Volatility

March 1, 2010

(De)fault Line Status Report: MBS and Mortgages

Filed under: Bailouts Only Propped Up Zombies, Land Reform — Tags: , , , , — Russell Bangs @ 8:53 am

 

One of the great mysteries of the universe for this administration is what to do about mortgages. The political heat is on to help the growing legions of underwater homeowners, more and more of whom have taken the added hit of unemployment. They can envision only one outcome which can help those mired in negative equity, and that’s to reflate the housing bubble. That’s because their only answer to every policy question is to reflate some bubble, any bubble.
 
But stubborn reality is refusing to cooperate. Reality wants to deflate. “The market” wants real price discovery. Everything is resisting the administration’s bland hopes that an anodyne modification program, based only on temporarily reducing payments (while applying compounding interest to the principal), with only a thin slice of the beleaguered borrowers eligible, with lenders obstructing the whole way, can restore bubbling prices.
 
If that description sounded silly, it’s because the program isn’t meant to achieve anything. The whole thing really just meant to put on a political show. As always with Obama, it’s empty words and no action. That’s because the only things which truly could help underwater mortgage holders are permanent mods based on reductions of principal, and empowering bankruptcy judges to write down principal themselves (cramdowns). The problem here, other than that it eats into bank profit, is that writing down principal would help prices go in the reality-based direction, which directly contradicts the Obama re-bubble fantasy.
 
And what’s going to happen at the end of March when the Fed’s MBS purchases are supposed to end? In December the system quietly authorized itself to extend these buys to infinity, through the Fannie and Freddie bailout. (Fannie just announced it lost $16.3 billion in the Q4. As Dean Baker pointed out, if Fannie’s expenditures are simply buying MBS from the banks, and they lose money on the deal, then by definition they paid the banks too much. It’s simply another laundered bailout. A clandestine, illegal TARP.) But since the government is the only buyer for this toxic crap, if they stop buying MBS, the market for bundled loans will dry up. Without having an automatic buyer at bloated prices, mortgage lenders would find it worth their while to lend only at higher rates. The market is already moribund. So this can only further depress it. So there’s every reason to believe that the administration will see no choice but to continue with the MBS buys. How else can they even pretend to themselves they’re reflating the bubble?
 
What’s a poor administration to do? They seem well stocked with theology (“I believe because it’s absurd”; we are magically “predestined” toward resumed bubble growth) and metaphysical philosophy (“a conflict of duties is inconceivable”; the status quo is “the best of all possible worlds”), yet oddly these aren’t working. Maybe it’s time for some astrology? Elizabeth heard what she wanted to hear from Nostradamus, and she survived extreme perils. And Reagan’s reputation is holding up pretty well among Obama’s kind of people. Reagan is his hero, and he strives to imitate Reagan in every other policy arena, so why not bring in an astrologer as well? (I’d suggest the Oracle at Delphi if she still existed, but even of she did it would seem she’s not doing the Greeks much good these days.)
 
Well, we can leave Obama to rot in his self-festered cesspool. In the meantime, what about us peasants? How should we be viewing all this? What should an underwater homeowner be thinking? A renter?
 
We know the government doesn’t care about us. It cares only about the banks, and will do everything for the banks’ benefit. If that ever accidentally helps us, that’s incidental and not a feature.
 
So if they want to reflate the bubble, then they do want to accidentally help recover some of the position of existing underwater borrowers (although this completely leaves aside job loss and everything else which will make the high nominal mortgage values untenable regardless of what the market says). But at the same moment this would perpetuate the longstanding overvaluation of the necessity, shelter. With over 17% unemployed or underemployed (and if you add in all those who aren’t even counted by the U6 number but who really aren’t making this kind of living wage, the number is worse) and getting worse, any zombified housing bubble would simply increase the pain on the non-rich.
 
And it really wouldn’t help existing underwater borrowers in the long run. No such bubble is sustainable, and to zombify prices would simply delay the reality-based deflation and render it all the more catastrophic when it returned a few years down the line. In the meantime an ever greater mass of Americans would be priced out completely. Extended families cramming themselves together and tent cities will become ubiquitous.
 
So the prospect is for the unholy Fed-GSE MBS scam to be the lead drivers of the Bailout to prop up housing prices as high as possible for as long as possible, for the sake of propping up the insolvent banks’ balance sheets and phony profits, extending some meager relief to some homeowners while inflicting yet more general pain upon the populace.
 
So far their top-down reflation efforts have failed. One new kludge they’re floating is a HAMP-imposed freeze on foreclosures. This looks like an extension of the existing HAMP scam, the intent being the same, to induce underwater mortgage holders to keep paying instead of walking away. The only difference would be that whereas the old HAMP gave the lender complete freedom to foreclose at will, this would on paper restrict that. But the goal is the same, to bait people into thinking they’ll get a really helpful permanent mod when they’re really just being strung along.
 
