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The revolving door

July 29th, 2012

While working on a piece about a possible bailout for the Spanish government, I discovered a couple of things that were news to me

* The Economics Minister in the (pro-austerity) Spanish government is a former executive of Lehman Brothers

* Axel Weber, formerly the ultra-hawkish head of the Bundesbank went straight from that job to the chairmanship of UBS, of which the NYT recently wrote “The bank’s recidivism seems rivaled only by its ability to escape prosecution”

Comment seems superfluous to me, but I hope readers will prove me wrong on this.

 

Posted via email from John’s posterous

Categories: Economics - General Tags:
  1. Ikonoclast
    July 29th, 2012 at 10:45 | #1

    By the measure of unemployment, Spain is in a Depression. The maximum US unemployment rate in the Great Depression was about 22%. Spain’s unemployment rate is now 24.6%. Youth unemployment in Spain is running at 53%. Spain has just had a second quarter of contraction so is now in a double-dip recession on that measure. This is after 7 quarters of contraction in GFC dip and 5 quarters of weak growth and one quarter static after the GFC.

    Whilst neolib/neocon zombie economics prevail, Spain and Europe cannot recover. The Euro and concomitant loss of currency sovereignty is a key problem for countries like Spain. The current situation is that the neocon bankers control the finances of Europe rather than the sovereign governments. Democratic demands for policy easing and counter-cyclical spending are rendered ineffective. The upshot will be an increasing dive into economic depression until an easing of policy occurs or some sort of rebellious threshold is crossed.

    Europe and the USA are in deep trouble and by extension, Australia is too in due course.

  2. boconnor
    July 29th, 2012 at 12:20 | #2

    Ikonoclast @ 1

    Thoroughly agree. All Australian governments (state and federal) are now in austerity mode and the results will not be pretty about 12 months for now.

  3. boconnor
    July 29th, 2012 at 12:22 | #3

    “for now” should be “from now”

  4. Freelander
    July 29th, 2012 at 13:24 | #4

    Those parts of Australia involved in or connected to mining are doing well. The rest is in recession, in part, distressed by the high dollar. Nevertheless Australia is still doing better,even in distressed parts , than most of the rest of the West.

  5. Katz
    July 29th, 2012 at 14:46 | #5

    An ex-private banker using his position as a government minister to ensure that the Spanish public are liable for the debts of Spanish private banks to other private banks isn’t a conflict of interests.

    It’s a coincidence of interests.

  6. July 29th, 2012 at 20:36 | #6

    There is a piece by David Lawson up on Steve Keen’s “debtwatch” blog at the moment that finishes with:

    “So if and when financial companies shout “fire” in your country, realize that wiping out the stockholders is not enough if a bailout is to take place. Every entity that participated and profited by risk- taking must suffer losses before the public risks a dime. Taking the institution into receivership allows for bondholders to take losses as they stand in line with other creditors. Employee bonuses stand in line as well. For example, when AIG was bailed out by the government, but not taken into receivership, millions in bonuses and other employee compensationwere protected even as the taxpayer was paying for the black hole left by those very employees. Given the lack of regard for public funds during the bailouts of the last 5 years, it is quite likely that captured lawmakers will not lead the charge in making sure involved parties take the first loss, so it becomes an essential part of self-defense that the public demand accountability.”

    These revolving doors are all about making sure our democracy bows to neo-liberalism. Given that, it is just as interesting to see which governments accede to the demands of “Wall St.” WITHOUT needing a Goldman-Sachs, JP Morgan, Lehmann etc. alumni ‘inside the tent’ as it is to track those that do – fascinatingly informative and important as that is.

    We simply need our democracy back (and until we have a properly functioning media that cannot happen). As an aside, I see Bill Keller in the NYT has an opinion piece in which he cries ‘poor me’ over an impending financial blockade of the NYT a la Wikileaks and is forced to defend Wikileaks, up to a point.

    I found this quote absolutely astonishing from a guy who was the editor of The New Ypork Times:

    “…journalism should work in unison with government…”!!! (And, no that isn’t out of context)

  7. TerjeP
    July 29th, 2012 at 21:53 | #7

    The Economics Minister in the (pro-austerity) Spanish government is a former executive of Lehman Brothers

    Remind us again why big powerful governments are a good idea?

