slackbastard

…but Make Mine Freedom (1948)!

Damn. Apparently there’s some kinda “financial crisis” going on. Meaning: the rich and powerful have had to resort to the always generous — in this case, US — corporate welfare state for a bailout. Y’know, just like poor folks do. Anyway, Paul Bowman done gone and invested some of his intellectual capital in explaining the ‘internal mechanics’ determining the seemingly crazy antics of finance capital, and I reckon his analysis is alright.

Financial Weapons of Mass Destruction

Introduction

This is the first part of a series of articles investigating the capitalist financial markets from a critical perspective. With such a large topic it is tricky finding a route into the subject and a plan of enquiry. The chosen road is to start with a look at the financial markets, particularly focusing on the mechanics of some of the instruments that have led to a momentous transformation of the workings of global financial markets in the most recent decades.

At first sight, this approach may seem odd, perverse even, like examining the internal workings of a clock as a prelude to discussing the social relations of time. However this “inside-out” approach is justified by the fact that as well as a system of social relations, capitalism is also a system with internal mechanics. Those mechanics evolve in response to the historical development of struggles over exploitation, but what new directions the new mechanics make possible in terms of capitalist strategies, in turn, shape the new struggles of today and tomorrow. The next article in the series will place these market mechanics in their fuller historical context. But for now let’s start by investigating the mechanics of capitalist financial markets…

More blah on the ‘financial crisis’ is provided by the goddamned commies at the World Socialist Web Site:

US jobless rate soars as foreclosures break new record, Bill Van Auken, September 6, 2008 : “In a stark indication that the crises gripping the US housing market and the financial sector are spreading throughout the economy, unemployment figures for August rose far more sharply than expected, hitting a five-year high…”
US government’s over mortgage giants to stave off financial meltdown, Bill Van Auken, September 8, 2008: “In the biggest government intervention in the American economy since the Great Depression of the 1930s, the US Treasury Department announced Sunday that it is effectively nationalizing the two mortgage giants Fannie Mae and Freddie Mac…”
Record corporate bailout reveals the bankruptcy of American capitalism, Barry Grey, September 10, 2008 : “The US government takeover of the mortgage finance giants Fannie Mae and Freddie Mac has dealt a shattering blow to the ideology of market capitalism, which has been used for decades to justify a relentless assault on the working class and a vast transfer of wealth to the American ruling elite…”
US bailout of mortgage giants sets stage for wider financial crisis, Barry Grey, September 12, 2008 : “Since the Bush administration announced on Sunday the US government takeover of mortgage finance giants Fannie Mae and Freddie Mac, in the largest corporate bailout in American history, developments have underscored the profound and systemic nature of the crisis that precipitated the action…”
The Wall Street crisis and the failure of American capitalism, Barry Grey, September 16, 2008 : “The end of Lehman Brothers and Merrill Lynch, two of the largest Wall Street investment banks, one week after the government takeover of the mortgage finance giants Fannie Mae and Freddie Mac, marks a new stage in the convulsive crisis of American capitalism…”
US Federal Reserve announces $85 billion bailout of insurance giant AIG, Bill Van Auken, September 17, 2008 : “Following emergency consultations between the Federal Reserve, the US Treasury and the Democratic leaders of both houses of Congress, the Federal Reserve on Tuesday night announced a bailout of the Wall Street insurance giant American International Group (AIG)…”
Panic sell-off on Wall Street, Barry Grey, September 18, 2008 : “Collapsing confidence in the US and global financial system precipitated a panic sell-off of shares on Wall Street Wednesday, as all of the major indices registered drops in excess of 4 percent…”
The American “financial tsunami” hits Asia, John Chan, September 18, 2008 : “The American financial crisis has sent shockwaves throughout Asia over the past few days as governments, banks and corporations scramble to cope with plunging share prices, international financial turmoil and the prospects of a serious downturn in the US and other major economies…”
Europe gripped by fear of global crash, Stefan Steinberg, September 18, 2008 : “Europe’s ruling elite has reacted with shock and disbelief to what they fear will be the most serious crisis for world capitalism since the Wall Street Crash of 1929…”
Global financial storm hits Australian economy, Mike Head, September 19, 2008 : “The deepening financial turmoil in the United States and worldwide is sending tremors through the Australian banking system and share market, and shattering what remains of the claims that the local capitalist economy would be protected by booming exports to China and other Asian markets…”
Banks race to profit from US bailout, Barry Grey, September 23, 2008 : “The announcement of a virtually open-ended government bailout of Wall Street has set off a frenzied competition among the biggest banks and financial firms to grab the lion’s share of the super profits to be reaped from the program…”

The cavalry arrives:

US government to bail out Wall Street, Barry Grey, September 20, 2008 : “The Bush administration on Friday announced plans for a massive and unprecedented federal bailout of the US banking system. In separate appearances Friday morning, Treasury Secretary Henry Paulson and President Bush announced a series of measures to shore up collapsing financial markets and called on Congress to pass legislation next week to use, in Paulson’s words, “hundreds of billions” of taxpayer dollars to buy virtually worthless mortgage-backed assets that cannot be sold on the market from banks and other financial institutions…”

Markets have inherent and well-known inefficiencies. One factor is failure to calculate the costs to those who do not participate in transactions. These “externalities” can be huge. That is particularly true for financial institutions.