Another, rather bizarre, proposal is to have the FDIC in some unspecified way effect a principal reduction after the underwater borrower has kept paying for some length of time. Again, reeks of a bait and switch. Meanwhile Citi is trying out the “deed in lieu of short sale” in several states. The deal would be that the borrower turns over the deed, gets to stay in the home for a certain number of months before leaving, and the bank promises not to foreclose during that time. (The borrower promises not to trash the house or strip it for spare parts.) You’d qualify for this plan once you’re 90 days late on the mortgage. So the borrower has to already have entered the credit score reporting extortion labyrinth before qualifying. In other words, this program is only for people who look serious about walking away. It’s not for those Citi thinks it can still bully into keeping up on payments they can’t really afford. It is not meant to help borrowers, even a little bit, but rather only to help Citi.
 
So there’s the situation. It’s doubtful that the system can reflate the bubble enough to help more than a few underwater borrowers. Such a reflation would be extremely precarious and temporary. It would be set up in a way to benefit the banks only, while their only real goal vis the borrower is to pretend they’re helping him.
 
So for those who are underwater, as painful as it may be, the reality is that their situation is not likely to be improved except in maybe the most fleeting manner. (So if you are holding on hoping prices will go back up, and they somehow miraculously do, you should probably get out while you’re lucky.) If you love your house and want to struggle to stay in it, fine. But be clear that it’s likely to remain a struggle. People shouldn’t let themselves be strung along with seductive lies about how the price can stably go back up, implicitly that there was never a bubble in the first place. There was. Eight trillion dollars worth. That $8 trillion is gone forever, as part of the inconceivable destruction of bubble wealth which has taken place. The only way they could “reflate” even a miniscule fraction of this would be through hyperinflation.
 
Strategically defaulting is and almost certainly will remain the best rational option for those suffering negative equity. Everything the system does is geared to obscuring that truth and saying “trust me.” We should know by now we can’t trust them. They don’t have our best interests at heart, and everything they say is a lie. 

December 27, 2009

Some Thoughts for What’s Next

Filed under: Corporatism, Global War On Terror, Globalization — Tags: — Russell Bangs @ 2:04 am
.
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America’s political problem is basically simple. A relatively small group of corporations, led by the big banks, became large enough and concentrated enough wealth to entrench their positions and buy the government so as to transform the economy from production based quasi-capitalism to financialized feudalism based on parasitic rents and con jobs.
 
The looting of the country was concealed for many years by propping up the middle class with ever-increasing debt, while globalization was able to keep consumer prices low. Add in the IT hype, and for a while the “American dream” propaganda was successful.
 
Of course the only way to import cheap consumer products was to export real jobs. So the very consumer base the middle class ideology depended upon was cannibalized. It’s that same old contradiction of capitalism Marx analyzed all those years ago.
 
But the only way for the finance parasites to keep extracting profits from the debt dream machine was to keep blowing up ever more absurd bubbles. Each bubble was the same scam. You convince a bunch of people that the price of some asset (stocks or real estate are two favorites) will keep going up forever; get them to go into debt buying it (most of them intending to sell it to the next mark at a price higher than subsequent inflation); get the government and the mainstream media to be the cheerleaders; run a ponzi scheme where you pay off those taking profits with the new money coming in; gamble heavily on all the casino games you yourself have invented and are running and rigging; take out huge personal profits in the form of “bonuses”. And then, when the bubble bursts, you go into vulture mode. You use the government support you bought with bribes in order to use taxpayer money to collect on your own bets, make acquisitions among your less agile colleagues, and keep paying yourself those bonuses.
 
This scam cycle has been run several times, but we’ve now reached its ultimate plateau. There was no way the system could sustain the bursting of the mortgage bubble, because it was the last bubble propping up the simulated middle class. This middle class has nothing left – no jobs, no productive economy, no plan for the future, no solvent entitlement system, no political power. It had nothing but these ever-inflating housing values.
 
Similarly the finance sector had only two good extraction points left, the housing bubble and the permanent war. (They’ll now try to find new ones in a carbon bubble and a health insurance stick-up racket, but neither of these will be able to extract more blood from the already overbled turnip.)
 
So government policy is now completely dedicated to the artificial continuation of bubble conditions for looting. The Bailout War and the Global War on Terror are both artificial wars, wars of choice, private wars waged by medieval warlords upon their own serfs (and, in places like Iraq, Afghanistan, and Palestine, foreign serfs). The goal is to continue extracting through force the rents which can no longer be extracted through rigged economics. The bubble has collapsed; the reserve currency will collapse; oil will become scarce the moment demand resumes its former level.
 
That’s the precarious position of the American elite. That’s why their prostituted government has embarked upon the class war policy it has. This government will never again be responsive to the people. It’s been hijacked. It’s now the pure tool of finance tyranny. Its policy is permanent extortion. Forever. It’s our enemy. It’s lost to us. Anything we’re going to do we have to do from the bottom up.
 
 
The finance sector is the organizer of this Great Crime, the ringleader, the monarch among warlords. It grabbed all the choke points. It seized every critical position. It has written government policy, captured regulatory agencies, bought the very “souls” of legislators and jurists, become the MSM’s pimp.
 
They blew up the bubble, they saddled Americans with odious debt, they crashed the economy, and they forced the government to bail them out, and to keep bailing them out. The bailouts are intended to last in perpetuity.
 
