson than the former, racism, sexism and homophobia may tell you to choose the straight white male but capitalism tells you to go with the black lesbian. Which is to say that, even though some capitalists may be racist, sexist and homophobic, capitalism itself is not.
This is also why the real (albeit very partial) victories over racism and sexism represented by the Clinton and Obama campaigns are not victories over neoliberalism but victories for neoliberalism: victories for a commitment to justice that has no argument with inequality as long as its beneficiaries are as racially and sexually diverse as its victims. That is the meaning of phrases like the ‘glass ceiling’ and of every statistic showing how women make less than men or African-Americans less than whites. It is not that the statistics are false; it is that making these markers the privileged object of grievance entails thinking that, if only more women could crash through the glass ceiling and earn the kind of money rich men make, or if only blacks were as well paid as whites, America would be closer to a just society.
It is the increasing gap between rich and poor that constitutes the inequality, and rearranging the race and gender of those who succeed leaves that gap untouched. In actually existing neoliberalism, blacks and women are still disproportionately represented both in the bottom quintile—too many—and in the top quintile—too few—of American incomes. In the neoliberal utopia that the Obama campaign embodies, blacks would be 13.2 per cent of the (numerous) poor and 13.2 per cent of the (far fewer) rich; women would be 50.3 per cent of both. For neoliberals, what makes this a utopia is that discrimination would play no role in administering the inequality; what makes the utopia neoliberal is that the inequality would remain intact.
Immortal Technique may have voted for Obama in the New York primary because of Obama's refusal to scapegoat immigrants, but, as his remarks during this London appearance indicate, he refuses to romanticize him.My enemy is not the average white man, it's not the kid down the block or the kids I see on the street; my enemy is the white man I don't see: the people in the white house, the corporate monopoly owners, fake liberal politicians those are my enemies. The generals of the armies that are mostly conservatives those are the real Mother-Fuckers that I need to bring it to, not the poor, broke country-ass soldier that's too stupid to know shit about the way things are set up.
In fact, I have more in common with most working and middle-class white people than I do with most rich black and Latino people. As much as racism bleeds America, we need to understand that classism is the real issue. Many of us are in the same boat and it's sinking, while these bougie Mother-Fuckers ride on a luxury liner, and as long as we keep fighting over kicking people out of the little boat we're all in, we're gonna miss an opportunity to gain a better standard of living as a whole.
In other words, I don't want to escape the plantation I want to come back, free all my people, hang the Mother-Fucker that kept me there and burn the house to the god damn ground. I want to take over the encomienda and give it back to the people who work the land.
Obama does not hide the neoliberal emphasis of his candidacy. Quite the contrary. As the election nears, he highlights it, consistent with a strategy of placating the elites that he fears could deny him the presidency. During the debate on Tuesday night, he played along with the socially conservative bias of the moderator, Tom Brokaw, who exalts the primacy of sacrifice within the American experience because of his infatuation with the World War II generation that he profiled in his book, The Greatest Generation. Hence, he accepted Brokaw's premise that the next President must have the ability to motivate Americans to sacrifice, a premise crystallized in Brokaw's insistence that entitlement reform, more properly understood as the curtailment of social assistance to the middle and lower classies, is a major issue of concern.
Obama did not challenge this, either, taking care to evade the notion that the wealthy, after, in many instances, profitting from the circumstances that caused this crisis, should bear some responsibility for paying for it. In other words, he has already internalized the newly emerging consensus that the we are going to have to lower our expectations, or, more bluntly, tighten our belts. With McCain joining him in a duet on this subject, it became very obvious that fiscal austerity looms just over the horizon, regardless of the winner of the election. Given that both candidates advocate even higher levels of defense spending, significant cuts in domestic spending are inevitable. If I had still been single, instead of married, with a young son, I would turned off the debate, and watched something more uplifting, like, say, Sid and Nancy.