  8. Fran Barlow
    July 29th, 2012 at 22:15 | #8

    @TerjeP

    Remind us again why big powerful governments are a good idea?

    It’s the substance of the government’s mission and the informing constituency rather than the notional “power” of the government that is germane. This shows that the government is merely a servant of the interests of business rather than humanity. Be it weak or strong, working humanity cannot use this government to secure its needs or even parry the demands of the boss class.

    The working people need a government committed first of all to their interests and determined to use whatever power it has in that cause. Only then is “the power” of the government germane.

  9. TerjeP
    July 29th, 2012 at 22:34 | #9

    People have different interests. The baker wants bread expensive. The plumber wants bread cheap.

  10. TerjeP
    July 29th, 2012 at 22:49 | #10

    This shows that the government is merely a servant of the interests of business rather than humanity.

    If we take that statement as given then how can you go on to suggest that the power of government is not germane. Surely if government is merely a servant of interests other than humanity we should wish for it to be a weak servant.

  11. Fran Barlow
    July 29th, 2012 at 23:01 | #11

    @TerjeP

    Surely if government is merely a servant of interests other than humanity we should wish for it to be a weak servant.

    Changing the balance of power between business and its servant makes no difference. Only the vehicles for expropriation would change.

  12. TerjeP
    July 29th, 2012 at 23:13 | #12

    And you think all vehicles are the same?

  13. July 29th, 2012 at 23:27 | #13

    @Megan

    Oh dear! Parody works best when it is indistinguishable from the target.

    Apparently the “Bill Keller” NYT Op-Ed I mentioned above was a p1ss-take.

    Very good.

  14. July 29th, 2012 at 23:35 | #14

    TerjeP :

    The Economics Minister in the (pro-austerity) Spanish government is a former executive of Lehman Brothers

    Remind us again why big powerful governments are a good idea?

    Corrupt governments come in all sizes.

    Size isn’t the problem here, it is lack of transparency to the citizenry and undue influence from, what should be – but are not, external interests.

  15. Katz
    July 30th, 2012 at 03:47 | #15

    When governments were bigger there were no private banks that were too big to fail.

    When governments’ powers were truncated by legislators in the pay of the big banks, the result was the creation of banks that are too big to fail. And as every schoolboy should know, those banks that were too big to fail caused the present crisis.

    The surrender of legislators to monopoly interests enabled this crisis. These legislators were motivated by a toxic mix of ideology and greed. The voters, so far, have declined to punish these foolish and corrupt legislators. The voters have the governments — and banks — they deserve.

  16. Ikonoclast
    July 30th, 2012 at 07:15 | #16

    In the context of the above argument (TerjeP vs The Rest), I think we have to look at the USA and Australia. The USA has smaller government and a less social-democratic form of government than Australia. It also has less regulation of finance and a greater latitude for free-for-all libertarian style capitalism.

    The empirical outcome was that the USA suffered a more severe GFC (Global Financial Crisis) outcome than Australia did. The outcome has also been, over many years, that inequality, poverty, immiseration. criminalisation and incarceration have been far worse in the US than in Australia. When Australian began adopting some neocon, libertarian style policies like the US (increasing privatisation and weakening of the role of government) then matters in Australia took a turn for the worse.

    Privatisation, which functions in the modern economy as a sort of libertarianism for corporations, concentrated wealth in fewer hands, allowing monopoly, duopoly, cartel-like behaviour and general profiteering to raise the prices of essential services excessively. So much for small government.

    Also, what TerjeP does not understand is that a government in the hands of corporate interests is not a big, powerful government. It is a small, weak, suborned government doing the bidding of the capitalist financiers and corporations. It is emphatically an argument for re-making government in a fully democratic form so it is big and powerful enough to stand up to corporate and vested interests and govern for all the people not just the rich elite.

  17. TerjeP
    July 30th, 2012 at 09:02 | #17

    Katz – when were governments bigger?

  18. TerjeP
    July 30th, 2012 at 09:14 | #18

    In the context of the above argument (TerjeP vs The Rest), I think we have to look at the USA and Australia.

    Why that pair? Why not France and the USA? Or France and Australia?

  19. Freelander
    July 30th, 2012 at 09:50 | #19

    How did cheese loving surrender monkeys get into the conversation?

