Chomsky: A man of great integrity?
The critique of Chomsky on Cambodia is hardly a canard. Thus, I cannot understand your claim, Michael, that he is a man of, what did you say, great integrity? Consider the following selections from an article by Chomsky and Herman in 1977 (http://www.zmag.org/chomsky/index.cfm Distortions at Fourth Hand that appeared in The Nation.) Hildebrand and Porter present a carefully documented study of the destructive American impact on Cambodia and the success of the Cambodian revolutionaries in overcoming it, giving a very favorable picture of their programs and policies, based on a wide range of sources. In brief, Hildebrand and Porter attribute wrecking and rebuilding to the wrong parties in Cambodia. [and thus earn according to Chomsky and Herman the condemnation of the western media] The Wall Street Journal acknowledged its [H-P's book] existence in an editorial entitled Cambodia Good Guys (November 22, 1976), which dismissed contemptuously the very idea that the Khmer Rouge could play a constructive role, as well as the notion that the United States had a major hand in the destruction, death and turmoil of wartime and postwar Cambodia. In contrast, the media favorite, Barron and Paul's untold story of Communist Genocide in Cambodia (their subtitle), virtually ignores the U.S. Government role. Their scholarship [B-P's] collapses under the barest scrutiny. To cite a few cases, they state that among those evacuated from Phnom Penh, virtually everybody saw the consequences of [summary executions] in the form of the corpses of men, women and children rapidly bloating and rotting in the hot sun, citing, among others, J.J. Cazaux, who wrote, in fact, that not a single corpse was seen along our evacuation route, and that early reports of massacres proved fallacious (The Washington Post, May 9, 1975). Nor do they [B-P] try to account for the amazingly rapid growth of the revolutionary forces from 1969 to 1973, as attested by U.S. intelligence and as is obvious from the unfolding events themselves. The slaughter by the Khmer Rouge is a Moss-New York Times creation. ...executions have numbered at most in the thousands; that these were localized in areas of limited Khmer Rouge influence and unusual peasant discontent, where brutal revenge killings were aggravated by the threat of starvation resulting from the American destruction and killing. [ ] are mine and ( ) are those of Chomsky and Herman, thus C-H call the KR constructive and revolutionaries and dismiss the word genocide as their subtitle and reports of bloating corpses as fallacious and the slaughter (their scare quotes) is a creation of the mainstream media. These were precisely the tactics of the State Department and UN Security Council when it decided not to intervene to prevent the Rwandan genocide. In fact, the Yale Cambodian Genocide Program (http://www.yale.edu/cgp/cgpintro.html) concludes that at least 1.7 million people were slaughtered from 1975 to 1979, as Chomsky and Herman, from tenured security in Cambridge and Philadelphia penned their review for The Nation. Stephen F. Diamond, J.D., Ph.D. Assistant Professor of Law School of Law Santa Clara University [EMAIL PROTECTED]
Re: RE: Chomsky: A man of great integrity?
Max, As you note, Chomsky and Herman admit there were sharply conflicting assessments at the time. The question is why they chose to disparage those assessments that suggested a genocide was underway. I would suggest it is because doing so was consistent with their politics - which still today in the case of Chomsky consist of an approach that states that the enemy of my enemy is my friend when it does not slide all the way over into political support and admiration for authoritarian left regimes. The remarkable thing is how exactly this mirrors the approach of the U.S. Government when it chooses facts to fits its politics - as it so shamefully did in the case of Rwanda. (By the way I can find nothing that suggests that Chomsky ever stated that he was wrong in 1977.) The failure of the left to establish a credible independent foreign policy opposed to the politics of both the U.S. government and those of regimes like Hussein's, Castro's, Lee Kuan Yew's, and Kim il Jung's is a tragedy marked by the swing of erstwhile colleagues such as Christopher Hitchens to an open alliance with the U.S. government. As an antidote to this kind of thinking I would highly recommend the work of E.P. Thompson including any of the material that he and others produced during the European Nuclear Disarmament movement of theh 1980s and his collection of essays The Poverty of Theory. Stephen F. Diamond
reply to Jim Devine and Thiago on Chomsky
Jim, it is certainly, I will agree, Chomsky's obsession to use an apparently objective critique of the western media to make his political arguments, but to ignore the politics behind this approach is to reward form over substance. In your parenthetical ending you come dangerously close to a conclusion that I hope is not intended: that the Khmer Rouge's genocidal activities is explained by the behavior of the U.S. and Vietnam. Nationalist movements in many other countries seem to have avoided such extreme behavior and emerged free from colonial and other forms of control - South Africa, for example, India, for another. Thiago suggested that noone on the left supports regimes (a term I usually apply to states controlled by groups that gained that position without a democratic election, as opposed to governments which have some claim to legitimacy). At least he had the courage to omit Castro from his list. It would no doubt surprise him to find out that hard core Sandinistas actually admired North Korea, that leading figures in the anti-globalization movement admire Lee Kuan Yew, and do I really have to trot out defenders of the Hussein regime? As far as madness goes, what is one to say about Thiago's closing remark: He [Chomsky] has been right all along [about the U.S.] - whatever the facts may have been in Cambodia. Facts, unfortunately for Chomsky, are stubborn things. Stephen F. Diamond School of Law Santa Clara University