Things only got worse, as you might have guessed. McCain, desperate to reenergize his campaign, proposed that we buy the mortgages of distressed homeowners so as to enable them to avoid foreclosure, thus stabilizing their communities. $300 billion of the $700 billion appropriated to the Treasury to bail out global financial institutions would allocated for this purpose. It was a rare moment of Keynesian pragmatism in a debate that otherwise stayed within a irrelevant discourse of abstract, regulatory solutions and voting records.
Afterwards, McCain's domestic policy advisor, Douglas Holtz-Eakin described the proposal in more detail:
During the debate itself, McCain nailed it in regard to the urgency of this sort of approach, an approach that would reinvigorate the economy and communities around the country:. . . under McCain's plan, homeowners would get new fixed-rate mortgages based on the homes' current value with an interest rate of about 5 percent, a percentage point less than the average current rate. The government would pay the difference between the original mortgage amount and what the homes are now worth.
It was a shocking moment of candor. Of course, the proposal is not a complete solution to the financial crisis, but it does direct relief to a broad group of middle and lower income people who are being economically devastated by the crisis. And, the Obama reaction? Straight out of Goldman Sachs:Is it expensive? Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy, and we've got to give some trust and confidence back to America.
This is the sort of corporate populism that made the Clinton campaign so offensive in the spring, the manipulation of resentment to generate support for corporate friendly policy, as manifested most clearly in her request for a gas tax holiday. It always relies upon cynicism and the susceptibility of the intended audience to emotional manipulation. In this instance, Furman is particularly brazen, because, after all, Obama had just voted, along with McCain, to deliver $700 billion to financial institutions in return for nearly worthless debt instruments, generously priced in accordance with hold to maturity valuations, instead of the much lower ones in the market."John McCain wants the government to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don't recover," Jason Furman, Obama's economic policy director, said in a statement. "The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.
Accordingly, it is not, as asserted by Furman, a question of unfairly enriching financial institutions, McCain and Obama have already agreed on that one. Instead, McCain, upon reflection, admirably decided that the government must do something to stimulate consumer demand in addition to providing supply side incentives to extend credit. So, he decided that it was necessary to allocate a substantial portion of the bailout monies to purchase mortgages and free borrowers from increasingly onerous terms of repayment.
Furman can't openly say that his candidate prefers a trickle down solution, so he must instead resort to obfuscation. But then, we shouldn't be too shocked. He is known for his assertion that Wal-Mart is a progressive success story, his willingness to consider private retirement accounts for Social Security and his close connections to Wall Street through Robert Rubin. In his current role, he is making sure that Obama never strays from the Wall Street line.
Having used his campaign to legitimize the delivery of $700 billion to the Street and the global instituions with which it does business, Obama, faced with what must have been a surprise, relied upon Furman to confront the threat. Obama didn't spend a day and a half at campaign appearances promoting the bailout to solidify his support in the financial sector just to turn around and hand nearly half of the money over to the middle and lower class. If you aren't a military contractor or a banker, the next four years don't look too promising.
Michaels sums it up pretty well:
Meanwhile, Immortal Technique is more succinct:There is a real difference between Obama and McCain. But it is the difference between a neoliberalism of the centre and a neoliberalism of the right. Whoever wins, American inequality will be left essentially untouched. It is important to remember just how great that inequality is. A standard measure of economic inequality is through the Gini coefficient, where 0 represents perfect equality (everybody makes the same), and 1 perfect inequality (one person makes everything). The Gini coefficient for the us in 2006 was 0.470 (back in 1968 it was 0.386). That of Germany today is 0.283, that of France, 0.327. Americans still love to talk about the American Dream—as, in fact, do Europeans. But the Dream has never been less of a reality than it is today. Not just because inequality is so high, but also because social mobility is so low; indeed, lower than in both France and Germany. Anyone born poor in Chicago has a better chance of achieving the American Dream by learning German and moving to Berlin than by staying at home.