  20. TerjeP
    July 30th, 2012 at 09:53 | #20

    The same way the Septics did.

  21. Tom
    July 30th, 2012 at 10:03 | #21

    @TerjeP

    How can you compare the two countries when the conditions are not the same? France is in the Euro and having a foreign currency will change the the economic model and economy policies.

    How about I say the Since Japan over 200% public debt as a % of GDP while its government bonds are cheaper than even Australia, I can now say that Greek and Spanish Government bonds should be as cheap as Japanese Government Bonds?

  22. Tom
    July 30th, 2012 at 10:04 | #22

    @Tom

    “government bonds are cheaper” should be government loans are cheaper

  23. Graeme Bird
    July 30th, 2012 at 10:51 | #23

    “By the measure of unemployment, Spain is in a Depression. The maximum US unemployment rate in the Great Depression was about 22%. Spain’s unemployment rate is now 24.6%.”

    Same with the US. The Murdoch media is failing to tell people that the US also has depression-era unemployment. Not 9% as people are being told. But closer to 20%. Murdoch, up to his eyeballs in debt, cannot separate his interests from those of the bankers.

    The bankers have developed a truly huge array of methods for stealing off the public. Don’t try to point any of these out at Catallaxy if you don’t feel like getting swiftly moderated. And they are directly responsible for most of this unemployment, since they are taking all the funds that could be used for employment, and sending them to any number of useless undertakings.

  24. TerjeP
    July 30th, 2012 at 11:31 | #24

    How can you compare the two countries when the conditions are not the same?

    Ask Ikonoclast.

  25. may
    July 30th, 2012 at 11:41 | #25

    @TerjeP
    remind us why huge powerful corporations are a good idea?

  26. TerjeP
    July 30th, 2012 at 11:45 | #26

    I’m not asserting that they are a good idea. Maybe they are, maybe they’re not. It is a trade of between economise of scale and diseconomies of scale. If the former outweigh the later then they may be a good idea.

  27. Tom
    July 30th, 2012 at 12:07 | #27

    @TerjeP

    US and Australia economic condition are very similar, both uses domestic currency, both have a Central bank that determines interest rates and cash printing, both floats it’s exchange rate etc. It’s harder to find the difference in economic condition and limits (such as ECB control of interest rate that determines the rate for the whole EuroZone, and/or using a foreign currency and not having the ability to print money) when comparing US and Australia than comparing Australia or US to France or other EuroZone countries.

  28. Dan
    July 30th, 2012 at 12:20 | #28

    @TerjeP

    Wow! You see the question of whether huge corporations – ie. Galbraith’s ‘planning sector’, ie. oligopolies – are a good thing in terms of economies and diseconomies of scale!? That seems to me like about a fifth-order concern.

  29. may
    July 30th, 2012 at 12:29 | #29

    maybe? maybe?

    is that a trade of what?
    or do you mean trade off.

    http://www.dailykos.com/story/2012/07/29/-We-don-t-have-a-Huge-Debt-prblem-we-have-a-Huge-Tax-Haven-problem

    to smallbrain i

    it looks like an extortion racket in reverse.

    “give us what we want or liquidity stays hoarded,dammed,unavailable”.

  30. may
  31. TerjeP
    July 30th, 2012 at 12:48 | #31

    May – you asked if large corporations are a good idea. I did answer you however you now seem to have changed the topic and want to talk about tax havens and the wealthy. I’m not sure where you’re going with all this. I thinking maybe you will be asking about the price of tea in China next. If you think large corporations are a bad idea then just tell us that and maybe explain why.

  32. TerjeP
    July 30th, 2012 at 12:52 | #32

    Tom – okay. Use Britain instead of France. Or Canada. Maybe Singapore or Indonesia. My point was that choosing the USA as the benchmark is arbitrary. There are other countries and a cherry picking contest won’t enlighten much.

  33. Katz
    July 30th, 2012 at 12:59 | #33

    TerjeP :
    Katz – when were governments bigger?

    If you aren’t adopting a not necessarily unprecedented posture of disingenuousness, then keep up TerjeP.

