Socialism For The Rich.OR How Roubini WAS Right...

Gore Vidal writing in the 1980's made the observation that Reagonomics was nothing more than the expression in policy terms of the fact that

"The US government prefers that public money go not to the people but to big business. The result is a unique society in which we have free enterprise for the poor and socialism for the rich."

This insight has been impossible not to recollect this week following the nationalisation of American International Group, the world's biggest insurer, immediately following the dramatic rescue of the Fannie Mae and Freddie Mac housing companies and of the Bear Stearns bank.Robert Reich's described the process as 'socialised capitalism' . It has reached an astonishing new height with the announcement by the Fed, hurriedly backed by a thoroughly spooked Congress, and White House, that it would in effect underwrite the entire creaking US financial system to a tune of $1 trillion, thats a $1000 billion to you and me, courtesy of an increase in the US national debt, which of course is ultimately serviced by the US taxpayer.
"Gains privatised and losses socialised" was the more pointed comment by Nouriel Roubini Professor of economics at the Stern School in New York University. Professor Roubini is known in the economics trade as a "permabear" because of his repeated claims over the last six years that a financial system based on self-regulation, non-deposits, highly leveraged subprime housing debts and globalised derivatives trading was unsustainable and would collapse.

Roubini argues that the AIG should have been bankrupted rather than nationalised, and the $85 billion of taxpayers' money loaned to the firm could have been used instead for debtor-in-possession financing. This would have allowed for a more fair process for allocating losses between shareholders and short-term and long-term creditors of the firm. Nationalisations like this are prejudiced in favour of those responsible for the trouble in the first place.He is scathing about the Bush administration's actions. In RGE (Roubini Global Economics) Monitor, he wrote: "Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don't run the biggest economy in the world. But these laissez-faire voodoo-economics zealots in charge of the USA have now caused the biggest financial crisis since the Great Depression and the nastiest economic crisis in decades.

"So let them be shamed in public for their hypocrisy and zealotry that has caused so much financial and economic damage."

Roubini appears to be underwhelmed by the Feds bail out however, writing on the 19/9/08 in RGE Monitor he said

""At this point a severe recession is unavoidable; the only question is how severe and protracted it will be. Debt reduction and public recapitalization of banks will not instantly resolve every problem and will not prevent a painful recession that – at this point – will last at least 18 month."

NB Roubini predicted this crisis as long ago as September 2006- See here-http://www.alternet.org/story/95375/meet_the_economist_who_thinks_we%27re_doomed/

AIG May Be Bailed Out- But the World Financial Crisis Will Remain Profound

As I write there has been a last minute deal to save huge American Insurance giant AIG..but whether or not this lifebelt is thrown will rely on whether the Fed considers AIG to be of such systemic significance that it can not be allowed to go to the wall, unlike the unfortunate Lehman Bros. Its interesting how what would probably be the home of the most wide eyed fanatical adherents of the all powerful 'invisible hand of the market' are now having their bacon saved by the intervention of the much derided US state. The same state that is viciously derided for its interference in free market forces by the right wing media pundits and talking heads representing the 'investing community' or the financial services sector when it regulates and controls the excesses of greed which capitalism seems inevitably drawn to. The same state is now cast in the role of hero as it spends tax payers money to save the hides of the formerly much vaunted 'masters of the universe'.
This impressive analysis by Ann Pettifor of Open democracy provides an insightful examination of what are the roots of this crisis and goes beyond the immediate hoo-hah surrounding Lehmans or AIG, it is well worth taking time to read...