And they might even have a black president but he's useless
Cuz he does not control the economy, stupid!"
Labels: Bailout of Finance Capitalists, Barack Obama, Credit Crunch, Housing Bubble, John McCain, Neoliberalism, New Left Review
Monday, June 16, 2008
The Masque of the Red Death (Part 2)
No doubt most of you have already figured out the severity of the problem based upon the bolded parts of the definition. But let's go through it as if we were presenting a term paper to a demanding, old school professor.An "option ARM" is typically a 30-year ARM that initially offers the borrower four monthly payment options: a specified minimum payment, an interest-only payment, a 15-year fully amortizing payment, and a 30-year fully amortizing payment.
These types of loans are also called "pick-a-payment" or "pay-option" ARMs.
When a borrower makes a Pay-Option ARM payment that is less than the accruing interest, so-called "negative amortization" will occur, which means that the unpaid portion of the accuing interest is added to the outstanding principal balance. For example, if the borrower makes a minimum payment of $1,000 and the ARM has accrued monthly interest in arrears of $1,500, $500 will be added to the borrower's loan balance. Moreover, the next month's interest-only payment will be calculated using the new, higher principal balance.
Option ARMs are popular because they are usually offered with a very low teaser rate (often as low as 1%) which translates into very low minimum payments for the first year of the ARM. During boom times, lenders often underwrite borrowers based on mortgage payments that are below the fully amortizing payment level. This enables borrowers to qualify for a much larger loan (i.e., take on more debt) than would otherwise be possible. When evaluating an Option ARM, prudent borrowers will not focus on the teaser rate or initial payment level, but will consider the characteristics of the index, the size of the "mortgage margin" that is added to the index value, and the other terms of the ARM. Specifically, they need to consider the possibilities that (1) long-term interest rates go up; (2) their home may not appreciate or may even lose value or even (3) that both risks may materialize.
Option ARMs are best suited to sophisticated borrowers with growing incomes, particularly if their incomes fluctuate seasonally and they need the payment flexibility that such an ARM may provide. Sophisticated borrowers will carefully manage the level of negative amortization that they allow to accrue.
In this way, a borrower can control the main risk of an Option ARM, which is "payment shock", when the negative amortization and other features of this product can trigger substantial payment increases in short periods of time.
For example, the minimum payment on an Option ARM can jump dramatically if its unpaid principal balance hits the maximum limit on negative amortization (typically 110% to 125% of the original loan amount). If that happens, the next minimum monthly payment will be at a level that would fully amortize the ARM over its remaining term. In addition, Option ARMs typically have automatic "recast" dates (often every fifth year) when the payment is adjusted to get the ARM back on pace to amortize the ARM in full over its remaining term.
For example, a $200,000 ARM with a 110% "neg am" cap will typically adjust to a fully amortizing payment, based on the current fully-indexed interest rate and the remaining term of the loan, if negative amortization causes the loan balance to exceed $220,000. For a 125% recast, this will happen if the loan balance reaches $250,000.
Any loan that is allowed to generate negative amortization means that the borrower is reducing his equity in his home, which increases the chance that he won't be able to sell it for enough to repay the loan. Declining property values would exacerbate this risk.
First, lenders offered these mortgages to just about everyone, not just sophisticated borrowers with growing incomes, because they could not otherwise lend money to people to buy homes in most regions of the country. Along these lines, please observe that the notion that the housing bubble was a bi-coastal one, centered predominately in California and Florida, is a myth. As noted by Mr. Mortgage, the fraud and negligence associated with the issuance of these loans, as with subprime ones, is staggering:
Second, let's go back to the wikipedia definition: When evaluating an Option ARM, prudent borrowers will not focus on the teaser rate or initial payment level, but will consider the characteristics of the index, the size of the "mortgage margin" that is added to the index value, and the other terms of the ARM. Specifically, they need to consider the possibilities that (1) long-term interest rates go up; (2) their home may not appreciate or may even lose value or even (3) that both risks may materialize.. . . This just goes to show you how lax everything was over the past 5-years. The investment banks were so hungry for parts (loans) for their Frankenstein securities that they bought almost anything. Heck, why not when 80% of what was produced was going to be bundled up and sold anyway?