your views are not pointless, Thiago
Your perspective is representative of many on the left and thus expressing it seems far from pointless. But that does not mean that it makes sense. For example, you admit to some problems with the Castro regime (rightly describing him as a thug) but then leap to the conclusion that that mean[s] that I must at once call for his elimination, the murder of tens of thousands of Cubans and the installation of a US friendly regime. That reminds me of a typical discussion that occurred in the 1980s during the independent movement for democracy and human rights in eastern europe supported by the western nuclear disarmament movement. In a talk at Stanford, Czech dissident writer and Charter 77 writer novelist Zdena Tomin endorsed the call for unilateral disarmament being made by E.P. Thompson and others. An American student asked, but if the Americans leave, what will be left? Tomin replied with an arched eyebrow, the Europeans? You, Thiago, seem to see the world in the same bipolar fashion as that Stanford student - and thus you pose change in Cuba, and presumably Iraq, in the terms I initially applied to Chomsky (the enemy of my enemy). Did it occur to you that your opposition to Castro's thuggery might be endorsed by the direct victims of that behavior - the Cuban people themselves? And that you might find allies among the Cuban people short circuiting the aims of those who really do want to impose a Washington-friendly regime. That approach apparently did not occur to the organizers of the recent antiwar march in Washington who structured the entire event around opposing U.S. aggression without any suggestion that there really does need to be dramatic political change in Iraq, apoint of view that noone as far as I could tell was willing to make at the rally. In fact, I would argue that the antiwar movement in the U.S. would be greatly strengthened by acknowledging the thuggery of Saddam Hussein regime rather than attempting to rationalize it. Then the antiwar movement might find new allies among the Iraqi people themselves who will indeed need to be organized to resist the future that the Pentagon seems intent on imposing on them in the near future.
Re: Chomsky
The Germans had a word for such movements of entire populations out of the cities, Michael, I think they called it das endliche losung - and, just think, they were fed and clothed during the entire ride. - Original Message - From: Michael Perelman [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Tuesday, December 03, 2002 7:38 PM Subject: [PEN-L:32741] Chomsky I thought that Jim, Thiago, and Max answered Steve quite well. Chomsky was not concerned about defending Cambodia, only trying to show the hypocracy of the US. Once in France, I saw a very interesting Yugoslavian documentary on Cambodia. It made the case that Pol Pot had to move the people out of the cities in order to avoid starvation. It did not defend the massacres, nor would anyone on this list. To say that Iraq before the Gulf War had some success in developing health and education does not make someone a supporter of SH. All too often in political discourse to say a positive word about any of today's demons, makes one an agent of the devil. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: FYI: Review on Chinese economy in Dissent
Title: RE: [PEN-L:28933] FYI: Review on Chinese economy in Dissent Well, Walzer certainly hasa "just war" viewpoint - but fortunately I wasn't asked to endorse his line when I submitted the review! They have moved well away from their old Irving Howe style - with for example some interesting debates on Seattle etc. with younger activists. So I viewed this as an experiment. Stephen F. DiamondSchool of Law Santa Clara University[EMAIL PROTECTED] - Original Message - From: Devine, James To: '[EMAIL PROTECTED]' Sent: Wednesday, July 31, 2002 8:39 AM Subject: RE: [PEN-L:28933] FYI: Review on Chinese economy in Dissent Steve, isn't DISSENT pretty pro-war these days? (I know that they were pretty much in favor of the US war against Vietnam back in the 1970s, while Doug Henwood's LBO has reported on their current attitudes.) Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -Original Message- From: Steve Diamond [mailto:[EMAIL PROTECTED]] Sent: Tuesday, July 30, 2002 10:49 PM To: [EMAIL PROTECTED] Subject: [PEN-L:28933] FYI: Review on Chinese economy in DissentA book review on Chinese economy in current Dissent: Stephen F. Diamond on Joe Studwell's The China Dream and Azizur Rahman Khan and Carl Riskin's Inequality and Poverty in China in the Age of Globalization http://www.dissentmagazine.org/ Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
FYI: Review on Chinese economy in Dissent
A book review on Chinese economy in current Dissent: Stephen F. Diamond on Joe Studwell's The China Dream and Azizur Rahman Khan and Carl Riskin's Inequality and Poverty in China in the Age of Globalization http://www.dissentmagazine.org/ Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
garber v. Kindleberger
I thought Garber was an attempt to reply to the rise of behavioral finance explanations like those of Shiller and Kindleberger but instead it seems to rest on rather dubious distinctions about uncertainty and risk that I think are all attempts to justify entrepreneurial return (i.e. where does the so-called productivity of capital come from - assuming you do not want to invoke labor power - and who deserves the return). This is just a guess. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
re: Yale men