"The collapse of Lehman Brothers and the forced sale of Merrill Lynch which took shape over the weekend of 13-14 September 2008 have confirmed the scale and gravity of the global financial crisis. The difficulties at the insurance company AIG are a glimpse that there is more to come. But the extent of the wreckage makes it ever more important to analyse correctly what has gone wrong. For just as a faulty medical diagnosis can harm the patient, so a flawed economic diagnosis can lead to wrong conclusions and bad solutions.
Ann Pettifor is executive director of Advocacy International. In the 1990s she helped design and lead the international campaign Jubilee 2000. She is editor of The Real World Economic Outlook (Palgrave, 2003) and author of The Coming First World Debt Crisis (Palgrave, 2006)Also by Ann Pettifor on openDemocracy: "The coming first world debt crisis" (1 September 2003)"Ethiopia: the price of indifference" (19 February 2004)"Gleneagles, 7/7 and Africa" (4 July 2006)"Debtonation: how globalisation dies" (15 August 2007)"Globalisation: sleepwalking to disaster" (11 December 2007)"The G8 in a global mess: 1920s and 1980s lessons" (7 July 2008)In this respect, orthodox economists continue to be part of the problem that Lehman Brothers and Merrill Lynch (and, before them, Northern Rock, Bear Stearns, and Fannie Mae and Freddie Mac) represent. For so long they turned a blind eye to the finance sector, to privatised credit-creation and its role in fuelling asset-bubbles. In so doing they revealed their inability to predict, understand or offer solutions to a consuming crisis.
This article looks at how such failures took hold in the context of the deregulated global financial system of the 2000s, and why the predicted collapse of this system begins in the United States.
The deregulated economy
The former chairman of the Federal Reserve in the United States, Alan Greenspan, has himself said that what is happening to Lehman Brothers and Merrill Lynch is a "once-in-a-century" event. Yet the way many orthodox economists characterise Greenspan's own role in the global "debtonation" of the post-9 August 2007 era reveals how far they remain trapped in the rituals of evasion (see "Debtonation: how globalisation dies", 15 August 2007).
The key argument these economists make here is that the current crisis has been caused by the low interest-rate monetary policy Greenspan presided over after 2001. This case permits a twofold diversion - for it pins the blame for the crisis on interest rates (not deregulation of credit-creation) and on central bankers (not the private-finance sector). The policy implications of this focus neatly avoid proposals for what is clearly and urgently required: re-regulation of the finance sector.
But the argument that makes interest-rates a fundamental cause of the crisis is wrong even in its own terms - not least as it can lead to a recommendation that higher interest-rates are a way out of the mess. The crisis facing banks and individuals - indeed whole economies - buried under mountains of debt and threatened by an intractable deflation makes this a truly deranged proposal.
The phenomenon of "deleveraging" as a way of managing these mountains of debt helps explain why. Deleveraging means paying off (or more accurately writing off) the crazy amounts borrowed on the back of tiny amounts of real money - say the $1 million borrowed (or leveraged) on the back of $1,000 of sound collateral; deleveraging that debt would entail paying off / writing off $999,000. The inevitable result in many cases is bankruptcy, part of a wider deflationary momentum in the economy.
Debtors of all kinds - official, corporate, individual - are already struggling to repay at the current high real rates of interest. That is the core element of the debt crisis (or "credit-crunch"). To prescribe higher interest-rates would turn crisis for many individuals, companies and banks into catastrophe.
Also in openDemocracy on the global financial crisis of 2007-08:Saskia Sassen, "Globalisation, the state and the democratic deficit" (18 July 2007)Christopher Harvie, "Gordon Brown vs Scotland: the balance-sheet" (17 September 2007)Tony Curzon Price, "Gordon Brown: between rock and hard place" (18 September 2007)Robert Wade, "The financial crisis: burst bubble, frayed model" (1 October 2007)Avinash D Persaud, "The dollar standard: (only the) beginning of the end" (5 December 2007)Fred Halliday, "Sovereign Wealth Funds: power vs principle" (5 March 2008)Tony Curzon Price, "Lehman: technocrats' endgame" (15 September 2008)Here, the context of Alan Greenspan's post-2001 role is relevant in understanding the global economy then and now. For his policy of lowering interest-rates was a reaction to the bursting of the dot.com-bubble - which, like the property-bubble which burst in 2007, was fuelled and inflated by easy, unregulated and privatised credit-creation. Moreover, these low interest-rates in the early years of the 21st century were more a function of the new global capital markets than of the powers of central bankers to set low rates.
