August 17, 2009

Health Reform Fight (3 Of 3)

Filed under: Civil Disobedience, Health Racket Bailout, Neo-feudalism — Tags: — Russ @ 2:52 pm
We now come to the self-directed action of defaulting on debt.
The idea that any individual should feel morally committed to this system, e.g. paying alleged “debts” the system forced upon him, is both misguided and self-enslaving, and it’s exactly what the gangsters want people to think. That’s why this kind of social indoctrination exists.
But the facts are:

1. As everyone knows, the elites feel no such scruples or moral obligations. Every bank, every corporation, feels it has an absolute right to be bailed out by taxpayer money, but that it does not incur any social obligations in return. It is entitled to continue with predatory, sociopathic, destructive behavior, both while it is a direct ward of the state and of course after it has gone through the charade of “paying back” a small portion of the public money it stole and continues to steal. (The TARP, which some of them have “paid back” with such fanfare, is only a small portion of the loot conveyance.)

The government approves of this practice.

2. Meanwhile the system has been set up to encourage and basically require that the individual become a “consumer” and go into debt. The brainwashing starts in school and continues all our lives, as the public media is for all intents and purposes a shrieking advertising agency. That goes to the brainwashing which drives people into so-called “voluntary” consumer behavior.

3. More importantly, much of the debt load is not voluntary by any measure. The system is set up to be as high-maintenance as possible. It’s set up to require you drive a car. It’s set up to require a college “education”, which for most is just an astronomically expensive careerist hoop to jump through. It’s set up to drive housing and land prices out of reach other than through debt indenture. It requires a panoply of electronic devices in order to be socially functional: PC with internet connection, cell phone, perhaps a blackberry or twitter or some other such implements. Since economic concentration pressures make it next to impossible to function as a low-overhead small business, the would-be entrepreneur is forced to go into debt to capitalize his business attempt.

All of this is intended to impose social control.

Anyone who understands this whole dynamic understands how the individual has been coerced into it, and how he is not morally responsible for these system debts.

(Of course we’re not talking about borrowing money from a friend in an emergency and then refusing to pay him back. That always has been and always will be despicable.)

So these kinds of defaults are a form of civil disobedience, monkeywrenching. (Perhaps many of the individuals involved don’t really deserve to be called rebels are far as their intent goes. I don’t doubt many of them were selfish enough, the type who willingly binged beyond their means. It’s unfortunate that many of them can get a moral free ride if decent involuntary defaulters really proliferate. Or if such decent people are smeared by association with the irresponsible.  But what’s important here is the overall structural result.)

There’s a really good piece by Michael Hudson from last February, Bubble Economy 2.0.

I still think it’s the best single piece I’ve read on this crisis.

The part that’s relevant for this discussion is how Hudson describes talking to a banker who had an epiphany:


The officials drawn from Wall Street who now control of the Treasury and Federal Reserve repeat the right-wing Big Lie: Poor “subprime families” have brought the system down, exploiting the rich by trying to ape their betters and live beyond their means. Taking out subprime loans and not revealing their actual ability to pay, the NINJA poor (no income, no job, no audit) signed up to obtain “liars’ loans” as no-documentation Alt-A loans are called in the financial junk-paper trade.
I learned the reality a few years ago in London, talking to a commercial banker. “We’ve had an intellectual breakthrough,” he said. “It’s changed our credit philosophy.”

“What is it?” I asked, imagining that he was about to come out with yet a new magical mathematics formula?

“The poor are honest,” he said, accompanying his words with his jaw dropping open as if to say, “Who would have guessed?”

The meaning was clear enough. The poor pay their debts as a matter of honor, even at great personal sacrifice and what today’s neoliberal Chicago School language would call uneconomic behavior. Unlike Donald Trump, they are less likely to walk away from their homes when market prices sink below the mortgage level. This sociological gullibility does not make economic sense, but reflects a group morality that has made them rich pickings for predatory lenders such as Countrywide, Wachovia and Citibank. So it’s not the “lying poor.” It’s the banksters’ fault after all!

In other words the poor are saps to submit to a practice and a morality which the elite never believed in and would never practice, but which they do seek to promulgate among the masses.

It’s a modern version of the ancient pious lie.