We have to launch a bottom up educational campaign. Across America we need community workshops to explain the crisis, who is responsible, and how the people can fight back.
 
The agenda should be:
 
1. The basic description of globalization and financialization, the bubble, the bailout crime and hopeless state of the current polity.
 
2. Rap sheets for individual banks: their crimes in financializing the economy, corrupting the government, and blowing up the bubble; their crimes during the bailout, during the insolvency era; and how much they have looted and continue to loot through the bailouts.
 
Similar rap sheets for individual criminally corrupt officials, politicians, and media whores.
 
3. Commentary on the broader social contract and how it has been broken from the top down; how we owe nothing to the structure or any part of it, including where it comes to these predatory bubble debts which were foisted upon people in violation of Chicago’s own ideology (transparency? “information”? riiiight.).
 
How our great imperative and our great challenge is to rebuild the social contract from the bottom up. We can look to our friends, family, local communities to see what can be restored and how to get to work.
 
It’s not we the people who dissolved society. It’s really just a few scumbags at the top, in government and law and business and the media and academia.
 
If we could come to understand what’s happened, who has betrayed us, who we can trust, and where we can start rebuilding, that would be the first step toward a new America.    

April 5, 2009

“Subprime Carbon”

 

Friends of the Earth has released a report written by Michelle Chan entitled  Subprime Carbon: Rethinking the World’s Largest New Derivatives Market (report linked  here ). This refers to the securitization of emissions permits and offsets which are the two most common mechanisms in setting up a cap and trade. Carbon trading in general is futures derivative trading. As Chan says, the seller “promises to deliver carbon allowances or credits in a certain quantity, at a certain price, at a specified date”. The market is small now, but according to CFTC commissioner Bart Chilton it could become “the biggest of any derivatives product”.
 
Chan defines subprime carbon as “futures contracts to deliver carbon that carry a relatively high risk of not being fulfilled, and could collapse in value”. These are most likely to come from offset projects, “because sellers can make promises to deliver carbon credits before credits are issued for a project or even before greenhouse gas reductions have been verified”.  
 
As we’ve been learning, large, complex, ill-regulated entities and systems which have a free hand in “innovating” financial instruments are the Typhoid Marys of the globalist economy. All reasonable people agree that our main program here must be to downsize and deconsolidate these entities, unwind their complexity, and severely regulate them so that they never again become so large, so trustified, so complex that they can put this gun to our heads again.
 
So where we propose an extensive new system to impose a carbon price and cap, it seems like a no-brainer that we should do so in a way which does not run against the general definancialization of the economy. It should not provide a new way for financial entities to run ponzi schemes and blow up bubbles.
 
While I’m not writing here to attack the concept of cap and trade in principle, I do think that the specific proposals put forward so far have not been sufficiently active in trying to prevent a carbon bubble. This is the subject of the FoE report.
 
After giving an overview of the financial crisis in general and what must be done to prevent a recurrence, the report delves into how reforms should be applied specifically to a cap and trade. With the entry of finance speculators into the carbon market we’re already seeing all the same things we saw in the last bubble: exaggerated or fraudulent promises, derivation, bundling of “assets” of very different putative values, slice and dice, securitization. This speculation already represents most of the world carbon market – over 70%.  They are asset managers, investment banks, carbon funds. Chan says “two thirds of carbon investment funds were not established to help companies comply with carbon caps, but rather for capital gains purposes”. 
 
This is the reason why the 1990s SO2 trading market does not provide an adequate model. The financialization of any trading market is far more complex. Carbon speculators, especially those involved in “offset aggregation”, the bundling and tranching of offset projects, are generating the same opaque and excessive risk as with previous financial tricks. Chan also sees conflicts of interest, as the same investment bank may be involved in rating projects for offset credits even as it is managing or owning carbon portfolios.
 
These speculators, according to the report, will also drive up prices and render them more volatile. They represent a clear danger to effective mitigation policy and general financial stability. While we want a rational carbon price, we don’t want one artificially inflated beyond what’s reasonable or politically sustainable. Most of all we want a stable carbon price, since the whole point here is to rationally cap and rationally mitigate, and that won’t be possible with the market caroming all over the place.
 
According to Chan, because the carbon market, unlike most other financial markets, is being artificially, politically created*, it is therefore more susceptible to the pitfalls of lobbying and regulatory capture, and therefore needs special insulation from the political system. (So the report also affirms that we need real campaign finance reform.) The primary market will lobby for safety valves and off-ramps, for the creation of more offset assets, and for opacity regarding cap compliance. The secondary market will want all this plus the same old deregulated wasteland where it can generate its “instruments”.      
 
[* ALL markets beyond basic barter economies are artificially and politically created by governments. But it’s a core element of the right wing project to deny this and claim governments hinder markets; that markets can somehow exist without the strong hand of strong government assisting them every step of the way. This is of course a lie.]
 