The result of deregulation (i.e. "globalisation") in the 2000s was and is that capital can flow free and untrammelled around the world. The accompanying collapse of the Bretton Woods system (which contained mechanisms for curtailing the growth of imbalances between nations) meant also the growth of large balance-sheet contrasts (massive deficits in the United States and Britain, huge surpluses in China and Japan, for example). The countries in surplus - China most of all - exported their excess capital to the US.
This flood of capital lowered rates of interest in the US - to the chagrin of Alan Greenspan, who by this time was trying to raise rates. Greenspan could have done this by erecting barriers to the movement of capital - capital controls - thereby preventing China's surplus capital from having an impact on US interest-rates. Instead, he preferred to pretend that he was impotent in the face of a mysterious "conundrum".
An Alan Greenspan or any other central banker armed with controls over the movement of capital would be able to switch a key lever of the economy: the rate of interest. That is, not just the "policy rate" or the "official rate" (often known as the "bank rate") but all rates - safe and risky, short and long. Where central bankers abandon such controls, and delegate powers over interest-rates to private bankers, they are impotent in the face of capital movements that affect the yields on bonds, and therefore of interest-rates within their domains.
The sharecropper society
The momentous news of the collapse of Lehman Brothers and the sale of Merrill Lynch - part of the larger process unfolding since "debtonation day", 9 August 2007 - brings all the failings of the seven years that preceded it into even sharper focus.
In 2003, as part of a team at the new economics foundation, I edited a book intended to "shadow" the International Monetary Fund's "world economic outlook", which we believed was based on the delusions of orthodox economics (see The Real World Economic Outlook, Palgrave, 2003). An article in openDemocracy at that time - five years ago almost to the day - heralded the "provocative new research ... which argues that the ‘first world' is approaching a major debt crisis... The reckless financial policies of leading western powers in the last two decades make it likely that the next seismic debt crisis will be in America, not Argentina" (see "The coming first world debt crisis", 1 September 2008).
The book and article explained that the current, post-Bretton Woods international financial architecture ("globalisation") was so structured as to enable the United States to "hoover up" money from the rest of the world, and use these resources to live beyond its means. I wrote then: "It is this financial system which makes US financiers so confident that the rest of the world will continue to finance their nation's extravagant spending binge. In the words of David Goldman, head of debt research at Bank of America Securities: ‘America is at little risk for the foreseeable future, simply because the world's capital has nowhere else to go' (Wall Street Journal, 13 August 2003)".
The fall of Lehman Brothers is final confirmation that the world's capital does now have somewhere else to go. This event thus marks the beginning of the collapse of today's international financial architecture, which has rested on very shaky foundations since Richard Nixon's administration unilaterally dismantled the Bretton Woods system in 1971 and began to shape the new.
The reason why the Lehman Brothers collapse is historic is that this institution expected until a very late stage to be saved by the state-run Korea Development Bank (KDP). But Seoul looked at the books and had other ideas: on 9 September 2008 - to the astonishment of Lehman's shareholders and investors - this ever-so-reliable ally of Washington refused to fund a bail-out.
The fact that such sovereign wealth funds as the KDP are no longer willing to finance reckless US institutions is of itself of the greatest significance. It implies a lack of confidence in the solvency of US financial institutions, and indeed of the United States as a whole. This will lead to a fall in the dollar, which will have profound economic implications for the global economy, and for globalisation as a whole.
The billionaire investor Warren Buffett wrote a letter to shareholders in March 2005, in which he predicted that by 2015 the net ownership of the US by outsiders would amount to $11 trillion. "Americans ... would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an ‘ownership society' will not find happiness in - and I'll use hyperbole here for emphasis - a 'sharecropper's society'."
Buffett was and is right. The collapse of banks and investment funds, and of the international financial system - a consequence of the unpardonable folly of the powerful - is serious and dangerous enough. But what is even more to be feared is the emergence of a sharecropper society, angry at its downfall. Thus will America's problem become the world's. "