And now we may also have to extend this attitude of disobedience to health care. There’s been a lot of propaganda in the MSM about how many among the uninsured are “free riders”. Whether or not this is ever true, we must reply that no amount of individuals could ever add up to the free riding, rent-seeking, corporate welfare-glomming private insurance parasite, the feudal drug industry, and the fee for service provider model.
These epitomize non-value-adding, non-innovating parasitic rackets, which can use captive markets and government-bestowed privilege to jack up prices upon the public, way beyond any legitimate capitalist level.
The definition of reform is to rein in the rent-seeking of providers and the big drug pushers, and to break the private insurance parasite completely. Only a reform program which would do this would have any authority to mandate that individuals pay into the system. The only way this could legitimately be done is through taxes for a public program.
But the anti-reform concept of mandating individuals to pay into a private feudal protection racket is, on its face, unconstitutional and tyrannical. It is a form of poll tax. No one has any obligation to comply with it.
On the contrary, it is those who would try to demand this, who would seek to further corporate depredation under the guise of reform, who would act illegally and immorally. They are traitors to the reform ideal.
(Also, on a practical level, no one should believe the lies about such a program being subsidized for those who can’t afford it. That’s not what’s happening in Massachusetts. We can only imagine the nightmares which will ensue if, solely for the sake of corporatist ideology, the Democrats try to complexify the system and render it far more complex, with a tyrannical mandate, for one reason and one reason only: to prop up and add to the profits of a handful of criminals.)
So if Obama and the Democrats betray their promise of reform and turn it into yet another assault on the weakest and poorest among the people, the people have the right to defend themselves, including by systematically, as a group, becoming these “free riders” they keep being called they are.
People are willing to pay their fair share. But how can you pay your fair share when the price is jacked up to obscenely unfair levels by gangsters with the connivance of the government? And when you have no job or a job which fails to pay a living wage because of the rapacity of the bosses, again assisted by every government policy?
No, “the uninsured” are an artificial creation of the government, because it has abdicated its responsibility to ensure decent basic health care for all citizens. Those in the establishment will have a right to tax the people for publicly established care. They have no right to act as hired goons while a racket imposes a private tax on those already victimized.
And these victims have no responsibility or obligation to comply.
I’d like to wrap up with one general observation on political organization. We true reformers know we must find an alternative to the existing political system. The basic idea is a new reform movement, probably arising organically, originally in a decentralized manner, although if it is to have any impact it will have to achieve cohesion and discipline. (Just look at the Democrat varieties of these.)
One way these movements sometimes start out is as single-issue movements. If the people are angry, fearful, but also ready to be inspired, where it comes to an issue, this can be the pivot upon which a broader, lasting movement comes together.
Last year there was lots of talk about what Obama was going to do with the grassroots organization which carried him to victory. Overly optimistic people assumed he would reorganize it as a pro-reform pressure group outside the Washington structure. (How sad to think about that now, what could’ve been…) Others thought, that group will keep Obama honest, force him to follow through on his promises. No such luck there either.
But we shouldn’t lose sight of how this could have worked. Perhaps the same model can be built up around some campaign, issue or electoral (though 2012 is a long way off..), and next time hopefully the participants won’t make the mistake of following a “leader” outside and as it were above themselves, who can just lie and manipulate and betray like Obama. Next time the movement should be clear from the start that it is self-directed.
This can probably best be done with an issue like health care, especially where every element among the power structure is so clearly bent on betrayal and crushing reform even as they blaspheme the word.

March 25, 2009

The Bailout War III: Corporatism and Finance


(See also the rest of the five-part series)


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 24, 2009

The Bailout War I: AIG


(See also the rest of the five-part series)