Is taking care of yourself by screwing associated investors taught at Yale? I didn't take that course - maybe Jim Devine did. I got intro macro from James Tobin, money banking from Henry Wallich, intermediate macro from William Nordhaus, and none of them uttered a word on the topic. Tobin did do a pretty jazzy mime of pushing on a string, though. Doug You have to go to the law school to learn this. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
It's Greedspan's Fault?
What is hinted at here but not stated is that the Democratic/labor left traditionally pushes for lower interest rates in the interest of stimulating economic activity but fails to take responsibility for the dynamics of a speculative era in capitalism in which lower interest rates only stoke the fires of fictitious capital buildup. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Doug and Jim: summary of credit bubble
So am I right in thinking that the core point of this article - that the debt to GDP ratio indicates a potential crisis and is a significant factor in the current meltdown environment is NOT a worrisome issue to you guys?? Apparently that is a view widely shared on PEN-L since the list has been totally silent on the events in the markets of the past several weeks, not to mention the meltdown in corporate governance. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
re: George W. Bush is a crook
Of course, the Baker in Baker Botts is James Baker.
P.S. on Bush as a possible crook
i.e. Fmr. Sec. State James Baker is grandson of the original Baker in Baker Botts.
My (unpublished) op-ed on stock options
(Feel free to distribute) Expense those options! By Stephen F. Diamond* As the dust clears from the collapse of Enron, WorldCom and Arthur Andersen, major structural change in the behavior of American corporations and financial markets seems less likely. The lobbying power of accounting firms, investment banks and large corporations appears to have convinced Congress that its best interests lies with the insiders in our economy not with the broader public interest. But there is one possible reform that still has a chance: ending the practice of granting absurdly generous stock option packages to top corporate insiders. The defenders of stock options argue that they help align the interests of inside managers with outside shareholders. This is a laudable goal, in and of itself. Share ownership in the last twenty years has spread to a wide percentage of the public. Millions of Americans, for better or worse, now look to the stock market as the source of their retirement income. Because no single shareholder can afford to monitor the behavior of corporate insiders, the public relies instead on institutions like the board of directors to protect their interests. Granting corporate insiders huge option packages has been one board tactic that allegedly motivates insiders to manage the corporation in the long-term interest of the public shareholders. But this argument is based on an important mistaken assumption that stock options are the same as stock. They are not. Options are different financial instruments from the stock that underlies the option and they are priced to reflect that difference. Stock is priced based on a long-term assessment of the potential earning power of a corporation. But stock options are priced to take into account a range of factors that includes the value of the stock but also the time to expiration of the option and, most importantly, the volatility of the underlying stock. Options actually increase in value with an increase in the volatility of the underlying stock. An increase in volatility increases the chance that the option will be in the money and hence profitable for insiders. Why should outside public shareholders care about this difference? Because an increase in the volatility of the stock is something that corporate insiders can manipulate by engaging in higher risk projects. The insiders can increase the value of their options by engaging in all or nothing gambles. After all, if the project is a success it might cause a huge increase in the stock price, with a gain to outside shareholders as well. The potential gain to insiders has been so huge in recent years that they have been tempted to engage not only in high risk projects but in manipulation of corporate earnings and other illegal activity that is, in essence, theft from outside shareholders and looting of corporate assets, an important public resource. If the insider bet is a bust the options expire with no loss to the insider while the outside shareholders will see a huge drop in the value of their shares. In fact, the insiders often walk away with luxurious golden parachutes, no matter what the outcome of their speculative activities. Dennis Kozlowski, the ousted CEO of Tyco, was set to earn $137,000 a year for life as a consultant and lifelong use of the corporation's fleet of airplanes! In other cases insiders have walked away with millions of dollars even as stock prices stagnate or decline, as they cash in on past options granted at steep discounts to the current price. Oracle CEO and Chairman Larry Ellison cashed in $700 million of options that were nearly a decade old in 2001. His sale came just in time, as Oracle stock plummeted from more than $34 per share to around $13 per share weeks later when the Company told the public that sales and profits were down. The stock of Standard Microsystems Corporation began the year 2001 at $20 a share and declined by almost fifty percent at one point only to finish the year at slightly below $20. Thus, a net goose egg for outside shareholders, but CEO Steven Bilodeau received a pay package worth more than $2.2 million including options and exercised older options for another $2.5 million. And, according to the AFL-CIO's Executive Pay Watch, a fifty percent drop in the 2001 price of the stock of Gap, the troubled clothing retailer, did not stop CEO and President Millard Drexler from raking in more than $9 million in total compensation including new stock options. Thus, insiders' interests are not aligned with those of outside public shareholders by stock options; they are, in fact placed at odds with each other. Despite this conflict, corporations can pretend that options are given away for free, since they are not required to charge the cost of the options as an expense item in company accounts. At the very least, options should be charged as a compensation expense to corporate income statements. Even more reasonable would be to get