This is why I firmly believe that originating banks and/or original investors will ultimately end up responsible for all of this in the end. Forced buybacks for early payment defaults (first 12-months), ‘white-lie’ fraud (liar loans), unauthorized ‘exceptions’ (outside of investor guidelines without investor approval) and lender ‘negligence’ (sloppy underwriting/quality control) are already being demanded by whole loan and securities owners if an audit on a loan in default unveils any of these deficiencies. If you are diligent enough, I am willing to bet an auditor can find one of the above mentioned deficiencies in 80% of all Prime, Alt-A and subprime loans made over the past five-years.
I have written about this many times and the WSJ recently published an article on May 28th, 2008 confirming many of my views. ‘Investors Press Lenders on bad Loans’ . The article cites a lawsuit filed in LA Superior Court where units of the mortgage insurer, PMI Group, alleged WMC Mortgage Corp breached it’s ’reps and warrants’ on a pool of subprime loans insured by PMI in 2007. Within eight months, the delinquency rate was at 30%. The suit also alleges that a detailed audit of 120 loans that PMI asked WMC to repurchase found evidence of ‘fraud, errors and misrepresentations’. WMC was owned by GE by the way.
The auditing of defaulted loans looking for fraud or lender negligence is escalating at a feverish pace. This is being spearheaded in many cases by the mortgage and bond insurers, but even Fannie, Freddie, banks and the investment banks are picking up the pace. At this point in time considering the damage that has been done to the insurers, the have nothing and everything to lose. The biggest finger-pointing contest of all time is commencing and prize maybe the firm’s very existence.
Perhaps soon one of the insurers will release detailed reports on the amount of fraud and negligence on the defaulted prime, ALT-A, subprime and home equity loans that they insure in an attempt to make themselves look good. When this news breaks it will shock the world.
As already discussed, we know that neither the lenders nor the recipients of Option ARMs were prudent. Certainly, that's cause for serious concern, and, guess what, long term interest rates have gone up and the homes of the borrowers have lost value! In other words, huge numbers of Americans can no longer pay their mortgage and can't sell their house. As Mr. Mortgage rather summarily concludes: This loan was never intended for holding for any significant length of time or in a massively declining value environment.
Really? And yet it has been used for precisely these purposes over the last 3 years. Robin Blackburn, in a New Left Review article recommended here recently, provides us with the obvious explanation in relation to the broad universe of speculative debt instruments such as this one (cdos is shorthand for collateralized debt obligation, an asset backed security commonly backed by home equity loans and various forms of consumer debt, such as credit card receivables, car loans and student debt):
Bonus points for those of you who are still alert and caught Blackburn's identification of the ideological foundation for the promiscuous extension of credit that has resulted in the credit crunch: The Bush administration’s vision of the ‘ownership society’ somehow latched onto codicils of Johnson’s ‘Great Society’ to encourage the poor to take on housing debt at the pinnacle of a property bubble. The quality of the arrangements made for poorer mortgagees was manifestly inadequate—they had no insurance provision—and also avoided the real problem, which is the true extent of poverty in the United States and the folly of imagining that it can be banished by waving the magic wand of debt creation.How on earth could such risks build up? The source of the problems which surfaced in 2007—though some had warned about them years earlier—did not lie only in the us deficits or the Fed’s easy money policy. It also lay in an institutional complex and a string of disastrous incentives and agency problems riddling an over-extended system of financial intermediation. To start with, take the incentives relating to those notorious ‘subprime’ cdos. New subprime mortgages rose from $160 billion in 2001 to $600 billion in 2006—by which time they constituted one-fifth of mortgage originations. The salesmen responsible for this surge received a generous commission for each new loan, paid upfront but expressed as a proportion of the redemption payments to be made over several years. Brokers happily signed up ‘ninjas’—no income, no job and no assets—by the hundred thousand. This behaviour was directly encouraged by their incentive structure, while legislation dating back to the 1960s had relaxed credit standards for the low paid and jobless without reckoning with the likely consequences. The Bush administration’s vision of the ‘ownership society’ somehow latched onto codicils of Johnson’s ‘Great Society’ to encourage the poor to take on housing debt at the pinnacle of a property bubble. The quality of the arrangements made for poorer mortgagees was manifestly inadequate—they had no insurance provision—and also avoided the real problem, which is the true extent of poverty in the United States and the folly of imagining that it can be banished by waving the magic wand of debt creation. Indeed the subprime borrowers were lured into inherently bad deals by those low ‘teaser rates’ that bore no relation to the large payments required of them down the line.