The report is especially skeptical of carbon offsets, which even in principle are close to being junk carbon, let alone in practice. (Joe Romm and others call them “rip-offsets”.) These are prone to the abuses of:
 
1. Just being out and out scams;
 
2. Claiming inflated emissions reductions – even given good faith on the part of everyone involved, it’s very hard to accurately determine how much carbon remains sunk by e.g. foregoing deforestation of a particular tract (and of course everyone involved has a financial, political, and/or emotional incentive to err on the side of inflation);
 
3. Then there’s the seemingly intractable additionality issue. To deserve and under most policies receive offset credit a carbon-reducing project must be such that it would never have been built except to receive the offset credit. But this is fiendishly difficult to ascertain, since almost nothing is going to have only the carbon-reducing benefit; it will have other uses as well, and how do you prorate the multi-levelled motivations that went into something?
 
This is probably impossible to really figure out, and so those opposed to offsets take this as prime evidence for why we shouldn’t have them at all in government carbon policy, while those who are gung-ho (as a rule those who stand to profit from them) say we should just give up on additionality and give credit to everything.
 
Such a promiscuous offset policy would be a rich feeding ground for financial predators on the hunt for derivation opportunities. The more irresponsible and unaccountable something is in principle, and offsets are certainly dubious, the more readily it can be securitized, since the whole point of the finance scam is to become as unanchored from reality as possible and then really get to work manipulating people’s perceptions. They set up a hall of mirrors where each new image more monstrously distorts the last, and they seek to arbitrage the distortions.
 
All of this, as it burgeons, would spread new securitization throughout the financial system, creating new systemic risk. Then when the inevitable carbon crash comes, we’d have the same kind of reverberation as we have today – in this case, first for the compliance buyers (the actual emitters who needed the underlying allowances), and then on through the general economy. (I imagine under those circumstances the first thing to go would be actually having to comply with the cap.) 
 
All of it – first the risk of it, then the actual crash and economic destruction – would be for the benefit of a handful of FIRE sector cadres. Just as with the current crash.
 
Therefore, Chan says, we must not create the new carbon trading system without robust regulation. FoE recommends a hard cap, quarterly auctions (hopefully frequent enough to limit arbitrage opportunities), a published set price, the limitation of participants to regulated entities and those actually able to emit (Chan compares this to last summer’s anti-speculator proposal that oil futures trading be limited to those physically able to receive delivery), and bans on offsets, secondary market trading, and allowance hoarding.
 
The report gives these basic guidelines for regulation:  
 
1. Carbon must be specifically factored into general Wall St reform. The basic problems are the same. We know “self-regulation” doesn’t work (I can’t resist repeating Willem Buiter’s great line, “Self-regulation is to regulation as self-importance is to importance”), yet carbon traders have already called for it. We also need regulatory coordination, not an easily gamed patchwork. Regulatory gaps need to be closed. Much general reform sentiment is focused on CDSs, yet most carbon trades OTC. So as important as it is to fix the destruction wrought by the CFMA, we also need emphasis on shifting carbon trades from OTC to public exchanges.
 
2. Carbon trading also needs its own specific regulation, which must be dealt with in the carbon legislation. Chan surveys the many carbon-trading legislative proposals, with their attempts to find the right policies and  ways of distributing authority among FERC, EPA, CFTC, SEC. (A problem is proposals which want to give EPA the lead authority over trading. This could be fine if we only have a primary market among the emitters themselves. But the EPA is not set up to deal with any secondary derivatives market among finance speculators.)
 
3. The size and complexity of the trading market must be limited and simple, to foster price stability, keep out speculators as much as possible, and prevent the proliferation of subprime carbon. The goal must be to reduce the space available for a carbon bubble to inflate. Since speculation, derivatives markets, and bubbles are based on perceived arbitrage opportunities, measures that seek a stable price like a firm cap and frequent auctions provide a habitat hostile to this bubbling.
 
(I have to add here, since the entire political and economic elite are looking for nothing but the next bubble opportunity, since that’s the only way they can hope to prop up the debt economy a little longer, for them a report like this must read like an advertisement or how-to manual. They’ll just say they can avoid the “abuses” this time around.)
 
This report gives a good rundown on the potential pitfalls awaiting a carbon policy which bulls ahead without properly safeguarding against its own hijacking by the FIRE trust. Although the report doesn’t go into the underlying stability of the cap and trade concept per se, we can infer that the concept seems inherently vulnerable to this kind of abuse, and that where it comes to any cap and trade legislation, we must be vigilant in scrutinizing its trading setup and safeguards. If these are inadequate, this is sufficient reason to reject the bill.
 
That’s not just a general economic concern abstracted from the core focus of mitigating carbon emissions. On the contrary, the more a carbon trading system becomes the playground of the finance sector, the more it will be hijacked toward the goal of maximizing “trade”, and therefore the less firm the cap will be.  

March 25, 2009

The Bailout War III: Corporatism and Finance

Filed under: Disaster Capitalism, Globalization, Neo-feudalism, Peak Oil — Tags: , , , , , — Russell Bangs @ 4:08 pm

 

(See also the rest of the five-part series)
 
https://attempter.wordpress.com/2009/03/24/the-bailout-war-part-i-aig/
 
https://attempter.wordpress.com/2009/03/24/the-bailout-war-ii-too-big-to-fail/
 
https://attempter.wordpress.com/2009/03/26/the-bailout-war-part-iv-toxic-bank-assets-and-the-bailouts/
 
https://attempter.wordpress.com/2009/03/27/the-bailout-war-v-nationalization-and-relocalization/

 

We are experiencing an attempted corporatist coup. It’s the same old disaster capitalist battle plan: trigger the disaster, in this case the financial crisis; shock, confuse, and frighten the people with Too Big To Fail and an unending litany of miserable economic news; use this chaotic environment to push through a plan which would never have any chance of success if the people could calmly understand and deliberate on it.
 