Good report on Chinese worker unrest
Cox News Service July 2, 2002 Tuesday Copyright 2002 Cox Enterprises, Inc. Cox News Service July 2, 2002 Tuesday SECTION: International News LENGTH: 1343 words HEADLINE: STRIKES BRING LITTLE SATISFACTION FOR CHINA'S DISAFFECTED WORKERS BODY: For Sunday, July 7 With photos With CHINA-SWEATSHOPS, CHINA-JOURNAL By JULIE CHAO Cox News Service DAQING, China _ Much of industrial China has been gripped by labor unrest, from protesting oil workers in the eastern province of Shandong to retired steel workers in Guizhou in the southwest. Disgruntled workers are blocking traffic and railways, staging protests, shutting down production and risking arrest. The widespread strife has been viewed by some as a serious threat to China's political stability. But experts say there is little chance of a Solidarity-style labor movement starting up anytime soon. It's not just repression that's stopping workers from organizing; they lack the vision to unify their disparate causes. Two recent protests against state-run enterprises in this gritty city exemplify the plight. Workers of the Number Two Construction Company haven't been paid in four years. They weren't fired or laid-off or otherwise made eligible for any state benefits. They were simply told not to come to work because there was no money to pay them. They obstructed a railway in protest, but virtually nothing came of it. They are angry, frustrated and disheartened. Across town, thousands of workers at the Daqing Petroleum Administration have been holding a sit-in for months to protest a buy-out package they say is unfair and leaves them with little for their future. Their rage is compounded by what they see as blatant corruption _ managers are thriving while the underlings suffer. They vow to demonstrate until their demands are met. These two groups of workers, living in the same city, victims of the same painful economic restructuring and driven by the same outrage at official malfeasance, barely know of each other's existence. Workers must be organized in order to develop their class consciousness, said Chen Feng, a professor at Hong Kong Baptist University who studies labor issues. Relying on workers to sympathize spontaneously would be difficult. Workers won't see the class interest by themselves; they only see personal interest. To workers in Daqing, the bad guys are the local officials or bosses, not the central policies that allow those officials to get away with withholding paychecks or possibly even lining their own pockets. Their only demand is to have enough to eat, Chen said. The lack of political freedoms, the absence of a free press and arrests of anyone who dares speak out on behalf of workers make it nearly impossible to spark a broader labor movement. Paltry payouts usually are enough to get most protesters to go home. It's not easy for workers to organize, said Yawei Liu, a China specialist at the Carter Center in Atlanta and history professor at Georgia Perimeter College. The government clips their wings at the embryonic stage. As long as they're isolated, it's not a problem (for the government). Movements that are truly organized _ such as the Falun Gong spiritual sect, which has a hierarchy of leaders and set up sophisticated underground communications channels _ are viewed by the government as a genuine threat and ruthlessly suppressed. Still, the government's strategy for defusing labor protests _ arrest a few, payoff the rest _ cannot be maintained indefinitely, experts agree. There's no chance of workers linking up, said Xian Yulin, a 59-year-old Daqing oil bureau retiree who sympathizes with the protesters. Things are too tightly controlled. But sooner or later, it will explode. Something will happen. But now the time is not right. So far, most labor protests have been spontaneous, set off by two factors: economic desperation and anger at corruption. Participants have largely been limited to people who were already out of work and had little left to lose. Employed workers have rarely gone on strike, neither to protest corruption nor in sympathy with other protesting workers. Yet, as competitive pressures brought by China's entry into the World Trade Organization force bloated state enterprises to further slash expenses and boost efficiency, more and more workers will be without jobs. More than 25 million people since 1998 have lost their jobs and 17 million have found other work, according to official statistics. Another 20 million people _ equivalent to the population of Texas _ will be out of work in the next four years. Hardest hit are the generation of low-skilled, middle-aged workers who were told at the beginning of their careers that they were masters of the state and would eat from the iron rice bowl for life. Reform and opening up is good, but we have nothing to eat, said Zhang, 57, a carpenter for the Number Two Construction Company. He would give a reporter only one name. The dire situation has given
Good article on the bubble
http://206.33.81.20/pub/view/2002/view0102.htm Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Lawyers as Vile Tools of Capitalist Oppression??