The bad mortgage bets were to be hugely compounded by the investment banks that purchased the mortgage debt for resale, supposedly according to the ‘originate and distribute’ model—take on debt, repackage it, and sell it on. As a report in the Wall Street Journal explained:
Just to complete the picture, one should add that such fees are not only garnered by those in investment banks who construct and sell asset-backed securities. On the day his employer announced a write-down of over $8 billion, a managing director at an investment bank explained that the bank’s own senior risk-assessment officer had received a bonus of $21 million in the previous year for his part in the great cdo bonanza. What was more, this executive still did not report directly to the board.Upfront commissions and fees are well established on Wall Street. Investment banks get paid when billion-dollar mergers are signed. Firms that create complex new securities are paid a percentage off the top. Rating services assess the risk of a new bond in return for fees off the front end.
Clearly, a compelling subject, especially Blackburn's wise insight that LBJ and Bush are politically and psychologically linked in terms of their propensity for grandiosity, but one beyond the scope of what I can address today. For now, it is more important to target two critical aspects of the burgeoning crisis involving Pay Option ARMs. The aggregate amount of these mortgages going sour is significantly greater than the amount of the subprime ones that ignited this crisis, and the recipients of them cut across all socioeconomic groups.
Let's go back to Mr. Mortgage:
In order to get this right, we must be aspire to be as precise as possible, a challenging task for lefties like me, to be sure. Pay Option ARMs are part of a large universe of dubious mortgages known as ALT-A ones, and the ability of borrowers to pay them is being rapidly degraded by rising interest rates and declining housing values as already noted in relation to Pay Option ARMs. A quick perusal of the definition of an Alt-A instrument reveals why:Pay Option and ALT-A loans are defaulting at an accelerating pace in recent months. A couple of months ago, I made an ALT-A video with real data from the Fed comparing the total subprime vs. ALT-A universe’s. . . The ALT-A universe is much larger than the subprime universe in the higher priced states like CA and even nationally, it is somewhat larger. But due to the sheer exotic nature of many ALT-A loans, such as the Pay Option ARM, the crisis will likely be that much more devastating.
Don't you just love that antiseptic language of the financial industry? An alternative to conforming, GSE-backed mortgages. An amusing way to describe the extension of credit to people on terms who otherwise would not qualify for it. Pay Option ARMs, because of their sensitivity to increase rate increases and reductions in property values, are in the vanguard of Alt-A instruments to go into default.Within the U.S. mortgage industry, different mortgage products are generally defined by how they differ from the types of "conforming" or "agency" mortgages, ones guaranteed by the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.
There are numerous factors that might cause a mortgage not to qualify under the GSEs' lending guidelines even though the borrower's creditworthiness is generally strong. A few of the more important factors are:
--Reduced borrower income and asset documentation (for example, "stated income", "stated assets", "no income verification")
--Borrower debt to income ratios above what Fannie or Freddie will allow for the borrower credit, assets and type of property being financed
--Credit history with too many problems to qualify for an "agency" loan, but not so many as to require a subprime loan (for example, low scores or serious delinquencies, but no recent charge-offs or bankruptcy)
--Loan to value ratios (percentage of the property price being borrowed) above agency limits for the property, occupancy or borrower characteristics involvedIn this way, Alt-A loans are "alternatives" to the gold standard of conforming, GSE-backed mortgages.