The finance elite claim to be capitalists seeking a “free market”, but what they really want is a free-fire zone. They want to be free of all government oversight, free of all antitrust, consumer, of labor protection, free of any obstacle to the most predatory and anticompetitive practices, free of environmental regulations, free of any limit on socializing the costs of externalities, free of any regulation aimed at economic stability, free of all social responsibility, and of course free of taxes and anything else which in any way compromises feudal accumulation. At the same time they want the full cooperation and protection of the public bureaucracy, police, courts, prisons, and military, which are all to be deputized in the service of private profit even as they are paid for with public funds.
 
Feudalism masquerades as capitalism, but it seeks rent rather than innovation (though Orwell-style this is called “innovation”, just as swindler “talent” is called talent as such). Banks, insurance companies, and the real estate industry , who together comprise what Michael Hudson calls the FIRE trust, use debt creation not for productive loans or to raise living standards but to inflate bubbles in real estate, stocks and bonds, luxury novelty markets and so on. They concentrate in a trust to enforce a de facto central economic planning power where all losses are socialized. The “free market” function of the FIRE trust is really a fake rentier function, enabled by the government, which shouldn’t exist at all. Corporatism is pure gangsterism.
 
Corporatism as an ideology and an agenda seeks to topple democratic capitalism and replace it with a de facto unaccountable autocratic government which serves as a wealth conveyor from the public to a rentier elite. Elected representatives and public officials are first captured with bribes and threats and then selected for ideology and obedience. A complaisant media cooperates. The result is an industry/government/media cabal which wages a civil war from above, treating the public and the public domain as a mine and a dump.
 
The FIRE trust is based on nothing productive. Rather it manages the production of bubbles and worthless luxury items priced for the consumer through (1) the exponential debt economic model, and (2) Walmartization, which brings only temporary low prices, but permanently destroys local economies and small business and drives the globalist race to gut all labor and environmental regulation. A basic feature of the debt economy is that the worker is disempowered through a divide and conquer process, where just as in any totalitarian society each individual trembles for himself and fears everyone else. In this case each worker trembles for his job since he’s deeply in debt. Thanks to this fear workers are afraid to claim their rights or organize for better conditions, and the result is a steady deterioration of their position.
 
This in turn intensifies the steep, radical, antidemocratic and antisocial concentration of wealth. Since the financialization of the economy in the 1970s, the protion of the national income going to the top 1% of wealth gatherers has more than doubled, while real wages have decreased by 16%. This concentration process ahs become ever more intense in recent years. The public is steadily stripped of all property and power and reduced to serfdom while power and wealth concentrate among an oligarchy.
 
The finance and political elite uses the creation and control of debt, of debt-enabled addiction to sham luxury, privatization, deregulation, destroying social services and protections, setting up barriers against relief in the courts, turning the law itself into the infinitely pliable tool of corporate lawyers, to accumulate and deploy power and wealth. Too Big to Fail and its bailouts, the Global War on Terror and its wars, are nominally administration, not even “American” projects. They’re really private wars waged using hijacked public resources.
 
The corporatist oligarchy, unlike true capitalism, seeks a centrally planned economy. The government taxes the people and borrows in their name, and saddles them with the debt. It then distributes this wealth to the maximum benefit of big industry, according to plans laid out by the finance industry. Today’s Bailout War is just the most brazen and thorough-going manifestation of the standard program. There’s seldom a need for policy conclaves, since the top government officials like Paulson or Geithner almost without exception started out on the private side, and many return after their government service for the industry.
 
So we have an economy run by bankers and captured Fed and Treasury planners rather than democracy. Through deregulation and regulatory neglect they developed an economic anarchy zone where anything went.  The finance industry inhabited this anarchy with increasingly large, ramified, interconnected structures. Hudson calls them grupos after the feudal finance trusts of Pinochet’s Chile. In good Orwellian fashion they called this generation of bubbles and debt “wealth creation”. They used this position to develop a command economy where nothing except at the lowest, smallest level can work except according to the top-down central plan.
 
The basic activity of the FIRE trust is according to Hudson to “make money by creating and selling debt”. The finance industry seeks to inflate bubbles: Asian debt, dot-com, housing. The insurance giant AIG spurred a $30 trillion market in credit default swaps. The basis of this market is not insurance of real assets (a steady, frumpy profit) but betting on derivative paper. The real estate business was no longer based on the real assets of land and house but turned the housing market into a casino whose features were predatory lending, speculators flipping houses, and encouraging Americans to view a house not as a home but as a retirement vehicle (which also, in a vicious circle, politically helped justify and further the shredding of the safety net, placing people ever more at the mercy of this bubble).
 