    For the purposes of this discussion, up to the moment that the Glass-Steagall Act was amended in 1995. This is a very commonly discussed milestone in the deregulation of the world’s most important financial market. I’d be surprised if you were unaware of these discussions.

  34. TerjeP
    July 30th, 2012 at 13:24 | #34

    Katz – Glass-Stegall was not a Spanish policy. And I don’t believe it prevented failed bankers being cosy with the government and becoming government ministers. But most significantly I don’t think it is a meaningful metric by which to claim the solution is or was big government. At best you can claim it was a useful regulation.

    For what it is worth I will readily concede that if governments guarantee bank deposits or the solvency of banks in some general sense then something like the separation of activities outlined in the Glass-Stegall act makes some sense so that what is guaranteed is a quite narrow form of banking activity. However I don’t think governments should bail out banks or depositors even when the banks are large. Governments should do what Iceland ultimately did and tell the banks and the depositors that it is there problem.

  35. Tom
    July 30th, 2012 at 14:07 | #35

    @TerjeP

    While agreeing to cherrying-picking should never be used, I do not know Singapore or Malaysia or Indonesia much. Agreeing while it doesn’t prove the notion, in the context of US and Australia at least, the government is comparably smaller now than pre 1970s and business interest do seems to have a bigger influence in politics than pre 1970s.

    As for bank bail outs, I think most Keynesian economists believe it is required to stabilise the economy in a financial market collapse rather than morally agreeing to it.

  36. Katz
    July 30th, 2012 at 14:27 | #36

    Glass-Stegall was not a Spanish policy.

    The O/P was specifically about Spain.

    And I don’t believe it prevented failed bankers being cosy with the government and becoming government ministers.

    True, but so what?

    But most significantly I don’t think it is a meaningful metric by which to claim the solution is or was big government. At best you can claim it was a useful regulation.

    Equivocation doesn’t cut it. The amendment of Glass-Steagall was a diminution of the power of government. A sensible person would paraphrase this diminution as a shrinkage of government powers. In other words, in a crucial area of financial administration, the US Federal Government got smaller.

    For what it is worth I will readily concede that if governments guarantee bank deposits or the solvency of banks in some general sense then something like the separation of activities outlined in the Glass-Stegall act makes some sense so that what is guaranteed is a quite narrow form of banking activity. However I don’t think governments should bail out banks or depositors even when the banks are large. Governments should do what Iceland ultimately did and tell the banks and the depositors that it is there problem.

    Nice to hear, but not particularly germane to the topic of the size of government. Iceland’s gutsy act imposed costs on local spivs and foreign lenders but Iceland’s failed banks were not important enough to drag the world into financial oblivion. This is in stark contrast to AIG and the biggest US banks which were saved only by putting the US taxpayer (and the owners of US government paper) on the hook.

    It would be fascinating to see what would have happened to the world if Bush and Obama and the US Congress had told Paulsen and Geithner to go and get stuffed like the government of Iceland did to the creditors of Iceland’s banks.

  37. Katz
    July 30th, 2012 at 14:29 | #37

    “The O/P was specifically about Spain.”

    Should read: “The O/P was NOT specifically about Spain.”

  38. Freelander
    July 30th, 2012 at 14:56 | #38

    Integrity has long fallen out of fashion because integrity means not being able to be brought off. Business, and banks, consider it simply unaffordable.

  39. TerjeP
    July 30th, 2012 at 15:14 | #39

    Katz – sorry but what does O/P stand for?

  40. TerjeP
    July 30th, 2012 at 15:28 | #40

    …Australia at least, the government is comparably smaller now than pre 1970s and business interest do seems to have a bigger influence in politics than pre 1970s.

    There are several ways to try and measure size of government. The following paper outlines a few in regards to Australia. Figure 2 in particular is worth a look.

    http://cis.org.au/images/stories/policy-monographs/pm-117.pdf

    I’m not aware of any meaningful metric that says government is now actually smaller than in past decades. Although I do hear it asserted occasionally. If you know of some such metric then please can you point it out.

  41. J-D
    July 30th, 2012 at 18:53 | #41

    TerjeP :

    The Economics Minister in the (pro-austerity) Spanish government is a former executive of Lehman Brothers

    Remind us again why big powerful governments are a good idea?