As the administration releases the details of the latest version of the same old bailout pan, the furor over AIG continues to sound. With this first in a series of posts on the bailouts I want to present a basic depiction of AIG as the most typical of the corporate players in this crisis.
As innovator and as model AIG was the prototypical and core practicioner. It led the deregulatory charge. It was the ultimate buccaneer under Bush. It was the first to totter, the first to suffer a “systemic” meltdown, and was the real occasion for the foisting of Too Big To Fail on the public. It set the whole bailout program in motion. Every step of the way it was both one of the key players and the catalyst for the whole vicious system.
In a phrase which has spontaneously occurred to so many of us, AIG has been “ground zero for the practices which led the financial system to ruin” (this is the formulation of NYT columnist Joe Nocera). Nocera goes on to admit AIG was the starting point for the TBTF ideology: “The company is being kept alive precisely because it behaved so badly.” In a joint statement the Treasury and Fed, if not quite so morally honest, made the same point in defending the bailouts: “additional resources will help stabilize the company, and in doing so help stabilize the financial system”. Ben Bernanke was more menacing: “We have no choice but to stabilize [AIG] or else risk enormous impact, not just in the financial system but on the whole US economy”.
What is this uncanny operation? AIG was one of the world’s prestigious companies, proud bearer of a AAA rating, pillar of a respected industry. What went wrong, such that the name AIG is now mud, and this industry is reviled as the “FIRE trust”, as Michael Hudson put it in a typical formulation?
The basic answer is that AIG sold out its original business to become a deranged casino bettor. In furtherance of greed, ideology, and the apparent will to be reckless just for the thrill of it, AIG was at the core of an industry-wide anti-regulatory, anti-rule of law campaign. From 1990-2008 AIG contributed $9.3 million evenly among both sides of the Washington system, and spent another $70 million lobbying them. This modest amount bought a lot of anarchy, and by 2001 AIG had helped carve out a vast quarry of lawlessness to mine the structural and moral integrity of the system. To properly mix my metaphors, it was in this lawless space that AIG was able to set the charges which now threaten to blow the economy sky-high.
Although its practices weren’t uncommon, no one’s actions were so vast and reckless. Now as we stagger about the ruins of the finance world we keep receiving economic death threats: unless AIG, already one of the ultimate welfare recipients in American history (and perhaps the most contemptuously ungrateful), continues to receive ransom payments, it will destroy the American and global economy completely. (Nor is this just rhetoric, apparently. The NYT’s Andrew Sorkin, among others, has written that he believes AIG cadres, if not paid protection money, will intentionally crash the economy.) People are getting angry. Political and MSM apologists for AIG have had the nerve to criticize the public for its anger. But it’s AIG and its political, regulatory, and media enablers who have destroyed it, and who now threaten to bring down the whole system. It is they who are to blame for any level of public rage and direct action.
AIG was, a Tom Friedman put it, running “an unregulated hedge fund inside a AAA-rated insurance company”. It leveraged the moral authority of a AAA rating to get that rating conferred on the derivative paper chase as well. AIG and the banks conspired using “quant” phantasmagoria and this AAA tranche scam to evade regulation, to the point they could claim (plausibly, to those predisposed to coddle them) they didn’t need regulation at all.
AIG was involved in many unsound speculative activities, both recklessly leveraging itself and enabling the reckless leverage of every other player. But the core of its adventure was its credit default swap business. Banks and others holding mortgage-backed securities and collateralized debt obligations and god knows what else were keen to buy “insurance” on the value of these things. Eventually AIG wrote some $500 billion worth of this pseudo-insurance, providing the template for a $30 trillion build-up and eventual unravelling. In theory a CDS sounds like a good idea – a hedge against an adverse change in a changeably valued security. But under AIG the CDS had more lucrative, and dangerous, uses.
The first ulterior application was to enable banks to evade reserve requirements. This was an innovation of JP Morgan, and it seems CDSs were invented in the first place with this goal in mind. Having bought this insurance on their speculations, banks claimed they were no longer exposed to risk, and regulators acquiesced. Meanwhile, even as the banks said AIG was an insurer, AIG itself told those same regulators it was not, and they also agreed to this. Thus both AIG and the banks were let off the regulatory hook upon mutually exclusive rationales. This was the beginning of the lawless environment where the CDS nightmare was elaborated.
One of the key anti-regulatory goals the industry had was achieved in 2000 with the Commodity Futures Modernization Act, which declared CDSs off limits to regulators. Now the frontier really opened up. Joe Cassano, the head of AIG Financial Products, introduced several innovations. It became possible to place CDS bets with little or no collateral. AIG itself took the lead in betting monumental sums it could never possibly pay off. There was also an explosion of pure gambling, as buyers and sellers placed bets on underlying assets neither of them owned. The seller could take book on the same “naked” bet with any number of bettors. By multiplying “insurance” on the same risk, AIG was betting ever more ponderously vs. systemic risk, even as its very action was increasing that risk. This is the opposite of sound insurance practice. “They just bet massively long on the housing market”, an industry insider told Matt Taibbi of Rolling Stone.