Remember, Pay Option ARMs reset at markedly higher interest rates after the expiration of the introductory teaser rate, and permit people to make monthly payments at a rate that results in negative amortization, that is, the cashing out of any remaining equity in the property, so, when property values fall, the borrower reaches a principal ceiling amount. Either events triggers a substantially higher monthly payment, and both combined pushes it through the stratosphere. And, yes, you guessed it, by the time the lender gets the property, the house is not worth anything near the amount of the loan. They therefore signal a contagion that will spread throughout all Alt-A instruments.
Strikingly, we are now beginning to see delinquencies and foreclosures in middle and upper middle income neighborhoods, as noted by our friends over at Calculated Risk:
Of course, long time readers of this blog with good memories are not surprised, James Cramer predicted this last year here and here when he said that he considered nearly all loans issued in 2006 and 2007 to be worthless.This is not a subprime problem. The reason the delinquency rate is rising rapidly in Orange County is because homes are very expensive, and a large number of recent home buyers used ARMs, especially Option ARMs, as affordability products.
Now that the interest rate is increasing - and in some cases the loans are hitting the maximum allowed principal ceiling - these loans are no longer affordable. Since these same homeowners have negative equity, selling the home is not an alternative.
The important point here is that delinquencies are starting to increase rapidly in middle to upper middle class neighborhoods where buyers used "affordability products" to buy more house than they could really afford.
The consequences are likely to be profound. Mr. Mortgage has already outlined some of the dire consequences for the financial sector in the lengthy quote near the top of this post. We can anticipate more writedowns, more dubious interventions by the Federal Reserve and a continued curtailment of the extension of credit, even in transactions between major instituions, due to loss of confidence in the system as it becomes evident that, by traditional accounting standards, much of the US banking system is bankrupt. Time to return to Robin Blackburn:
For careful readers, Level 3 securities are frequently CDOs, which have no market that attaches a value to them in daily trading activity, and have been exposed in many instances, such as the obvious subprime catastrophe and the emerging Alt-A one, as worth much less than the value attributed to them by mathematical models created by the financial industry, if not completely worthless. And, yes, you read it right, the Federal Reserve is lending billions and billions of dollars to the financial institutions and accepting them as collateral. I will leave it to you to draw your own conclusions as to whether the market in these instruments will recover sufficiently to enable the Fed to obtain the full recovery of principal.If the major banks are forced to reduce the book value of their cdos by 50 cents on the dollar, this will wipe out the equity value of their businesses and make them technically bankrupt. Banks which face this danger include Citigroup, Merrill Lynch, Lehman Brothers and Morgan Stanley, but there are likely to be surprises too. Of course no major bank will be allowed to fail. Instead the authorities will devise rescues, buy-outs and mergers. Rather than the stern treatment meted out to Enron and Worldcom, we shall see ‘socialism for bankers’ as public money is mobilized to prop up finance houses that are too big to fail. The Bear Stearns rescue was hard on shareholders but not bondholders or counterparties. JP Morgan, the purchaser, is the beneficiary of a Federal Reserve guarantee covering $29 billion of assets held by Bear. In the weeks following this rescue the Fed lent a broadly similar sum, in confidence, to several other banks, with Level 3 securities as collateral. The main alternative to the injection of public funds would be further input from sovereign wealth funds.