If you lined up all the economists in the world end to end, they would still not reach a conclusion. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
The next Argentina?
Wednesday, July 3, 2002 Is China the Next Argentina? China's sagging economy is threatening to turn China into an Asian version of Argentina, a top financial journal warns. Unless it can patch up the situation, China risks becoming Asia's Argentina... the people's Republic can go from boom to bust in just a few short years, wrote Gordon Chang in the June 19, Asian Wall Street Journal as quoted by the authoritative American Foreign Policy Council. According to Chang, both countries crammed their banks full of bonds, created growth by playing money games and attracting foreign direct investment... Argentina, he wrote deferred reforms by living on foreign capital, and China is playing this same game, too... When the flow of international capital tightens again, China's deteriorating fiscal and debt conditions will come under international scrutiny. High expectations for the Chinese economy are grossly exaggerated he warned, explaining that China's economic growth is declining and its banking system is disarray, posing a threat of destabilization to the international economy. . Chang reported that Beijing authorities describe China's economic outlook with words such as 'grim' and 'grave,' yet some foreign experts are continuing to say that everything is just fine and dandy in the People's Republic of China. He cited the official figures - which he said tend to exaggerate China's output yet still show growth declined in each quarter of last year... There is also a more fundamental matter of how could a country record high growth when it is experiencing worsening deflation and massive unemployment. Signs of China's economic problems described by Chang: The central government amounts for more than two-thirds of investment in the country, which he says is alarming by any standard; China's ever-larger budget deficits as shown by the record one of $37.5 billion announced for the coming year China's annual deficit has already zoomed past 3% of the GDP, the international recognized safety limit. The current pace is unsustainable and out of control, he wrote. Finance Minister Xiang Huaicheng has just one word for China's recent spending, calling it 'reckless.' China as the next Argentina?' he asks, adding that even though it sounds preposterous today, it is worth remembering that Argentina did not have to go through the shock therapy of joining the World Trade Organization which resulted in China's losing control of the timetable to reform its banking system. The largest state banks are insolvent, as a group perhaps the weakest in the world, he reports, adding that Beijing must either rehabilitate them in the next five years to the tune of $500 billion - or face the failure and the collapse of the economy itself. Beijing talks a lot about structural reform but has implemented very little of it these past few years, Chang concludes. In this upcoming period of political transition, [with jockeying for the upcoming Communist Party leadership changes at hand]the paralysis will become even more evident... The critical issue is time. Peasants and workers are impatient... Despite progress, many Chinese today are hungry, angry and, worst of all, desperate. Beijing's leaders know how to use the coercive power of the state to keep a lid on unrest. Yet, force is only a short-term solution. Time is running out.