Lenin was 100...And Other Secrets of the Forest...

An intriguing story has come my way, concerning a visual relic of the Soviet era which can be seen by all now in 2008 courtesy of google earth.
Thirty eight years ago, in 1970 there was the hundreth anniversary of the birth of Vladimir Ilyich Lenin, the leader of the Bolsheviks and the founder of the USSR after the revolution in 1917. In Siberia foresters decided to celebrate this anniversary by cutting all the trees on a plain leaving only those that would form a really huge message “Lenin is 100 ”. This was before the era of Google Earth, and there were certainly no satellite photos in the media.
So what inspired this bizarre tribute to the memory of Lenin? The real reasons are no doubt lost in the smoky haze of some long forgotten Communist Party committee meeting in the region at the time, when people were devising ways to commemorate the anniversary,.
Some have speculated that it may have been a defiant two fingers to any passing American spy satellites, or perhaps it was an act of personal whimsy by a collective of bored managers and workers.
I wonder, whether, given the amount of trees involved that there were good deal of trees not cut, presumably an act approved for the purposes of this stunt, could this in itself have provided a conveniently grey accounting area in terms of other amounts of lumber that were not cut and may, instead of participating in this unique arborial tribute to Lenin, have ended up being sold for private gain on the black market?
I know that this is purely speculative on my part, but it does seem rather an elaborate wheeze for something that very few could possibly have ever seen. If this was true, could it be the real irony of this discovery 38 years later ? That it was in fact all part of an elaborate black market lumber scam?
On the other hand the lads might just have thought it would be a good way of not having to cut down those trees. Whatever way one looks at it, if it was the idea of some keen young Party apparatchik eager to make an impression, one can only guess what the workers who had to cut around the elaborate template required to make it visible from the lower stratosphere would have thought of their management, and possibly the whole Soviet leadership. You can examine the evidence of this piece of super topiary by following this link,

Sub-Prime Crisis Explained...

The 'sub-prime crisis' as brilliantly explained by Bird and Fortune, whats scary about this sketch is that basically its pretty much factually accurate....and very very funny.

Unrepentant....Because a Better World is Possible.

Its been over a year since I started this blog, as I stated at its inception I was always dubious about the value of the blogosphere, but since the blog seems to have attracted a fairly consisitent readership and at times provoked some interesting discussions I felt it was time to clarify what I now believe is the point of this modest addition to the vast outpourings of writing and opinions which deluge the internet minute by minute.

In some respects the title is probably misleading, although it has the advantage of being memorable. I am not however some kind of unrecontructed stalinist who takes pleasure late at night drooling over youtube clips of Stalin and the Red Army triumphantly entering Berlin. I am not a nostalgia freak.

Quite simply I am really just a person that believes, that for all its very many faults, and the totalitarian tendencies which caem to the fore , brought about to a very large extent by concerted efforts to strangle existing socialism at birth, that there was something very significant indeed in an attempt to break away from a system based on class exploitation. Socialism for all its many faults did attempt to establish a system whose founding principles were eqality and an attempt to see if it was at all possible to create an advanced society without some minority strata of the population who did very little to create the wealth of the world , but yet garnered the vast bulk of it.

For a variety of reasons, too numerous to discuss here, the socialist experiment that was commenced in the USSR failed. In the course of its existence many many crimes were committed and numerous atrocities were countenenanced all in the name of an ideology.Yet any fair observer would concede that this bold social experiment met unrelenting and violent opposition from the system which its very existence challenged, that is capitalism and its most extreme variant fascism . To what extent this hostility, sabotage, invasion, and economic isolation distorted the nature of socialism itself is again a subject that has been discussed ad nauseam, but I suspect that socialism was in many respects fatally damaged by the wars both economic, political, and ,military, that were visited upon it from its birth. Its birth after all did represent the most fundamental challenge that capitalism had ever faced, and the class who derive their wealth, power, and privilege were terrified at the prospect that their system would be superceded, and stopped at nothing to ensure that it failed.

So this blog, does not attempt to turn back time, it instead attempts in a very modest way to express some of the positive values that socialism bequeathed the world, an admiration for the concept of equality, a rational system of production where the products of work are shared fairly amongst those who create the wealth, an aspiration towards high and edifying art and literature which ennobles the human spirit and celelebrates the beauty of the world we are so fortunate to experience.

We can see the culture that capitalism is creating, the banality of shows like 'Big Brother', the commercialisation of all forms of sport, the endless incessant 24-7 drive to consume. A consumer culture that seeks to fill the spiritual void so many are experiencing with yet more and more things that we are persuaded by incessant advertising that we need, but in fact do not actually 'need' at all.

Capitalism , will not be able to reverse the damage being done to our environment, its raison d'etre is consumption. Capitalism driven by the need for consumption will destroy our planet, and all the evidence is , that despite much hand wringing the destruction of our environment under the auspices of the market system is is accelerating not slowing.