But there are also alarming social consequences as well. Last summer, as the crisis was first beginning to generate a lot of public attention, I made the following observation:
I still believe that this will happen, if it has not already started. After all, you don't tend to hear a lot about people who have lost their homes. Paradoxically, the people who can afford to pay their mortgage, but live in homes with zero or negative equity, are now stuck in these houses. They can't move for more lucrative and/or fulfilling jobs elsewhere. As noted over at Calculated Risk:For the lending industry and Wall Street, it was a great party while it lasted, as the loans were securitized and purchased by hedge funds, with lucrative fees pocketed by all.
Of course, they now have their own problems, as you can read on all over the web, but what about the people who are losing their homes? What is going to happen to them? The answer is, as we all know, it is going to be brutal. Many of them are going to be pushed into the rental market for the rest of their lives, and many are going to have to leave the locations where they currently reside because even the cost of rent is going to be too much for them. So, we are looking at the prospect of two migrations, one from houses to rentals, and the other from expensive parts of the country to less expensive ones. Furthermore, quite a number of communities built for home owners will rapidly become rental ones. Some may even resemble ghost towns, as it becomes impossible to fill all of the homes with residents.
Left academics would say that the socioeconomic life of the US will subtlely display more and more features of sub proletarization, as more and more people in the lower middle class and even the middle class find themselves forced to migrate internally within the country (an economically generated group of internally displaced people?) and live under conditions of financial insecurity.
Fore more on the subject, go here. As I said in July 2007, the era of globally subsidized credit, and the conspicuous consumption facilitated by it, is over. Yet the left seems, except in rare instances, to have little to say about it. Meanwhile, if Daily Kos is any indication, liberals are trapped within the debilitating cul-de-sac of presidential electoral politics. Later this week, I will explain why I believe the economic disruption caused by the credit crunch is something that leftists need to begin to address.There are probably close to 10 million households currently with zero or negative equity in the U.S. For these homeowners, it will be very difficult to accept a job transfer to a different county or state.
Labels: American Empire, Credit Crunch, Housing Bubble, Neoliberalism, New Left Review
Sunday, June 08, 2008
The article is approximately 45 pages long, but well worth the time it takes to read, a good introductory presentation of the circumstances that have generated the current credit crunch from an informed left perspective. Blackburn also provides the reader with numerous citations of additional materials of interest, for example, a biography of Fischer Black by Perry Mehrling, a man whose work Blackburn describes as an inspiration for the development of contemporary financial risk modeling.
Blackburn proposes a number of social democratic solutions for managing the crisis, and turning it into an opportunity for harnessing some of creative forces of finance capital towards the fulfillment of the daily requirements for survival, such as housing, all of which, from my cynical, alienated US perspective, appear utterly implausible in regard to the prospects for implementation.
Alternatively, you'd also be tempted to think that the implementation of Blackburn's proposals require nothing short of revolutionary conditions, and, if such conditions existed, why would you stop there, instead pushing the revolution forward to its ultimate conclusion, the destruction of capitalist finance that forms the skeleton of a system of commodity production and consumption? But you shouldn't let my reductive cynicism stop you from reading the article, which presents an essential context for understanding contemporary socioeconomic conditions. Again, you can find it here.
Labels: American Empire, Credit Crunch, Housing Bubble, Neoliberalism, New Left Review
Saturday, September 15, 2007
Perhaps the most striking aspect of this scholarly article is the assertion that China's capitalist transformation is being primarily generated by domestic factors instead of foreign direct investment:Modern China is undergoing a relentless process of transformation, from the forests of construction cranes in its coastal cities to the gargantuan infrastructure projects in its interior. Its economic trajectory has been equally dramatic: China is now ranked 4th in the world by GDP, rising from 11th in 1990. A range of developments testify to its rapid progress along the path to a capitalist economy: the commodification of land and labour, emergence of private firms, formation of finance capital, among many others. Yet China scholars have been curiously reluctant to apply the classic Marxist idea of a transition to capitalism—and its corollary, primitive accumulation—to the Chinese case. Instead, they quite loosely use terms such as globalization, marketization, post-socialism, reform era and market socialism, seemingly unaware of how closely the transformations under way in China compare with the development of capitalism in Europe and North America—not to mention many other ‘late developers’ in Asia and Latin America.