UK's Hutton attacks American model
Bye bye American pie Behind the crisis in corporate America is a combination of pernicious Southern conservatism and unadulterated greed, argues Will Hutton. [EMAIL PROTECTED] Sunday June 30, 2002 The Observer The US faces a grave economic crisis. The confidence in the balance sheets and reported profitability of American companies has been shattered by an orgy of unprecedented corporate fraud, plunder and malfeasance that has demanded the connivance of its most reputable accounting firms, business leaders and banks. Only last week news broke of the biggest ever accounting fraud in history at WorldCom, to be followed days later of an epic accounting swindle at Xerox. Before them has been a string of others, with Enron the most famous collapse of all. The integrity of the entire system for channelling savings into investment is now in question as is that of corporate America, just as America's debts to foreigners and its own consumers indebtedness have reached unsustainable levels. The country has been living beyond its means and inventing value when none existed. No one can predict with certainty how this will unravel, although the faltering of American consumer confidence and the sell-off of the dollar are already pointers. The dollar is threatening to inherit the sobriquet of 'toilet currency' once borne by the euro. The US can and eventually will recover, but only when it comes to terms with the harshest of realities. That it does not possess a uniquely enterprising economic and financial model. That the scandals now hitting the headlines are not a case of one or two bad apples, but reveal systemic weaknesses in its financial system and methods of corporate governance which need root-and- branch reform. That American business ethics are abysmally low and require the toughest of policing . And that the US, like other economies that have pursued unsustainable and foolhardy policies, must go through a period of painful and difficult adjustment. This is not just a case of companies fudging a billion here or there, as President Bush said in his folksy statement on Friday, and hoping nobody notices, a problem, as he characterises it, of individual ethics rather than systemic deformation. Rather, this is where America's business culture has led, legitimised by the conservative ideological barrage now a generation old which has transformed American public discourse. Everything should and must be pro-market, pro-business and pro-shareholder, a policy platform lubricated by colossal infusions of corporate cash into America's money-dominated political system. Congresswoman Marcy Kaptur, for example, described the abysmally lax 1996 Telecoms Act, deregulating the telecoms industry and the precondition for the current scandals in the industry, lobbied for ferociously by WorldCom in order to unleash market forces, as 'living proof of what unlimited money can do to buy influence in the Congress of the United States'. The truth is that American business has bought the American executive and legislature alike. It is this that makes crafting the right reaction to the crisis so hard. The Bush administration has become so attached to the conservative revolution and its attendant free-market fundamentalism that the change in thinking it must now make threatens to be beyond them, even if its corporate paymasters would allow it. The need is to reregulate, to recognise business lobbying is primarily self-interested and, above all, to insist that successful capitalism is much more sophisticated and complex than simply letting fat cats get fatter and diminishing all forms of worker protection. The US will find its way back, as it has done before, but only when its conservative hegemony and its compromised ideas have been broken. This will be a Herculean task, for the rise in conservatism has deep roots. It is no accident that WorldCom, whose accounting fraud cost $3.8 billion, was based in Mississippi and was a generous contributor to its hard-line conservative senator, Trent Lott, minority leader in the Senate, as Ed Vulliamy reports today. Nor that Enron, whose profits were vastly overstated by accounting fiddles, was based in Texas and whose relationship with George Bush was so close. The states of the Confederacy remain the heartland of the distinct brand of American conservatism that combines Christian, market and America-first fundamentalism to a unique degree, reinforced in the South by a legacy of barely submerged racism. The rise of American conservatism has closely followed the rise in the economic fortunes of the Confederacy, together with its belief in a take-no-prisoners form of capitalism. The new Right thinkers provided the intellectual cover, providing populist slogans calling for 'freedom', accusing all forms of government of being 'coercive' and deriding the social contract as a cause of 'dependency'. It didn't take long before Wall Street joined in, insisting that the companies should serve the
UK's Guardian on widening corporate scandal
The Guardian (London) July 1, 2002 Copyright 2002 Guardian Newspapers Limited The Guardian (London) July 1, 2002 SECTION: Guardian Leader Pages, Pg. 17 LENGTH: 1178 words HEADLINE: All that is left is power: For 20 years we've been coerced and cajoled to become share-dealers. Now the love affair with business is over BODY: When I was studying in the Soviet Union, during Gorbachev's last, faltering months, my landlady used to take the dog out for a walk at nine o'clock every night. For weeks I put this down to routine, until I once accompanied her and found several other local residents doing the same thing. Standing within walking distance of Smolny Institute, where Lenin organised the Russian revolution, they would discuss the perils of perestroika as their dogs chased their tails. The timing, it turned out, was not accidental. They called it Dog Hour - the time when the state sponsored news programme, Vremya, came on which they had no interest in watching because they could