    In this context, the answer is that governments need to be powerful if they are to be effective counterweights to the power of entities like Lehman Brothers. It is in the context of the power of Lehman Brothers that this appointment was significant enough to attract comment. If nobody had any reason to worry about the power of Lehman Brothers, nobody would think this worth commenting on. Do you think the power of Lehman Brothers is something to be worried about?

  42. Ikonoclast
    July 31st, 2012 at 07:49 | #42

    @TerjeP

    I guess O/P is Original Post.

    In the world of computer gaming, and since the rent seekers are gaming the system, OP means overpowered. A sentence example would be;

    The capitalist corporations are OP and need to be nerfed whilst democratic government needs a buff.

  43. TerjeP
    July 31st, 2012 at 08:24 | #43

    J-D, I’m not sure if you did it deliberately but you have somewhat drawn a distinction between size of government and power of government. I think this is useful.

  44. may
    July 31st, 2012 at 11:54 | #44

    @TerjeP

    no huge powerful corporations—no huge huge tax haven hidey holes.

    dictators personal fortunes notwithstanding– and even they cannot do their kleptocratic business without corporate assistance.

  45. July 31st, 2012 at 14:25 | #45

    Speaking of ‘Revolving Doors’, the (incomplete and one year old) list of US pollies on the Murdoch payroll is breathtaking:

    http://nymag.com/news/frank-rich/murdoch-payroll-2011-8/

    The Frank Rich essay on “Murdochrization of America” at the bottom of that link is long but a ripper of a read that applies equally to Australia.

  46. Graeme Bird
    July 31st, 2012 at 17:26 | #46

    “An ex-private banker using his position as a government minister to ensure that the Spanish public are liable for the debts of Spanish private banks to other private banks isn’t a conflict of interests.
    It’s a coincidence of interests.”

    Its a crime wave. Thats what it is. We are all suffering from normalcy bias. We don’t see things in terms of how things ought to work, since we have had this poxy financial system all our lives and in its strongest form since the 70′s. Actually Australasia was quite blessed with pretty sound banking and finance in the 50′s and 60′s but the problems in the Northern Hemisphere bankocracy go back a lot further.

    Andrew Jackson, who suffered from no such normalcy bias, described a far less despicable situation in the following way:

    “Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank.

    You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!”

    Its the same situation over but this time a thousand times worse.

    Jackson had been a killer for decades at this point. And he was known to be a man of his word. Note that even though his administration suffered from extreme monetary deflation at the hands of the bankers, still once the recovery came, he was able to pay out the entirety of the national debt. Which just shows what is possible when ponzi-finance overhead is gotten rid of or at least minimized.

    Most people think that the extra ponzi-money brings relief. Well call this easy monetary policy or some such other euphemism. Wherein we increase the bankers interest rate subsidy in the hope that they’ll ponzi up yet more phantom money-supply. But the idea that this brings relief is just junkie-talk and the real health comes when its new cash-money-only, bringing relief to the debtor and the tax-payer as well. Rather then bringing fortunes to the bankers and even greater fortunes to their most fortunate customers.

  47. TerjeP
    July 31st, 2012 at 17:27 | #47

    May – you may call them tax havens but I call them low tax jurisdictions. And I am all for the formation of a lot more such places. In fact I wish Australia was a low tax jurisdiction.

  48. Graeme Bird
    July 31st, 2012 at 19:06 | #48

    We want to be a no tax (on retained earnings) area for our small and medium-sized businesses. Beyond that its marginal whether we are high or low tax for the rest of them or for high-paid bigshots. The main requirement beyond the above, is simply to get rid of fractional reserve overhead, and needless government departments.

  49. may
    August 1st, 2012 at 14:18 | #49
  50. J-D
    August 2nd, 2012 at 07:49 | #50

    TerjeP :
    J-D, I’m not sure if you did it deliberately but you have somewhat drawn a distinction between size of government and power of government. I think this is useful.

    I did consciously choose to refer to power and not to size. But your compliment, pleasant though it is, does not distract me from the fact that you didn’t answer my question.

  51. Dan
    August 2nd, 2012 at 09:37 | #51

    Or respond to my observation at #28. Let me re-pose it thus: is all that matters to you efficiency? Or, do you think greater efficiency will fix whatever doesn’t seem to be working about present economic-social systems?

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