May 5, 2012 James Galbraith, author of Inequality and Instability, talks about inequality and instability

April 28, 2012 James Livingston, author of Against Thrift, speaks up in favor of the consumer culture as a liberatory thing

April 21, 2012 Gar Lipow, author of Solving the Climate Crisis through Social Change, on the politics of averting climate change • Edward Luce, author of Time To Start Thinking, on American decline

The audio files have been there since the Friday before their broadcast on KPFA. But sometimes I take time to update the web page. Subscribe to the podcast (instructions are on the web page, or do it via iTunes here), and you won’t have to wait for my often-tardy HTML updates.

Very unusually. Graphed below is the behavior of employment—total, private, and public—around business cycle troughs and recoveries. The darker lines are the averages of all the cycles since the end of World War II; the lighter lines, the most recent period, around the June 2009 trough. (Click on the graph for the full-sized version.)

As of March, the most recent data we have, we were 33 months into the recovery/expansion. In a “normal,” or at least average, expansion, total employment would be up 6.6% (which is why the index number on the graph is 106.6). But now it’s only up 1.8%. But there’s an enormous divergence in public and private sector employment. In an average recovery, private employment would be up 6.7% and the public sector up 6.4%. This time, though, the private sector is up just 2.7% (4 points short of the average)—but the public sector is down 2.5% (almost 9 points below average).

Putting some numbers on that, total employment is 6.3 million below where it would be in an average recovery. (As the graph shows, the decline in employment was far deeper than average, and the recovery slower to kick in.) Of that shortfall, 4.3 million comes from the private sector, and 2.0 million from the public. So the public sector is responsible for about a third of the deficiency. But that’s twice its share of total employment.

No doubt yahoos will cheer the fall in public employment as a reduction in waste—though there’s no visible payoff in private sector job growth. (Of course, the yahoos don’t care about the continued deterioration in public services.) Public sector austerity is a major drag on the job market. If public employment had merely matched the anemic growth in the private sector, the unemployment rate would be more like 7.4% than 8.2%. And if it had matched its post-World War II average, the unemployment rate would be under 7%.

Propagandists love to go on about how the socialist in the White House is scaring the private sector, leading to a hiring strike. But public sector austerity—mainly at the state and local level—is a major drag on the job market. That doesn’t get anywhere the attention that it should.

There, Obama’s approval rating looks even higher than Gallup’s version. Obama is now in the 40th month of his reign. Compared with the same spots in other presidential terms since 1945, Obama’s stock market is the third best, beaten only by Clinton’s second term and Eisenhower’s first. (See graph, below.) Adjusting for inflation has little effect on the rankings.

Since the beginning of Obama’s term in office in January 2009, the S&P 500 is up 60%—twice the average of all the 18 presidential terms since Roosevelt’s third. (Adjusting for inflation, Obama’s score is three times the average.) These results are not particularly surprising. The 40-month average for Democratic presidents is 36%; for Republicans, 24%. Still, Obama’s 60% is nearly twice his party’s average.

Of course, stock market returns have little to do with human welfare. In fact, you could argue that the boom in corporate profits—the fundamental reason for the strength in the stock market—has come at the expense of the working class, whose wage and salary income have gone approximately nowhere over the last three years. (Since the recession ended, profits have risen at almost eight times the rate of wages; in a “normal” recovery, they’d have risen less than three times as much.) But the notion that Obama has been “bad for business” is a hard case to make—not that it will stop it from being asserted.

