Disaster Capitalism - The Shock Doctrine

#146437Sat 04/10/08 11:36

Video: author Naomi Klein gives Stephen Colbert some advice on how to profit from the unfolding economic disaster that will "keep on giving". Investing in the Prison-Industrial Complex sounds like a good bet.

http://www.huffingtonpost.com/2008/10/03/naomi-klein-offers-colber_n_131696.html

http://en.wikipedia.org/wiki/The_Shock_Doctrine

Review by Joseph E. Stiglitz -- Nobel Laureate and former Chief Economist of the World Bank
http://www.naomiklein.org/shock-doctrine/reviews/bleakonomics

chutzpahSat 04/10/08 11:52

I bought this book about two months ago, and still haven't got round to reading it.

#146437Sat 04/10/08 16:55

quoting > "I bought this book about two months ago, and still haven't got round to reading it."

I haven't got round to reading the book either; but I've read some of Naomi Klein's articles and watched interviews and talks on youtube.

My main criticism is that she doesn't make it clear what sort of capitalism she is okay with. It can come across as though she is against all free-market capitalism, but this is almost certainly not true. As Colbert points out, I assume she likes the sort of capitalism which allows her the freedom and responsibility for authoring books.

My criticism of the free-market idealists is that they don't make it clear what sort of state intervention and regulation they are in favour of. They keep reciting the mantra of "small government", but I doubt any of them are proposing a complete free-for-all.

The following is an animated exchange between Naomi Klein and Andrew Sullivan (Ron Paul supporter) on Real Time with Bill Maher:

#146437Mon 06/10/08 17:15

Naomi Klein: Wall St. crisis should be for neoliberalism what fall of Berlin Wall was for communism

October 06, 2008 - Transcript of lecture at the University of Chicago
http://www.democracynow.org/2008/10/6/naomi_klein

Now, these [Friedman's] ideas in the 1950s and '60s at this school were largely in the realm of theory. They were academic ideas, and it was easy to fall in love with them, because they hadn't actually been tested in the real world, where mixed economies were the rule.

Now, I admit to being a journalist. I admit to being an investigative journalist, a researcher, and I'm not here to argue theory. I'm here to discuss what happens in the messy real world when Milton Friedman's ideas are put into practice, what happens to freedom, what happens to democracy, what happens to the size of government, what happens to the social structure, what happens to the relationship between politicians and big corporate players, because I think we do see patterns.

Now, the Friedmanites in this room will object to my methodology, I assure you, and I look forward to that. They will tell you, when I speak of Chile under Pinochet, Russia under Yeltsin and the Chicago Boys, China under Deng Xiaoping, or America under George W. Bush, or Iraq under Paul Bremer, that these were all distortions of Milton Friedman's theories, that none of these actually count, when you talk about the repression and the surveillance and the expanding size of government and the intervention in the system, which is really much more like crony capitalism or corporatism than the elegant, perfectly balanced free market that came to life in those basement workshops. We'll hear that Milton Friedman hated government interventions, that he stood up for human rights, that he was against all wars. And some of these claims, though not all of them, will be true.

But here's the thing. Ideas have consequences. And when you leave the safety of academia and start actually issuing policy prescriptions, which was Milton Friedman's other life -- he wasn't just an academic. He was a popular writer. He met with world leaders around the world -- China, Chile, everywhere, the United States. His memoirs are a 'who's who.' So, when you leave that safety and you start issuing policy prescriptions, when you start advising heads of state, you no longer have the luxury of only being judged on how you think your ideas will affect the world. You begin having to contend with how they actually affect the world, even when that reality contradicts all of your utopian theories. So, to quote Friedman's great intellectual nemesis, John Kenneth Galbraith, "Milton Friedman's misfortune is that his policies have been tried."

#146437Tue 07/10/08 17:09

A view from a Reaganite.
--

Paul Craig Roberts (Oct 7, 2008): The Bailout Will Fail
http://onlinejournal.com/artman/publish/article_3839.shtml

...the neoconservatives launched America on an unrealistic path of world hegemony. The economic restoration that Reagan achieved was not shored up by his successors. Instead, they used the Reagan restoration to run the American economy into the ground in ways that benefitted the super rich and the military-security complex. Some of America's best jobs were offshored in order to boost share prices and executive compensation, and the financial sector was recklessly deregulated.

Americans, for the most part, will never know what happened to them, because they no longer have a free and responsible press. They have Big Brother's press. For example, on September 28, 2008, a New York Times editorial blamed the current financial crisis on "antiregulation disciples of the Reagan Revolution."

What utter nonsense. Every example of deregulation that the New York Times editorial provides is located in the Clinton administration and the George W. Bush administration. I was a member of the Reagan administration. We most certainly did not deregulate the financial system.

The repeal of the Glass-Steagall Act, which separated commercial from investment banking, was the achievement of the Democratic Clinton administration. It happened in 1999, over a decade after Reagan left office.

It was in 2000 that derivatives and credit default swaps were excluded from regulation.