not bear its lies. None had any inkling that this superpower was poised to implode in the precipitate and chaotic manner that it did. The Party still reigned supreme and the state was armed to the teeth. But what was evident from this playful act of subversion, is that the system had not only lost the capacity to deliver goods and services, but to present itself in a manner that people could find at all credible. Having lost all influence, all it had left was power. Watching the business news the past few weeks, I have had the urge to take quick walk around the block myself. As a litany of corporate giants collapse under the weight of their own deceit it is impossible not to question the authority with which the endless stream of results and forecasts are cited and the integrity of those who have produced them. I don't understand why business journalists expect to be told the truth, said Jim Clark, the founder of Netscape. The share price is too important for that. So claims that these recent scandals are one-off aberrations are as believable as an Arthur Andersen balance sheet. Since America came down with Enron-itis a few months ago, a veritable rash of fraudulent accounting, dishonest practices and creative number crunching has emerged. The most common prognosis is that even more are to come. We have been warned to brace ourselves for an epidemic. Research by the Times last week showed that 10 of Britain's leading 16 insurers have booked up to pounds 5.7bn in profits that they have yet to earn, to boost the appearance of their financial strength. That is tantamount to counting your next year's salary as an asset this year. We are no longer referring to a rogue, eccentric individual such as Nick Leeson, but an entire culture rooted in practices which either border on or venture into the criminal. Tales that were once put down to isolated, bad chapters in the story of capitalism's otherwise unyielding cultural and economic hegemony are now shaping the narrative of its moral dislocation and systemic corruption. A significant and growing number of otherwise high-grade managers have come to the view that it is OK to manipulate earnings to satisfy what they believe are Wall Street's desires, said Warrant Buffett, a legendary American investor. Indeed, many CEOs think this kind of manipulation is not only OK but actually their duty. The rot had set in way before Enron. A combination of overly compliant governments and weak unions during the late 1980s and 1990s has bred a generation of arrogant business leaders whose appetite for excess knows no fiscal, let alone moral boundaries. At Wimbledon, hospitality suites are doing a roaring trade. JP Morgan, one of the banks most heavily exposed to WorldCom, is entertaining to the tune of pounds 16,000 a day. IBM, which recently announced a 32% drop in first-quarter profits, has a suite costing pounds 20,000 a day. Business is the only source of British charitable revenue that is giving less in real terms than it was 10 years ago, according to a National Council for Voluntary Organisations survey. Gone are the days when to point out such discrepancies would smack of class envy. The consensus that once took root, of a corporate world that offered choice, efficiency and entrepreneurship, has long since crumbled. In its place is a reputation more commonly associated with sleaze, excess and conceit. It is impossible for anyone to have faith in executives who claim hefty bonuses, even in bad years, and adopt jet-setting lifestyles as a matter of right, irrespective of their current performance. So argues that radical harbinger of class war, the Daily Mail. In that sense the criminality and fraud most recently exposed in America serve to confirm and compound the popular belief that we are afflicted with a decadent, global corporate class, rather than contradict it. It is a fact yet to be grasped by this government which has lost touch with a public which is far less enamoured by
WorldCons
From Prudent Bear.com Mid-Week Analysis, by Chad Hudson Worldcons June 26, 2002 After the fall of Enron, we had little doubt it would be an isolated incident or company specific. The great bull market changed the rules of the games for companies played by. We have discussed before how the most aggressive companies were able to raise the most money and the most aggressive mangers were the ones that were promoted. Aggressive management combined with accommodative credit markets led to one of, if not the biggest, investment bubbles of all time. Influenced by Wall Street's desire for investment banking fees, companies raised capital for projects that were not economically viable. Accounting conventions were stretched, re-written, and ignored, to make the results more investor friendly. As long as stock prices kept rising, there were no worries. Now we are seeing the consequences of it all. What a fiasco! With Arthur Andersen unraveling due to the fraud at Enron, auditors will now pay more attention to their role and be more diligent in conducing audits. Investors have started voting with their feet as well. Any hint at accounting improprieties causes stocks to fall precipitately. Increased scrutiny from auditors and investors should clean up corporate boardrooms, but it will take a while and it will not be a pleasant experience. A couple roaches have been found after the lights were turned on, but we have not started pulling off the baseboards. The public is beginning to ask what should happen to these white-collar criminals. Unfortunately, the answer is does not include jail time, or if it does, they will have a better golf handicap after they leave. I have been pondering. San Francisco's economy is hurting after the dot-com bubble. I think we have an opportunity to solve two problems. We can help spur San Francisco's tourism industry by sending all the corporate con-men to Alcatraz, while leaving it open to the public. After strolling by Al Capone's cell visitors could rattle the cage of their favorite corporate scoundrel. To