Their task is to take risks, calculating potential costs for themselves. But they do not take into account the consequences of their losses for the economy as a whole.

State capitalist institutions [are] designed in large measure to socialise cost and risk and privatize profit, without a public voice.

Hence the financial market “underprices risk” and is “systematically inefficient,” as John Eatwell and Lance Taylor wrote a decade ago, warning of the extreme dangers of financial liberalization and reviewing the substantial costs already incurred – and also proposing solutions, which have been ignored.

The threat became more severe when the Clinton administration repealed the Glass-Steagall Act of 1933, thus freeing financial institutions “to innovate in the new economy,” in Clinton’s words – and also “to self-destruct, taking down with them the general economy and international confidence in the US banking system,” financial analyst Nomi Prins adds.

The unprecedented intervention of the Fed may be justified or not in narrow terms, but it reveals, once again, the profoundly undemocratic character of state capitalist institutions, designed in large measure to socialise cost and risk and privatize profit, without a public voice.

That is, of course, not limited to financial markets. The advanced economy as a whole relies heavily on the dynamic state sector, with much the same consequences with regard to risk, cost, profit, and decisions, crucial features of the economy and political system.

~ Noam Chomsky, Viewpoints: Where now for capitalism?, BBC, September 19, 2008

On the demise of the Glass-Steagall Act:

After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of a Depression-era relic.

On Oct. 21 [1999], with the House-Senate conference committee deadlocked after marathon negotiations, the main sticking point is partisan bickering over the bill’s effect on the Community Reinvestment Act, which sets rules for lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal is unclear.

On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19 administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov. 4, and Clinton signs it into law later that month.

Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises eyebrows by accepting a top job at Citigroup as Weill’s chief lieutenant. The previous year, Weill had called Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had some important news, the secretary reportedly quipped, “You’re buying the government?”

Horticulture industry Pacific seasonal worker pilot scheme
17 August 2008
DAFF 08/102B

The Rudd Government has announced a three-year pilot seasonal worker scheme in the horticulture industry, where there is a lack of workers to harvest the nation’s fruit and vegetables. Under the trial, up to 2,500 visas will be available over three years for workers from Kiribati, Tonga, Vanuatu and Papua New Guinea to work in Australia for up to seven months in any 12 month period. Small groups of workers are expected to start to arrive late this year. Minister for Agriculture, Fisheries and Forestry Tony Burke announced the pilot, saying it would help Australian horticulture industries and could also meet the development needs of our Pacific island neighbours…

The scheme has the support of the Australian Workers Union boss Paul Howe: like Tony Burke, a member of the NSW Labor Right; unlike Tony, a former Trot.

The Australian guest worker scheme is apparently modelled on The Recognised Seasonal Employer (RSE) Work Policy, announced by the lesbian witch Helen Clark in 2006 and formally introduced in April, 2007. Nic McLellan has published a research paper on the subject of the RSE: ‘Workers for all seasons? Issues from New Zealand’s Recognised Seasonal Employer (RSE) program’, May 2008. “By April 2008 after a year of operation, 92 companies had been approved as Recognised Seasonal Employers and 4,070 workers from the Pacific and South East Asia had RSE visa applications approved. Of RSE visas issued, 3,923 have been used (as at 23 April 2008).” McLellan’s study concludes:

There are significant dangers in regarding seasonal workers as commodities to be traded between countries, and the heritage of the blackbirding era should be warning enough for policy makers – seasonal labour programs in Australia will only work if they take account of the rights and interests of the workers from the Pacific. The New Zealand experience has raised crucial issues about the need for consultation with unions, churches, welfare and support services and local islander communities in the Pacifica diaspora before any program starts in Australia.

One of the most obvious questions that occurs in this context is: why don’t Australian farmers employ Australian workers? The National Farmers’ Federation released its report ‘Workforce from Abroad Employment Scheme’ (PDF) on April 7, 2008, calling for filling 22,000 entry-level job vacancies through a reciprocal “mutual benefit” arrangement with Pacific Island nations.