Everyone was in on the CDS/MBS scam. Banks could shift risk and get out from under reserve requirements, while the AAA rating bestowed by AIG’s touch rendered the derivatives more lucrative. AIG collected the premiums. It could charge more by writing “collateral triggers” into its contracts, such that if the rating of AIG or the underlying securities were ever downgraded they’d have to post more collateral.
AIG knew it would quickly become insolvent the moment anything went wrong. The two factors which drove them on were greed and the ideological dogma that the housing market, and therefore the value of MBSs and CDOs, could only go up forever, and therefore the CDSs would never have to pay off. They regarded their own AAA rating as a law of nature, theirs by divine right.
This was the core theology of the whole finance bubble, of every finance bubble, of the bubble economy and society we now have. (That’s why we watch the administration continue to flail about trying to figure out a way to magically restore value to these derivatives, and beyond this to reflate the housing bubble. That’s the only idea they have, the only idea they could possibly have, since the American economy no longer has any basis other than bubbles. There’s no longer a stable foundation, only despair punctuated by gold rushes. Boom and bust.)
Nocera quotes former AIG exec Robert Arvanitis on AIG’s self-perception: “They never thought of it as abuse. They thought of themselves as satisfying their customers.” This is quite right. From the point of view of AIG, of TBTF, and of big capitalism in general, your only responsibilities are to yourself and (maybe) to your customers. The public, the public domain and public property, are just resources to be mined.
The CDS phenomenon was exemplary of the financialization of the global economy as a whole going back to the 70s. These practices, and the overarching economic structure, are not conventional value-adding capitalism at all, but simple atavistic rent-seeking. The deregulation-enabled casino capitalism which reached its frenetic pinnacle over the last decade, and which now through the bailout/loot conveyance seeks new avenues of plunder, has been history’s greatest manifestation of corporatism, not capitalism.
AIG began to unravel even before the housing bubble burst. As a result of its slovenly accounting culture, its rating was downgraded in 2005. In defiance of the eternal bubble dogma, this set off many of the collateral triggers. AIG responded by accelerating the writing of CDSs (in effect trying to “make it up on volume”). But soon its position deteriorated. It was bleeding red ink and in 9/08, facing another downgrade and another round of collateral calls, it couldn’t hang on. Big tough guy AIG cried for Mommy.
It was AIG’s interconnection with so many big financial players, in particular Goldman Sachs, which decided for Goldman cadre Henry Paulson that AIG had to be propped up with taxpayer money.The Bear Stearns failure was ad hoc and small enough to be dealt with summarily. Fannie Mae and Freddie Mac were formally public-private and therefore also considered atypical. Lehman was unloved and at any rate still considered an isolated failure.
But unlike in the case of Lehman, Goldman had a $20 billion exposure to AIG’s swaps. They were the most important of many big counterparties to AIG’s bets. Beyond this loomed the prospect of systemic collapse, given AIG’s myriad positions in the global economy. While Goldman and its gigantic colleagues, including several foreign banks, were paramount in Paulson’s calculations, he was able to whitewash his policy by citing AIG’s legitimate insurance business, all the individual policyholders, pensions, money markets, municipalities and so on who would be affected by an AIG collapse. As Taibbi put it, “the AIG bailout, in effect, was Goldman [Paulson] bailing out Goldman”. Or Nocera again: “the bailout of AIG is really a bailout of its trading partners”.
Paulson now invoked the specter of TBTF, and its counterpart Too Interconnected To Fail. he made no mention of AIG’s fat counterparties. The MSM, befuddled and credulous as always, and panicked by the stock market, was ready and eager to listen and obey. TBTF was now enshrined. Paulson and Bernanke were able to sound their call of “Stampede!”, everyone stampeded, and without even thinking about it we were locked into this “bailout” death march which looks more and more to be permanent.
At the time no mention was made that the main purpose of the AIG bailout was to launder taxpayer money to many of the same banks who were receiving direct conveyances through TARP. This double-dipping was treated as a national secret for six months by AIG and by both administrations until AIG finally had to cave in and release the names in March. This came after four AIG bailouts and counting. There’s no end in sight, nor does anyone in power have any concept of what an “end” might be, unless it is to be a permanent corporate welfare state for the finance industry.
So much for AIG’s historical role. It only remains for me to make a few comments on AIG’s character. AIG has long had a reputation for arrogance, loutishness, and a sense of entitlement. Now during the bailout we have seen these traits taken to psychopathic extremes.