Comparison with historical experience of the rise of capitalism in the West can act as a useful counterbalance to three shortcomings of contemporary China studies. The first common error is to exaggerate China’s uniqueness vis-à-vis the general process of capitalist transition. This does not mean adopting the flat-earth neoliberalism of Thomas Friedman or a unilinear Marxism in which the rest of the world must recapitulate the economic history of Britain or the United States. While capitalism has universal elements, the road to capitalism follows many routes, depending on history, geographic circumstance and politics. Like a virus, capitalism cannot survive without living hosts, whose dna it alters in order to reproduce. Therefore, one can certainly refer to ‘capitalism with Chinese characteristics’.
A second pitfall for China watchers is an obsession with the socialist past. Certainly, the Maoist era shaped the country’s present course to an important degree, and China shares characteristics with other ex-socialist countries. But it differs profoundly from most post-Soviet and East European countries in that it did not undergo a sudden implosion of state, party and economy. Instead, an autocratic state has maintained a close hold on economic policy and the Communist Party continues to monopolize political life. Nonetheless, China in the twenty-first century can no longer sensibly be called ‘late’ or ‘market’ socialist.
A better comparison, in our view, is with the experience of capitalism in the West. But here lies a third danger, of drawing parallels only with contemporary developments around the world, from Internet search engines to mega-malls. Less well understood are the striking parallels with the past in Europe and North America, such as mass rural-to-urban migration and the gradual creation of a banking system. Such processes unfold over decades, and much of China is still pre-capitalist by any measure. Nevertheless, a generation after the prc was set on the road to capitalism by Deng Xiaoping’s market reforms in 1978, the Communist leadership can no longer return the genie to its bottle. ‘Market imperatives quickly proved uncontrollable’, as Martin Hart-Landsberg and Paul Burkett have put it; the ‘Chinese economy now operates largely according to capitalist logic.’ Or, as Robert Weil wryly notes, instead of the reformers ‘using capitalism to build socialism’, they ‘used socialism to build capitalism’.
Central to Marx’s presentation of primitive accumulation are the expropriation of the producers to create a working class, the emergence of a capitalist class with a stock of original capital, and the development of the home market. To these must be added the commodification of land, the rise of cities and extension of the spatial division of labour, and the transformation to a modern bourgeois state. We shall consider each of these in turn.
The discussion here focuses on cities, where the transition to capitalism is especially intense, but this is not to say that agrarian transformation has not been essential to the whole process. Indeed, the era of ‘reform’ was launched in the countryside with the break-up of the communes and introduction of the household responsibility system after 1978, followed by the explosion of town and village enterprises (TVES). Over the last twenty years, however, industrialization, proletarianization, accumulation, property development and consumerism have accelerated in the cities—though these are still deeply linked with the commodification of land, labour and consumption in rural areas and the extraction of surplus from the peasantry and rural industry.
The authors also possess a nuanced perspective about recently publicized efforts to alleviate poverty, mentioned here last year (click on the China label below):Chinese firms depend most on the domestic market, where household consumption constitutes over 50 per cent of GDP. To view exports as the sole engine of development in modern China is therefore to repeat the classic mistake of liberals who see trade, rather than production, as the heartbeat of economic growth.
Well worth reading in its entirety.In 2000, state investment was reoriented to focus on the poor inland areas of central and western China, and the new government of Hu Jintao and Wen Jiabao has declared its intent to alleviate rural poverty. A common interpretation is that these measures are designed to head off growing social unrest due to glaring inequality.It is true that state spending creates jobs and income in the short term, but measures such as rural electrification and road building are ultimately designed to incorporate poor areas still ‘off the grid’ more fully into the circuits of capital, thus increasing the size of the home market and the effective demand for China’s domestic industries.
Labels: China, Neoliberalism, New Left Review