The origin of corporatism lies in the instability of capitalism itself. According to James Livingston under normal circumstances the finance industry is merely an epiphenomenon, a subsidiary factor within a productive real economy. But the unstable tendency within capitalism is for the proceeds of economic activity to shift toward wealth inequality to the point that there aren’t enough investment outlets for this surplus wealth. Different things can cause this shift. Of course the capitalist always seeks to maximize his profit. As for systemic shift, back in the 20s there was machinery, Taylorism, and monopoly centralization. In recent decades we have modern technology and Hobbesian globalization. The result in both cases is that productivity can be maintained while the economy undergoes a massive shift form wages to profits. With the advent of this surplus, the epiphenomenal finance industry turns into a monster reality. Where there’s too much capital which can’t be productively reinvested, it becomes rent-seeking.
 
[As Livingston points out, this is why tax cuts for the rich in a debt bubble economy can never increase productivity; why trickle-down can never work. It’s because the extra money just seeks an unproductive rent-maximizing investment. It’s just used to further blow up bubbles.]
 
[We also see here the incipience of collapse and Depression. This surplus capital is the result of a systemic shift to greater inequality. Its quest for investment outlets conjures up the FIRE trust. As it blows up bubbles and heats up inflation the finance industry exacerbates wealth inequality. So it’s a vicious circle: inequality -> surplus capital and rise of FIRE trust -> aggravate inequality -> more surplus, ever more concentrated finance action and so on, until: (1) the debt load on the consumer is unsustainable, (2) some proximate cause sets off the crash, (3) overproduction and asset deflation crashes the system.
 
This is the risk and result as disaster capitalism seeks an interior financial frontier where denied an external physical plunder frontier. The late 20s were a hiatus between the heyday of colonial imperialism and the rise of globalist imperialism, while in spite of his best efforts Bush wasn’t able to achieve a sufficient new economic disaster zone in Iraq, even as globalism in its most predatory aspect was starting to be rolled back elsewhere.  
 
In 2008 Peak Oil and energy issues triggered the unravelling. The American suburbanite got simultaneously hit three ways: (1) as commuter, oil supply constriction and speculation over it sent oil and gasoline prices soaring, while biofuel mandates and extreme energy prices were major factors in food price inflation; fuel and food inflation drove general inflation which hit the suburbanite (2) as consumer; and at the same time as he was beleaguered by a higher cost of living and already finding it more difficult to make his mortgage payments, (3) these conditions and higher interest rates triggered the ARMs in those mortgages, and for more and more people it was too much. The defaults started avalanching and the crash was on.]
 
What to do with the surplus? It seeks to inflate a bubble. The proximate bubble can be inflated by just blowing up whatever balloons happen to be laying around – real estate, stocks, toxic paper, overhyped startups. In modern times, the global economy was fully financialized starting in the 70s. It took the form of an exponential debt economy. It was all based on the dollar’s reserve currency status. Now “all previous bubbles [were] folded into a ‘Treasury bubble’ “, as John Bellamy Foster put it. The dollar was the reserve currency; at the same time it floated free of any reality-based anchor once it was detached from gold in 1971; to complete the picture OPEC agreed to require dollars as payment for oil deliveries, and all other market sellers followed.
 
Now the basic pattern was in place. Economic growth was based on exponential debt. Petrodollars sloshed around the world as the financial trusts blew up bubbles wherever they could. Globalization drove the infamous “race to the bottom” for wages, privatization, social spending, labor and environmental regulation (and for that matter public participation, democracy itself). Multinational corporations urged on this downward race while rushing to help inflate the bubbles and, under the auspices of the corporatist-captured World Bank and IMF, rushed as disaster capitalists to exploit any burst bubble or other disaster. All the while the American middle class was placated with a consumer debt binge and flashy worthless technological gadgets, even as its wages and social protections were eroded.
 
Under these conditions where corporatist speculation depends upon inflating and imploding bubbles, triumphs and disasters, surging and crashing prices, volatility became the new normal. Orwell visits us again to coin the term “Great Moderation” for a world of permanent upheaval and tension and instability where the only thing perceived as constant was the disaster capitalist’s uncanny ability to surf the wave of destruction and always come out profitable. (We can place Great Moderation alongside the Washington Consensus, that self-congratulatory affirmation to drown out the cries of rage and pain of millions who most definitely did not “consent”.)
 
But in spite of its soothing, moderate name the exponential debt economy was not only unstable but intrinsically unsustainable. Over the years it experienced a diminishing growth return on debt. $1 of created debt generated a 60 cent rise in GDP back in the 70s. The same real dollar in 2000 generated only 20 cents. The reason exponential debt is in itself unsustainable is because each debt-creating entity reaches its limit where it cannot borrow another cent and must crash at the first margin call. We watched this repeatedly in 2008. So to keep any bubble inflating the players need to appeal to larger entities. This drives the merger and consolidation process, but eventually everything must be enfolded in the Treasury bubble, where the US government is the ponzi schemer, the good name of the US government and its dollar is the bubble, and this debt bubble must run up against the limits of the dollar itself, and there’s no higher body to whom to appeal.
 