April 7, 2012 Joel Schalit, co-editor of Souricant, on anti-minority violence in Europe 8 Saadia Toor, author of The State of Islam, on the history and politics of Pakistan

March 31, 2012 Dan Lazare on the awfulness of the Supreme Court (excerpt from a 2005 interview) • Jamie Webster ofPFC Energy, on the state of the oil market • Peter Frase, author of this, on the problem with sex work: work

March 24, 2012 Mark Weisbrot, co-director of the Center for Economic and Policy Researchon the Argentine model of default • Madhusree Mukerjee,author of Churchill’s Secret War,on Churchill, Britain, India, and famine during World War II

March 17, 2012 Alan Beattie, international economics editor of the Financial Times and author of the Kindle-only Who’s in Charge Here?, on botched policy responses to the crisis •Steingrímur Sigfússon, former finance minister and current Minister of Economic Affairs of Iceland, on that country’s unorthodox strategy towards the crisis

So who is UMB Bank, really? It’s yet another iteration of the classic Money Mover’s institution: flush with more money than it can invest locally, it loads up on securities. (Parenthetically, why should a magazine based in New York encourage doing business with a bank 1,200 miles away on localist grounds?) According to its latest annual report, 46% of UMB’s money is invested in securities, and another 6% is on deposit with other banks—which comes to over half. They don’t provide details on the securities, but they’re almost certainly a mix of Treasury bonds, mortgage bonds, and corporate bonds—utterly conventional financial market stuff. Just 37% is out in loans—and 0.8% in small-business loans, beloved of the small bank fanclub. They are big regional players in mutual funds, wealth management, and private banking, all moderately to seriously upscale stuff. And, like the big guys, they’re looking to make more money out of fees, rather than traditional deposit-taking and loan-making.

But that’s not all. UMB is big in the Health Savings Account (HSA) racket. HSAs, a snake-oil favorite of right-wingers, are tax-sheltered savings schemes that typically come with high-deductible health insurance policies attached. If you need a doctor, you can dip into the savings account, because you’re going to have to pay thousands of dollars out of your own pocket before the insurance kicks in. The philosophy behind HSAs was summarized in a recent press release (“UMB Announces 36 Percent Increase in Health Savings Account Balances”) by Dennis Triplett, CEO of UMB Healthcare Services:

We are excited to see the continued adoption and acceptance of consumer-directed health care plans by individuals looking to better manage current health care costs while saving for the future. Advantageous for the employee and the employer, consumer-directed health care empowers individuals to take personal responsibility for their health and expenses, and enables employers to better reign in rising health care costs.

Translation: if people have to pay through the nose to visit the doctor, they’re going to think twice before booking an appointment. That’s “empowerment” for you.

A number of studies (by the GAO, the Employee Benefit Research Institute, and the Commonwealth Fund) have found that while HSAs and associated high-deductible plans can save employers money, they also tend to attract the young, the healthy, the well-off, and people who think they’re unlikely to get sick. Taking the likes of those out of the broader insurance pool makes the remainder harder and more expensive to cover and does nothing for the currently uninsured. It’s an individualized, market-centered approach to the problem that is antithetical to everything The Nation stands for. But there’s nothing like the imprimatur of the Move Your Money folks to dissipate skepticism among those who wanna believe.

I don’t begrudge The Nation trying to raise money. God knows they need it (though, if truth be told, a Romney victory would probably put them deep in the black). And if an affinity credit card raises significant money for them, they should go for it. But it would be nice if they didn’t encourage political illusions about finance when shaking the cup.

Given the day, I’d originally thought I would rue the absence of an actual right-winger on this panel, then recount my political history as a brief libertarian in my early college days, and announce my return to the fold after a long, frustrating career on the left—and ended with an April Fool’s!

I decided not to do this: 1) because it’s a cheap trick, and therefore beneath me, and 2) because my wife and counseling editrix, Liza Featherstone, pointed out that many of the critiques of the left I was going to use in my conversion narrative were critiques I’d want to use from inside the left, and by associating them with the right, I’d be discrediting the critiques. I was persuaded.

To steal a rhetorical trick from Gayatri Spivak, had I done that, I’d have said several things. One would have been to recall that during my right-wing days, Yale’s Party of the Right (for more, see here and here), to which I belonged in my undergrad days, began its meetings by reciting Charles I’s execution speech, which contains the startling revelation that affairs of government involve “nothing pertaining to” the people, because “a subject and a soveraign [sic] are clean different things.” And then his head was lopped off with an axe. This is absolutely odious stuff, and it’s amazing that an elite institution of the American right would baldly embrace something so deeply at odds with official American ideology, but the truth value I’d want to extract from it is that while we on the left often talk about democracy, the populace that’s been created by the alienating life under capitalism and the deeply antidemocratic structure of American government is full of incoherent and, to most of us in this room, often odious opinions. And that’s a problem for leftists who tout democracy.