When the lead architect of destruction Cassano was finally forced out early in 2008, he was kept on the books as a “consultant” at $1 million a month, where he would still be today if political pressure hadn’t forced them to drop him completely. There has been no explanation for why they kept paying him, any more than there can be an explanation for why anyone at AIG or any of these banks could ever think he or anyone else deserves a bonus. It can only be described in terms of psychopathy.  
Being installed as the new bailout-era CEO, Edward Liddy declared his first priority would be to renegotiate the terms of the bailout to AIG’s advantage and the public’s disadvantage. He has been successful, with each subsequent bailout delivering more money to AIG at ever better terms for AIG and ever worse terms for the public, while rolling back the taxpayer protections of the previous bailouts. According to competitors, AIG has been leveraging its privileged position as a welfare queen to undercut competitors on premium rates. It can afford to do this since its existence, and lavish pay for its executives, is guaranteed by the federal government.
AIG was the first and the worst in the long line of miscreants among bailout recipients caught partying with taxpayer money at gilded age corporate “retreats”. It has been absolutely incorrigible regarding bonuses. It it now using taxpayer money to sue the taxpayers demanding a tax refund related to its offshore activities (themselves a evasion of American taxes) and the very accounting snafu which triggered its downfall in the first place.
It also recently circulated a veritable terrorist manifesto depicting in garish detail the economic horrors which would allegedly ensue if the bailouts don’t keep rolling in (and, implicitly, if anyone dares to question their executive pay). Thus they again take the lead, in waving the bloody flag of Too Big To Fail. (Getting back to Sorkin’s claim that AIG cadres, unless paid off, will go elsewhere and seek revenge upon the American economy while profiting from its destruction, and the contention that we need to pay protection to “retain” these people: if this is true, why are we giving them a choice at all? If this is a ticking time bomb scenario, and only the bomber can defuse the charge, would you coddle and beg him, and let him leave if he feels like it? Wouldn’t you make him defuse it, one way or another?)  
In all of these cases when criticized AIG’s gut response has been defiance and contempt, and only under extreme duress have they ever changed their behavior. They clearly hate and despise the taxpayer whose largesse keeps them alive, and their favorite act is to laugh at the taxpayer. No doubt the very fact that they’re partying with taxpayer money provides a special titillation for them.
A word about AIG’s other holdings, which they’re now trying to sell off. In themselves these are typical. Ski resorts and soccer sponsorships: luxury items. International Lease Finance – large-scale airlines are another unviable, propped-up industry, now definitely doomed by Peak Oil. AIG owns or manages real estate holdings in 50+ countries. Here too they’re a major player in the FIRE trust. So we see how in their diversifications as well AIG is a top-heavy, unconstructive, counterproductive force wrecking civilization.
AIG’s efforts to sell off these things have been getting harder as they and the administration have seemed to connive at trashing the brand name and everything connected to it. AIG says the government will provide “backstop financing” for buyers in this asset selloff. (The government has been backstopping a lot lately ever since it backstopped the Bear purchase.) So here too it’s bailouts and lemon socialism for everyone. The buyer gets to buy cheap, and on the taxpayer dime, while AIG gets another disguised bailout.
This is above all a morality play. AIG is a simple acronym which stands for the turpitude of an ideology, an industry, a mode of organizing the economy, a way to arrange the priorities and practices of government and society. It stands for the complete failure of all of these, on rational, practical, and moral grounds. AIG and its CDS practice were not features of capitalism, but exemplary of the rentier character of the FIRE trust which has taken control of the world economy. America became entranced by the delusion of an ideology and faith in a business practice. When this ideology proved false and the practice failed, America was then terrorized with the specter of a complete economic collapse.
So now the people live under a double despair. They watch the economy unravel and their dreams for the future vaporize, even as they are terrorized with the threat that things will get far worse if they don’t meekly consent to the complete looting of the country in the form of a Bailout War, a class war from above, a war by the elites on the people. Thus the people come closer to serfdom with every passing day.
That’s why I regard the public outrage over the AIG bonuses as a positive sign. Whether or not the proximate cause warranted the rage, the rage itself is warranted and long overdue. AIG, by providing such a clear example of capital crime, easy to understand, and yet clearly indicative of the deepest, most fundamental truths, has ironically provided the occasion for the public to “leverage” its hitherto inchoate anger and confusion.
That the MSM and the administration have largely responded with disdainful lectures and demands for obedience to power just shows the bad faith of the administration and the craven, corrupted fecklessness of the media.
Let’s hope the public has the will to continue its education, to become more active rather than less, to maintain their anger and convert it to activist passion, toward organizing against this theft of our country, this theft of our future. It’s completely in the people’s hands, to let the crimes continue, or to put an end to them, take back the country, and rebuild the future.
http://www.globalresearch.ca/index.php?context=va&aid=12265 michael hudson