That’s the point we’re now reaching. As a nominally private set of structures the FIRE trust bubbled as far as it could. Now it can do nothing but de facto privatize the government and be de facto nationalized by it. Its only other option is terminal collapse.
 
Similarly we the people now face a fork in the road. The scenario I just described is also doomed. The government itself cannot maintain the dollar’s position even as an out-and-out feudal cabal. So the choices are to let them go ahead and continue taking the debt bubble civilization to its extreme, becoming enserfed along the way, and then suffer the complete collapse while going form mere dreary poverty to absolute destitution.
 
Or, we can stop corporatism in its tracks right now, defy the terroristic threats of “Too Big to Fail”, recover our country and what wealth we have left, and use it to guide us through a transformation to a sustainable and just economy and society. And best of all we can do it as a free people.
 

March 21, 2009

Geoengineering and the Carbon Shock

Filed under: Climate Crisis, Disaster Capitalism — Tags: , , , , — Russell Bangs @ 10:23 am

 

As the climate crisis sets in, through ongoing, intensifying weather phenomena as well as a political fact, there’s increasing buzz around seeking a solution, not through mitigation and decreased consumption, but through building the technological Tower of Babel higher. As with energy and the economy, so with the environment mankind remains aggressively delusional. We refuse to recognize that the exponential growth civilizational model is both the source of all our problems and is unsustainable in any event.
 
We refuse to see that the solution, the adaptation to all our predicaments, can only be an organized devolution. Just as they say the finance industry needs to unwind $500 trillion paper worth of derivatives (what they’re actually doing is another matter) in order to become stable, so a ponderously top-heavy civilization must unwind its systemic economic, energy, and environmental positions.
 
But people don’t want to do this. So just as when AIG got in trouble it doubled down with toxic mortgage derivatives, so global civilization seeks to double down on its toxic technological assaults on the environment.
 
Geoengineering is tailor-made for disaster capitalism, which is the only reason I fear that, as crazy and reckless as it is, it might actually be attempted even as all civilian infrastructure rots and the food crisis reaches pandemic levels.
 
With things like agrofuel mandates, the offset industry, and advocacy for alleged cap-and-trade which in practice would fail to impose the cap but which would use the “trade” to try to inflate a carbon bubble, we’re starting to see the outlines of a campaign to enlist climate change policy for profit.
 
So it’s all too plausible that after years of denying, delaying, and obstructing all rational carbon policy, once the climate crisis really becomes branded in the public consciousness by way of permanent drought and ever more frequent extreme weather events, the same cadres who fought sound policy will then take the lead in calling for geoengineering boondoggles.
 
These will never work and won’t be meant to work by their political advocates. They probably won’t be meant to even be completed.
 
But they will be meant to receive massive public funding, almost all of which will be funnelled directly to private profit.
 
That’s what the real purpose of geoengineering would be, if it were ever to be seriously attempted. Just like the vaunted “nuclear renaissance” and the until-recently looming CCS deployment, it would be a corporatist boondoggle, a vehicle for disaster capitalist plunder, this time leeching off the biggest self-created disaster of them all, the climate crisis.
 
Given the way things are going nowadays, where clearly the only way to temporarily prop up the corpse of the debt economy is to reflate the old bubble or find a new one to inflate, whenever I look at any large-scale idea I can’t help asking, Can they turn this into a bubble?
 
There’s already the well-established fear of cap-and-trade being used this way. Perhaps the geoengineering concept can be put to the same purpose.
 
For example, I haven’t yet heard the suggestion that geoengineering expenditure, even at the think tank level, should qualify as an “offset”, but I have no doubt that’s coming. Once the people are sufficiently convinced of the climate peril that we do get an intensive policy, which will no doubt center on trading in carbon permits, offsets, IPOs from tech startups touting every imaginable climate fix from free energy to swaddling the earth in space panels, and in derivatives of all these pieces of paper, we’ll then be all set for a new kind of CDS: climate disaster swaps.
 
(This picture is still hazy for now, but we can see the outlines of the carbon bubble. Policy advocates say all this can be easily prevented. I hope so, but we’ve seen how well regulation worked in the past.)
 
The environmental objection to geoengineering is the same as it’s always been: the precautionary principle. The geoengineering boosters themselves acknowledge the obvious dangers. Just the concept of atmospheric sulphate injections threatens to eradicate the ozone layer and create fallout as health-crushing acid rain. Other ideas hold the menace of generating oceanic dead zones. Then there’s the fear of addicting the climate system to an artificial fix which could never be withdrawn without triggering a cataclysmic heating spike (though to some of these engineers the sheer artificiality of this enslavement probably sounds cool).
And yet we still have no idea that these wouldn’t be just the tip of the iceberg. On the contrary, given the historical record of environmental reverberations, precaution forces us to assume the unforeseen effects of such an intervention in the global ecosystem would dwarf the foreseeable ones, which are horrific enough.
 
We are basically in a species civil war over two ways of conceiving and acting upon our gaiacidal rapacity. One is to repent, pull back from the brink, devolve consumption and the machine, and learn to seek happiness and love rather than gluttony and violence.
 