Communism, perhaps rightly has a bad name, its failings were huge and in many cases unforgiveable.However, the system we live under today, a system with an ideology and as strong a set of values as Communism, the sytem of 'capitalism', masquerades as the 'natural' way that things have to be.

But I remain unrepentant in my belief that a system that condemns two thirds of the worlds population to abject poverty and subsequent malnutrion , whilst one third struggle with the health problems of obesity is obscene. I am unrepentant in my belief that if the USA dedicated just one fifth of its expenditure on arms to aid and world development then global poverty would be eradicated.

Lastly I am unrepentant in my belief that a better world is possible because I refuse to accept that the soul-less mediocrity of the world we live in today, as its climate degenerates, as the bulk of its people live lives of grinding meaningless poverty and illiteracy is the best that we as human beings can achieve.

I remain a beiever in the ideals of communism, because I believe that what fundamentally prevents the world progressing is a system based on exploitation and injustice. As long as that fundamental barrier to progress remains, I will persist in continuing to describe myself as an 'Unrepentant Communist' since for me that is identical to persisting in describing myself as a human being who believes that we can create a better world than the one we are sadly destroying today.

Mark Almond Oxford Historian on the Crisis in the Caucasus

Mark Almond, lecturer in modern history at Oriel College Oxford appeared at a rapidly convened anti-war neeting on London on 14th August and delivered this perceptive and highly amusing analysis of the situation in the Caucasus. I found his approach refreshing and insightful primarily due to his close familiarity with Georgia and the region derived from the fact that he has visited Georgia as a human rights observer no less than 9 times since the early 1990's.



I hope readers of Unrepentant Communist, which has now been online for over a year, will enjoy this clip as much as I did.