Another point I would have made is that the left often bases itself on a sunny view of human nature, one utterly foreign to the right. Noam Chomsky, for example—and he’s certainly not alone in this—basically believes that humans are hardwired for decency and freedom, but they’re distorted by bad institutions. (For an analysis, see this essay by Joshua Cohen and Joel Rogers.) Aside from wondering how Chomsky knows this, I’d want to say that there probably is no human nature aside from the institutions that shape us, and we’re back to the problem of working with an unsatisfactory populace. It’s a lot easier to solve this problem when you’re an elitist. And on that point, had I announced my return to the right, I would have quoted for support these comments on Marxism from a liberal icon—someone admired even by some radicals, including me, John Maynard Keynes: “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who, with whatever faults, are the quality in life and surely carry the seeds of all human advancement?” What an odd secret affinity between Charles I, the Party of the Right, and Anglo-American liberalism.

And, finally, and not unrelatedly, peace. For years, we had up in our apartment a poster that someone gave us for a wedding present that celebrated a Museum of Peace in Chicago, done by a German artist who’d been a Communist. It always kind of annoyed me, and I insisted we take it down the other week. I’m certainly no fan of violence, but somehow the celebration of peace seems drained of politics. And back in the days when Communists did such things, they were actually taking sides in the Cold War. There was something dishonest about using peace as a cover for a political struggle. But in a world as divided as ours, peace as an ideal seems to invoke, to use the old phrase, a premature reconciliation of contradictions—not to mention somewhat banal. Oppose every instance of American imperialism, yes—even in humanitarian guise. But if we want a better world, it’s probably not going to come without violence. In his introduction to Marx’s essay on The Civil War in France, here’s how Engels characterized the response to the earlier uprising of the French working class in 1848: “It was the first time that the bourgeoisie showed to what insane cruelties of revenge it will be goaded the moment the proletariat dares to take its stand against them as a separate class, with its own interests and demands.” We can see this reflex in modest form in the incredibly brutal police response to something as mild, so far, as the Occupy movement.

I would have said, as a pseudo-rightist, that dreams of peace are naïve; I’ll say something similar as the leftist I still am, though of course from a different perspective. And that’s no April Fool’s.

F.I.A.S.C.O., by Frank Partnoy (New York: W W Norton, 252 pp., $25).

It might be best to start a consideration of this revealing book from one of its final pages, where Frank Partnoy explains why he decided to end his brief career as a derivatives salesman at our snazziest investment bank, Morgan Stanley:

By April 1995 I had become … the most cynical person on Earth. I now believed everything was a fraud, and I had a well-founded basis for my beliefs. Derivatives were a fraud, investment banking was a fraud, the Mexican and Japanese financial systems were frauds …. The value system I had acquired in recent years included shooting at clients and blowing people up, all in the name of money …. Everyone I knew who had been an investment banker for a few years, including me, was an asshole. The fact that we were the richest assholes in the world didn’t change the fact that we were assholes. I had known this deep down since I first began working on Wall Street. Now, for some reason, it bothered me.

Of course, Partnoy and his colleagues didn’t literally shoot at clients. But they did brag about “ripping their faces off.” This was the ideal trade—one that involved unknowingly separating a client from a huge amount of money, even if the client’s actual face was left intact. According to Partnoy, the motto of his counterparts at Bankers Trust, an institution almost as prestigious as Morgan Stanley, was “lure them into the calm and totally fuck them.” Again, that was said of customers, not competitors. Remember, we’re not talking about some boiler room based in Vancouver or Fort Lauderdale, but two of the glitziest names in investment banking.

basics

Derivatives hit the headlines in 1994 and early 1995, when a bout of interest rate rises engineered by the Federal Reserve put the financial markets through a ringer and Mexico into crisis. Big companies like Procter & Gamble lost millions, big-time speculators went under, and Orange County went bankrupt. And then, thanks to our system of cultivated amnesia, derivatives largely disappeared from view. According to the most recent estimates by the Bank for International Settlements, at the beginning of 1997 there were some $35 trillion in derivatives outstanding worldwide, about twice as many as there were when Partnoy retired from the business in 1995. Unofficial estimates range from $40-60 trillion. To put those numbers in perspective, gross global product—the sum of all the world’s GDPs—is under $30 trillion.