The greatest mistake was made in 2004, the year that Reagan died. That year the current Secretary of the Treasury, Henry M. Paulson, Jr., was head of the investment bank Goldman Sachs. In the spring of 2004, the investment banks, led by Paulson, met with the Securities and Exchange Commission. At this meeting with the New Deal regulatory agency tasked with regulating the US financial system, Paulson convinced the SEC commissioners to exempt the investment banks from maintaining reserves to cover losses on investments. The exemption granted by the SEC allowed the investment banks to leverage financial instruments beyond any bounds of prudence.

#146437Tue 07/10/08 20:09

Why don't Canadians work for 15 cents an hour?

A view from the far left -- Michael Parenti (October 2002)

http://video.google.com/videoplay?docid=6573660441809242121

http://en.wikipedia.org/wiki/Michael_Parenti

#146437Fri 10/10/08 15:25

George Carlin:

and now they're coming for your social security money

#146437Sat 11/10/08 18:29

Credit Default Swaps -- The Quadrillion Dollar Derivatives Bubble

By Ellen Brown, September 18, 2008
http://www.webofdebt.com/articles/its_the_derivatives.php

In congressional hearings in the early 1990s, derivatives trading was challenged as being an illegal form of gambling. But the practice was legitimized by Fed Chairman Alan Greenspan, who not only lent legal and regulatory support to the trade but actively promoted derivatives as a way to improve "risk management". Partly, this was to boost the flagging profits of the banks; and at the larger banks and dealers, it worked. But the cost was an increase in risk to the financial system as a whole.

Since then, derivative trades have grown exponentially, until now they are larger than the entire global economy. The Bank for International Settlements recently reported that total derivatives trades exceeded one quadrillion dollars -- that's 1,000 trillion dollars. How is that figure even possible? The gross domestic product of all the countries in the world is only about 60 trillion dollars. The answer is that gamblers can bet as much as they want. They can bet money they don't have, and that is where the huge increase in risk comes in.

Credit default swaps (CDS) are the most widely traded form of credit derivative. CDS are bets between two parties on whether or not a company will default on its bonds. In a typical default swap, the "protection buyer" gets a large payoff from the "protection seller" if the company defaults within a certain period of time, while the "protection seller" collects periodic payments from the "protection buyer" for assuming the risk of default. CDS thus resemble insurance policies, but there is no requirement to actually hold any asset or suffer any loss, so CDS are widely used just to increase profits by gambling on market changes. In one blogger's example, a hedge fund could sit back and collect $320,000 a year in premiums just for selling "protection" on a risky BBB junk bond. The premiums are "free" money -- free until the bond actually goes into default, when the hedge fund could be on the hook for $100 million in claims.

And there's the catch: what if the hedge fund doesn't have the $100 million? The fund's corporate shell or limited partnership is put into bankruptcy; but both parties are claiming the derivative as an asset on their books, which they now have to write down. Players who have "hedged their bets" by betting both ways cannot collect on their winning bets; and that means they cannot afford to pay their losing bets, causing other players to also default on their bets.

The dominos go down in a cascade of cross-defaults that infects the whole banking industry and jeopardizes the global pyramid scheme. The potential for this sort of nuclear reaction was what prompted billionaire investor Warren Buffett to call derivatives "weapons of financial mass destruction". It is also why the banking system cannot let a major derivatives player go down, and it is the banking system that calls the shots. The Federal Reserve is literally owned by a conglomerate of banks; and Hank Paulson, who heads the U.S. Treasury, entered that position through the revolving door of investment bank Goldman Sachs, where he was formerly CEO.

#146437Mon 13/10/08 15:07

Crony Capitalism American-Style

Joseph E. Stiglitz -- February 2002
http://www.project-syndicate.org/commentary/781/1

Remember the East Asia crisis? when the US Treasury and its IMF allies blamed that region's problems on crony capitalism, lack of transparency, and poor corporate governance? Countries were told to follow the American model, use American auditing firms, bring in American entrepreneurs to teach them how to run their companies. (Never mind that under the leadership of their own entrepreneurs East Asia grew faster than any other region - and with greater stability - over the previous three decades.) The unfolding Enron scandal brings new meaning to two favorite American sayings: "What goes around comes around,'' and "People in glass houses shouldn't throw stones.''

Enron used fancy accounting tricks and complicated financial products (derivatives) to mislead investors about its value. No transparency here. It used its money to buy influence and power, shape U.S. energy policy, and avoid regulations.

We can try to inculcate better ethical standards. But we cannot rely on them when so many worldly people see nothing wrong with revolving doors. They claim to manage conflicts of interest; but we see that they may manage them for their own interests. But even as evidence for such abuses becomes apparent, new venues for abuse are repeatedly opened up - take the US repeal of the Glass Steagall Act, which separated commercial from investment banking.

Repeatedly, we have seen the consequences of the excesses of deregulation, of unfettered markets. Now we must resist the temptation to go to the other extreme. The challenge is: get the balance right.

http://en.wikipedia.org/wiki/Crony_capitalism