But still: what about the roughly 481,700 (July 2008) unemployed? Surely these idle hands could be put to work picking fruit? And what about the indigenous unemployed?

Recently, Noel Pearson, Director of the Cape York Institute (For Policy and Leadership), has raised just this question. He’s also floated the idea of scrapping the dole for young Aborigines, on the basis that the dole is often a more attractive proposition than finding a (low- or lower-paying) job. Thus:

Ban Aboriginal dole until 21, Noel Pearson pleads
Patricia Karvelas and Padraic Murphy
The Australian
August 22, 2008

INDIGENOUS leader Noel Pearson has urged the Rudd Government to scrap the dole to Aborigines under the age of 21, saying the generous payments trapped people in a cycle of welfare. He said anyone thinking of leaving school should be confronted with a choice: earn or learn…

His call to scrap the dole was proceeded by a similar one voiced by ALP President Warren Mundine:

Dole cut call if Aborigines won’t work
Patricia Karvelas and Stuart Rintoul
The Australian
August 21, 2008

WELFARE laws should be overhauled to force Aborigines to take jobs or face immediate cuts to their dole payments – even if it requires moving away from their homelands. Labor powerbroker and indigenous leader Warren Mundine told The Australian yesterday the Rudd Government should introduce hardline welfare reforms that forced Aborigines to take work all over the country, with consequences for those who refused…

Such policy prescriptions stems from a more general analysis of the needs of Aboriginal communities, one which Pearson recently articulated in an address at a forum in Brisbane organised by eidos, “an independent research institute and think tank [whose] objective is to generate new ideas and dialogue on good education, labour market and social public policy.”

“Attack!”

According to Pearson, the mass of Aboriginal Australians now constitute a semi-permanent underclass, whose meagre job prospects — and wider social dysfunction — prevents them from entering the working class proper. Pearson argues that this is the result, in large part, of a failure in the modern welfare state. In this context, Pearson makes a distinction between the traditional (good) welfare state and the contemporary (bad) model.

The ‘traditional’ welfare state emerged, he argues, in the early part of the twentieth century, and — in one of its major, if not only functions — was geared towards providing income and other forms of support to those otherwise unable to secure jobs — in particular, children and the elderly — and gain entry to the labour market. This model was also based on a notion of reciprocity: that is, ordinarily, adults could be expected to gain jobs, pay taxes, and to make financial and other, non-financial contributions to the social order, in return for which they could expect their children to be educated, to be provided with a pension, if required, upon obtaining retirement age, and to otherwise be provided with essential social services.

In contrast to this model, Pearson argues that a form of ‘passive’ welfare consumption has evolved, one which imposes no such obligations upon the citizen-consumer. This is a failure of both economy and morality. Within Aboriginal Australia, welfare provision, once marginal, is now an entrenched mode of living, one which leads to various forms of moral, social, and spiritual corruption. Linked to this economic poverty is economic passivity; hence the need to introduce tougher measures

— sticks —

to compel young Aborigines in particular to enter the labour market, even — or especially — if this is via the bottom rungs of the occupational ladder. Further reinforcing this work-shyness is the absence of a model of economic participation; that is, many Aboriginal children have parents who are similarly unemployed, and in many families a breadwinner is absent.

Pearson uses the metaphor of the staircase (as opposed to the ladder, for example) to describe the situation facing indigenous peoples. This staircase has three dimensions. The first is the foundations, which are the social norms governing acceptable forms of behaviour. In his analysis, these norms have disintegrated over time. One dramatic example of this is the use of drugs by Aboriginal peoples, in particular, alcohol and cannabis. In addition to the other social problems associated with the use of such drugs, they tend to render young people unfit for labour (work). There is thus a need to re-establish these social norms, and to limit, as much as possible, the extent of drug use by Aboriginal communities.

The second element of the staircase Pearson describes as forming a combination of supportive networks and productive capabilities. According to this model (developed by the economist Amartya Sen), opportunities for social (education) and economic (employment) opportunities, when combined with personal responsibility (internalised value system), produce the magic potion marked ‘capability’. On the basis of imbibing this potion, members of the Aboriginal underclass (passive welfare recipients) are provided with the opportunity of joining the ranks of the (largely non-indigenous) working class. (Sen’s concepts of capability, and related notions of positive or substantial freedom, negative freedom and happiness, are summarised by Jan Garrett in the online paper ‘Amartya Sen’s Ethics of Substantial Freedom’ [January 2005] and given fuller expression in his book Development as Freedom [Random House, 1999].) Crucial to the provision of this capability is the role of parents in socialising their children into accepting the social norms which form the moral foundations of this model.