A derivative is a security whose price depends on—is derived from—something else. The simplest derivatives are (relatively familiar) instruments like futures and options. An option, for example, is the right to buy or sell something, like 100 shares of stock, at a given price over a given period of time. You may want to lock in a purchase or sale price today, even though you want to consummate the sale several months down the road, or you may simply wish to speculate cheaply on the price of the underlying asset. (These instruments are all explained at exhaustive, and possibly exhausting, length in Doug Henwood’s Wall Street.) But options and futures are straightforward stuff compared to the kinds of things that Partnoy once developed and sold. Instead of being traded on exchanges at prices and terms it’s pretty easy to understand, the complicated kind of derivatives are custom-tailored, usually for a specific buyer, on often obscure terms, and with little possibility of escape through sale to some other punter.

That’s all a bit theoretical, so maybe a few examples would flesh things out. Want to bet that Thai interest rates will rise and Malaysian ones will fall? An investment banker would be happy to customize a derivative for you. You may want to do this because you have some business in the two countries that put you at risk should the two national bond markets move against you—or you may just be a betting sort. Or maybe you’re a pension fund manager who isn’t allowed to borrow money to speculate in foreign currencies. Well, your investment banker can create something that looks like a government bond, and will pass regulatory scrutiny, but which is really a leveraged play on the British pound or anything else you’d like. Or maybe you’re the dimwitted treasurer of a county in Southern California, and you think interest rates will fall forever—and you’re so convinced of the fact, it’s not enough that you just buy bonds and hold them. You buy “structured notes” from Merrill Lynch and Morgan Stanley, that rise in value if interest rates fall, but in complex, incomprehensible ways. If interest rates rise, you can always file for bankruptcy. And if you’re a]apanese banker with big losses to hide, your friend at Morgan Stanley can create sham profits for you today—perfectly offset by sham losses some time in the future, but by then it’ll be somebody else’s problem; for the moment, all you want to do is deceive your shareholders and regulators. Indeed, it seems that lots of the troubles in Asia today are in part the deferred consequences of derivatives schemes concocted several years ago. Sometimes the client is the instigating party, sometimes the banker, but usually the banker has a better idea of what’s going on—not only of the risks, but of the giant fee buried in the complex details.

So, despite the textbook nostrums about derivatives existing to help society (meaning big investors) manage risk (meaning the wicked volatility in financial asset prices), derivatives are at least as much about embracing risk, evading regulatory scrutiny, and even avoiding taxes. While the financial environment is placid, derivatives will behave, delivering only routine losses, if at all but when things get nasty, as with the stock market in 1987, or Mexico in 1994, or Asia in 1997, they can blow up all over the place.

F.I.A.S.C.O. (the title comes from a drunken skeet-shooting competition called the Fixed Income Annual Sporting Clays Outing, in which the Morgan Stanley team was meant to sharpen its killer instincts) tells all these stories, and Partnoy even manages to accomplish the difficult task of explaining the derivatives themselves. He’s hardly a radical, nor does he have anything like a systematic view of how finance relates to the real world. Nor is his book as funny or as gracefully written as Michael Lewis’ classic Liar’s Poker. But as an insight into the crudity and rapaciousness of Wall Street culture, it’s the best thing in years. Even if derivatives don’t turn the next bear market into a rival of the 1929–32 disaster, or even if they don’t bring giant losses to the middle c1ass’s mutual fund investments, this book explains why the handful of people who work on Wall Street pull down so much money. It comes from ripping faces off, and sometimes the face-ripped don’t even know what’s happened to them.