The other is to continue the onslaught. This includes all Tower of Babel technofixes which try to have it all, rampant consumption bathed in a “green” gaslight.
 
Agrofuels, GMOs, geoengineering. Three (engineered) peas in a pod. These are three absolute threats to the ecological and human future.
 
Just as with agrofuels and GMOs the green and humanitarian talk is just talk, so it is with geoengineering. The real projects will of course be so large and require so much up-front capitalization that massive public monies will be needed to get them off the ground. (If, as their advocates claim, sulphate injections or cloud-brightening are actually relatively inexpensive, then you can bet they’ll either be massively porked up, or they won’t become the projects of choice. Instead policy-makers will choose to fund a solar panel girdle around the earth or some such nonsense. There’s a reason Detroit favored SUVs over small sedans, and it wasn’t because SUVs ever served any practical purpose.)
 
Then there’s the likelihood that geoengineering research will be co-opted for military ends. Indeed, the War Department is currently involved in such research. Wanting to use weather modification for military purposes has been the main driver of all government meteorological research funding since the fifties. Deep down all they’ve ever wanted to do is build a weather machine.
 
So here as elsewhere we see the carbon shock taking shape: the crisis will be used to prop up the zombie debt civilization with new derivatives and startup bubbles, as a pretext for the redistribution of wealth from the public to large private structures, and for the development of new weapons.
 
Geoengineering is an idea with this future, if it has any future at all.
 
Having said all that, I’ll try to end on an optimistic note. Luckily, the scheme is so top-heavy, requires such a large fossil fuel platform, and would require such extravagant initial capital outlays, that with the world economy steadily eroding and Peak Oil at the door, it might not be physically or economically possible to make any real attempt at it.   
 

March 20, 2009

Carbon Shock

Filed under: Climate Crisis, Corporatism, Disaster Capitalism, Globalization — Tags: , , — Russell Bangs @ 8:54 am
If it’s true that disaster capitalism is the practice of swooping in upon the victims of some catastrophe to impose through “shock treatment” (Milton Friedman’s own term) the predatory corporatist and neo-feudalist regime they could never achieve by democratic means, then its most extreme and logical manifestation is where you artificially manufacture the disaster with the intent of using it to impose this regime.
 
Just as we’ve seen precisely that with resource imperialism, the “Green” revolution, petrodollar recycling, Cold War proxy wars, the drug war, and other gambits, so now we’re starting to see the outlines of a carbon war.
 
1. The West has already emitted to the point that the climate crisis is upon us, and shows no signs of mitigation.
 
2. The globalization cabal, through programs like the so-called Clean Development Mechanism, claims to be seeking mitigation but is actually funding further carbon-intensive development, like the largest coal-fired plants on earth in India.
 
3. While the rich West (and other high-emission free riders) clearly has an moral obligation to pay for adaptation measures in the poor countries being hit by the climate crisis, it is instead seizing the opportunity for the standard globalist predatory lending, which loans are always intended to be the lever to indenture the country and loot its resources and labor.
 
4. Although we still have the old-style denier guttersnipes with us, clearly the sophisticated exploiter view of climate change is that propagated by Lomborg and others, that the best way to deal with it is to “help” the world adapt to it, while “helping” them to industrialize themselves. Once all that’s achieved, only then, through some kind of invisible hand, the world will together mitigate emissions, and everything will be fine.
 
But until then, nothing special regarding emissions should be done. Just the adaptation/industrialization program, which sounds suspiciously like the latest repackaging of the same globalist offensive. You can see how well this dovetails with the World Bank program.
 
5. Similarly, there’s an attempt among policy advocates to impose a top-down consensus that “offsets” must be an important part of any climate policy. Whether these are preached as intrinsically good (e.g. many politicians and some enviros) or as a necessary political evil (most enviros), the result is the same – a gambit which counteracts mitigation in the industrial countries while helping pry open the privatization door in the non-industrialized (and probably doing little or nothing to mitigate there either).
 
6. Finally, we can only speculate on how precisely the malefactors of finance will try to use carbon permit trading (where again, a top-down imposition of “consensus” is being sought among mainstream environmentalism) to inflate a new paper bubble.
What is not a matter for speculation is the fact  (A) that they will attempt it, and (B) that the government will fully support such a bubble.
 
[All government monetary and most fiscal policy at this point, as well as almost all commentary, is overwhelmingly focused on just one thing: how to inflate another bubble, since the debt/growth ponzi system cannot survive without it. It really should be called a “bubble economy”, and indeed a bubble society.
 
Right now their preferred goal and conscious policy is to try to reinflate the housing bubble. Thus we have all the focus on trying to “stabilize” the still-inflated housing prices, and send them rising again, when clearly housing prices are seeking a reality-based level and still have a ways to go.
 
But they’ll certainly happily grab hold of any opportunity that comes along. So we can expect permit trading to become a central part of the fray. But it won’t work if a rigorous cap is truly enforced. So we can expect ever-more ramified trading, as caps become ever-more gossamer.]
 
Add this manifestation of the growth imperative to the globalist gambit outlined above, and we have the outlines of a carbon class war from above, at home and abroad, on the people and the earth.