The third and final element comprising Pearson’s staircase metaphor is the notion of choice. That is, the social construction of rational incentives to ascend the staircase of opportunity.

Carrots.

At present, insofar as Pearson is concerned, carrots are being dangled by government at the bottom of the staircase, not the top. Subsequently, many choose to remain somewhere near the bottom, passively consuming welfare, rather than attempting to ascend the staircase — and experiencing temporary privation as a result — in order to reach its dizzying heights. Social welfare, in other words, acts to distort the otherwise rational operations of the labour market, and this distortion must be abolished.

On the basis of this model of economic and social development, Pearson also articulates a political and social agenda. First, welfare reform, and the (re-)introduction of moral and social obligations on the part of those in (temporary) receipt of social welfare. Secondly, and closely related to the first aim, is the need to address the price distortions which social welfare introduces into the labour market. In addition to unemployment benefits, Pearson identifies family tax benefits as a key area requiring re-formation: according to Pearson, for those Aboriginal people who have children, the generous nature of such benefits makes it irrational to not rely upon the state for their sustenance (rather than income derived from employment).

The second aspect of Pearson’s agenda concerns, on the one hand, the need to sustain primary supports networks: those required to deal with crises, especially those concerned with addressing family collapse and dysfunction and which aim at family sustenance and reconstruction. On the other hand, the need to abolish secondary forms of intervention — which consist, apparently, of innumerable programs geared towards addressing the failures of primary forms of state intervention.

Pearson elaborates on what an appropriate form of social welfare might and should consist of, one based on achieving four essential aims. First, proper financial management: the rational allocation of resources by the family unit. Secondly, the provision of effective forms of health care. Thirdly, education and parental stewardship. Finally, housing. In this area, Pearson stresses the importance of devolving property ownership from the community to the individual (family). (This is based on the implicit recognition of what is elsewhere referred to as the ‘tragedy’ of the commons. See: ‘The Tragedy of the Commons’, Garrett Hardin, Science, Vol.162. No.3859, December 13, 1968. Also ‘The Myth of the Tragedy of the Commons’, Ian Angus, Monthly Review (zine), August 25, 2008.)

With regards the tertiary… Pearson has nothing to say.

The final stage of Pearson’s struggle is directed squarely at what he identifies as the social welfare industry and its lobbyists and representatives (ACOSS, among others) and their apparent reluctance to adopt Pearson’s crusade against passive welfare. He identifies the reasons for the existence of this reluctance/resistance as being partly the result of ideological and political conflict, but — primarily I think — in terms of the real, material interests the lobby and industry has in its own economic and social reproduction, and therefore the maintenance of a dependent underclass. In his concluding remarks, Pearson quotes Theodore Dalrymple (Anthony Daniels) approvingly: “Misery rises to the level and means available for its amelioration”.

In essence, Pearson’s thesis boils down to the claim that the poor need discipline, not handouts.

Speaking of handouts, the Cape York Institute is sucking on the government teat to the tune of $1 million per annum ($4,028,489 budget total / $ 2,423,694 salary).

To be continued…

On Theodore Dalrymple, see ‘Why Intellectuals Like Genocide’, New English Review, July 2007, where the British psychiatrist has some interesting things to say about contemporary Australia, and in particular the reception by the ‘intelligentsia’ of Keith Windschuttle‘s pioneering work of historical revisionism, The Fabrication of Aboriginal History (2002) which successfully (according to Dalrymple/Daniels) “set… out to destroy the idea that there had been a genocide of Tasmanian [A]borigines carried out by the early European settlers of the island”. On Australia, Dalrymple/Daniels observes:

“Australia is known, not without reason, as the Lucky Country. It has virtually every resource known to man. It is a liberal democracy and has been for most of its existence. No one in Australia has ever feared the midnight knock on the door. To live well there requires a good deal less effort than in most places, perhaps anywhere else. The climate in much of the country (the current drought notwithstanding) is very pleasant. Overall, it is probably the best place, certainly among the best places, on earth to live. The fact that it is lucky is not, of course, a consequence of its natural endowments alone, but of what human beings have made of those endowments. Australia is a triumphant success…

The fact is, however, that political reforms in Australia, whatever they might be, are very unlikely to add much to the sum of human welfare there. Australia confronts human beings with their existential responsibility to make happiness for themselves, and this is sometimes a hard responsibility to face up to. For if you are unhappy in a country like Australia, you have to consider the possibility that the problem lies with you rather than with the conditions that surround you.”

Of further interest : ‘White guilt, victimhood and the quest for a radical centre’, Noel Pearson, Griffith REVIEW, No.16: Unintended Consequences, 2007 (PDF) | Anarchism and Aboriginal sovereignty, slackbastard, July 16, 2008