Russia is Right...Georgian Bloody Aggression Justifiably Repulsed

Over the last week we have seen the Western worlds media relearning and dusting off all the old Russo-phobic sentiments which used to characterise the West's reporting of the USSR in the days of the 'old' cold war. We now seem to be entering a period which may become characterised as the 'new' cold war. One of the main reasons for the old cold war, apart from the overarching aim of strangling any socio-economic system that eschewed capitalist property relations, and extended aid and assistance to national liberation movements the world over, was the secondary reason that the ever present concept of the 'Soviet threat' fuelled an almost limitless commitment to arms expenditure. Expenditure which the military-industrial complex of the USA and the Western nations cherished since it ensured a constant source of immense profit to the huge defence corporations of the West.
Just as the Iraq war seems to be winding down, up pops a 'war' that will no doubt fill a huge reservoirs of future justifications for expenditure on heavy duty weapons of conventional warfare.
The BBC's Bridget Kendall is one reporter whose partisan and blatantly anti-Russian reporting had me almost wondering if I had been transported back in in time to 1988, a tour de force of innuendo , obfuscation, and half truth that left the listener with the distinct impression that it was the Russians who had attacked poor little Georgia.
In fact much of Ms Kendall's reportage has in various ways been misleading, referring to thousands of 'refugees fleeing the conflict' whilst ommiting to make clear that the refugees in those initial first few days of the war were South Ossetians fleeing across the Russian border away from Georgian aggression. One quick glance at Bridget's biography (see link above) suggests that if she is'nt on the books of MI6 , then its a serious ommission that she isn't, and she, as sure as the Pope's Catholic, is very likely to be in close contact with people who are.
So lets be absolutely clear about what happened in the case of South Ossetia and Georgia in the early hours of the 8th August as the world watched the stupendous opening ceremony of the Olympic games in Beijing. Georgian forces launched a treacherous dawn attack on the autonomous republic of South Ossetia on 8th August briefly occupying the capital, Tskhinvali, and killing many civilians and a number of Russian peace-keeping soldiers and forcing tens of thousands of civilians to flee across the border to North Ossetia-Alania, which is part of the Russian Federation.
The Georgian leadership clearly believed that they could do this while many world leaders, including Russian leader Vladimir Putin, were distracted in Beijing for the opening of the Olympics. They also banked on the USA support for their unilateral aggression, and most fatally of all they worked on the assumption that the Russians would do nothing. The reactionary Georgian nationalist regime miscalculated on all three counts.
Georgia is a willing tool of the West , sending troops to support the Anglo-American occupation of Iraq and pushing to join Nato and the EU . The Americans and Israel have helped arm and train the Georgian armed forces. Georgia plays a pivotal role in the supply of oil from the Caspian region to the West as the Baku-Tbilisi-Ceyhan oil pipeline runs through much of the country and the Americans see Georgia as a useful base to menace Russia and the countries of the Middle East.
Now the Georgians are begging for a ceasefire and blaming the West for not bailing them out of a crisis of their own making. But the man they should blame is their own president, Mikhail Saakashvili, who has brought his country to the brink of disaster through a reckless gamble that has so dramatically backfired.
Even the darling of the West the former Soviet leader Mikhail Gorbachev has blamed Georgia for provoking hostilities in its breakaway region of South Ossetia and criticized Western states for backing Tbilisi.Appearing on CNN's "Larry King Live" on Thursday, Gorbachev said Russia had moved additional forces into South Ossetia in response to the "devastation" in the South Ossetia capital of Tskhinvali."This was the use of sophisticated weapons against a small town, against a sleeping people. This was a barbaric assault," Gorbachev told CNN.The Soviet Union's last president and a Nobel Peace Prize laureate, Gorbachev said the West appears to have been aware of Georgia's plans to seize the province."Western television didn't show what happened in Tskhinvali," Gorbachev said on the program. "Only now they're beginning to show some pictures of the destruction. So this looks to me like it was a well-prepared project. They wanted to put the blame on Russia." He called Georgia's claims that Russia was attempting to dismantle its democracy "all lies from beginning to end."
Many analysts have questioned Georgia's claims to be a "democratic, freedom-loving country," pointing to the use of baton-wielding, gas-masked riot police to put down a peaceful demonstration against Georgian President Mikheil Saakashvili last November, and the subsequent closure of an opposition TV station.
Saakashvili has also been accused of ordering the murders of political opponents.Saakashvili, the great 'democrat,' is busy charging anyone who opposes him with being a pawn of the Russians (and therefore guilty of treason), but the West is calling on him to restore civil liberties – and, in an apparent effort to propitiate his Western benefactors, he has lifted some restrictions and called new elections. Widespread and growing opposition to his strong-arm tactics, even among many of his former supporters, spells political trouble for Saakashvili and his corrupt cohorts, however – and an appeal to Georgian ultra-nationalism (which was always the real ideological motivation of the Rose Revolutionaries) would bolster him in the polls and provide a much-needed distraction, at least from the ruling party's point of view, what better to distract the attention of the people from his domestic difficulties, than a little military adventure that he fully calculated would be seen as a personal triumph, rather than the personal and national humiliation it turned out to be .
The fact of the matter is that this so-called Georgian 'strongman' is a thug and an opportunist who does an excellent imitation of George W. Bush. Whilst Dubya merely implies his political opponents are traitors to the nation, Saakashvili directly accuses his opponents of treason and then drags them into court on trumped up charges of high treason. Bush has presided over a regime that has legalized torture, but only for foreign "terrorists", Saakashvili, on the other hand, throws his domestic political opponents – whom he labels "terrorists" – in jail and tortures his own countrymen. Georgia's notorious prisons are chock full of political dissidents.
Bush justifies his aggression by invoking "democracy" and the doctrine of "preemption," while Saakashvili doesn't bother with such theoretical niceties, instead simply denying his aggression against South Ossetia in defiance of the plain facts.Saakashvili is a famously volatile risk-taker, veering between warmonger,aggrieved innocent, self styled 'democrat' and autocrat. On several occasions international officials have pulled him back from the brink. On a visit to Washington in 2004, he received a tongue-lashing from then Secretary of State Colin Powell who told him to act with restraint. Two months ago, he could have triggered a war with his other breakaway province of Abkhazia by calling for the expulsion of Russian peacekeepers from there, but European diplomats persuaded this eager pro-western lap-dog to step back from the brink. This time, looking back and yelping for a nod or a wink from his masters, the gun dog stepped right over the precipe.

For those who wish to read more details of these events a chronological Fact Sheet of the build up to the War in South Ossetia can be found here