help raise revenue visitors could rent paintball guns and take target practice while the cronies run around during recreation time. Just a little light humor to ease the mood during these chaotic times. While hopefully fraudulent activity is the exception, a lot of gray areas have been trampled on. One of the most popular ruses was convincing investors that companies should be valued based on EBITDA (earnings before interest, taxes, depreciation and amortization). The reasoning for using EBITDA is that after it finished capitalizing its investments and servicing its debt, earnings would be similar to EBITDA. Also, investors have been led to believe that EBITDA is basically the same as cash flow. That is the theory. But, in theory Myron Scholes would still be earning excess returns at Long Term Capital Management. The problem with using EBITDA as the primary valuation yardstick is it assumes that at some point the I, D and A will get significantly smaller. The logic is that the company had to undertake a massive capital project before it will have a viable business. Worldcom provides a good example. Worldcom needed to build-out a network for voice and data transmission. This was a massive capital expenditure that supposedly would not have to be repeated. Once the network was in place and paid for, Worldcom would be profitable and not have to raise additional capital. So at some point the interest would be reduced as the debt was repaid, and deprecation would decline after the network was fully depreciated. This would result in much higher earnings down the road. This was the fallacy of the entire telecom industry. The other major category that focuses investors an EBITDA is the aggressively growing companies spending money on acquisitions or capital equipment. The hope is that initial heavy borrowing requirements will be dramatically reduced when companies' growth slows. Then the debt will be paid down and the capital expenditures will cut back and the company will become a cash cow. There are several problems with how this works in reality. First and foremost today, is the assumption of constant access to capital markets to raise funds needed to maintain growth. Also, analysts almost always underestimate the amount of capital expenditures required for requisite maintenance. The upshot is that companies will have to constantly spend money to keeps their networks up-to-date or risk losing customers to the competition. Lastly, a statement of cash flows does exist in the SEC filings. This has a line detailing the cash flow from operations, and with a little math, one can determine the free cash flow as well. Just because a company does not include the statement of cash flows with its pro-forma earnings release does not mean it is not worth careful examination. The telecom bubble was based on investors embracing EBITDA
WCOM: Arrow at heart of economy
www.ft.com Published: June 26 2002 20:18 | Last Updated: June 26 2002 20:18 The equity bull market ended more than two years ago. But now it seems that bull market psychology is unravelling fast. The WorldCom accounting scandal is an arrow at the heart of one of the standard bull market assumptions: that the US was the paragon of the world's financial markets, with the most dynamic economy, the most innovative companies and the highest accounting standards. Overseas investors were happy to fund the US's substantial current account deficit because they wanted to have a stake in the great US boom. But they must now feel rather as emerging market investors did in the mid-1990s - that they were suckers in a game rigged in favour of insiders. In Asia, the blame fell on cronyism and a banking system that allowed overinvestment in unprofitable projects; in the US, the blame is falling on corporate executives, who have taken excessive risks and distorted accounts in pursuit of lucrative share options. The disillusionment with the US has spread to the dollar, which on Wednesday slipped to within an ace of parity with the euro. It has also revived the fortunes of gold, which moved back above $320 an ounce on the same day. During the 1990s, gold seemed to have been supplanted by the dollar as the safe asset of choice - but now investors are rediscovering the virtues of the yellow metal. Retail investors also seem to be losing faith in the cult of the equity that they embraced so wholeheartedly in the 1990s. In the US and the UK, investors seem once again to be looking to property as the most reliable nest-egg; while in Europe, those investors who bought privatisations such as France Telecom and Deutsche Telekom are sitting on heavy losses. A recent survey by UBS Warburg found European retail investors were expecting equity returns of just 6.7 per cent over the next 12 months. Of course, it is possible that the current plunge in shares represents the kind of climactic sell-off that often marks the bottom of a bear market. Equity markets have drifted back to the lows last seen after September's terrorist attacks on the US, which were followed by a rapid and substantial recovery. We think the sell-off is very likely the bottom for the most recent collapse in share prices this side of the Atlantic because the fall had already been running out of steam. They say that the bottom is reached at the darkest hour. The WorldCom event certainly counts as pretty damn dark and, we feel, more than dark enough for us to ring the bell, say analysts at UK stockbroker Charles Stanley. But these are dangerous times, not least because of the way that the global economy and financial system had adapted to the long bull market. There is leverage built into the system, not as extreme as the gearing that brought down Long-Term Capital Management, the US hedge fund, in 1998 but just as dangerous for being so widespread. That leverage shows up most obviously in the US corporate sector, where companies that had geared up their balance sheets during the boom years are now caught in the vice of falling revenues and the constant need to meet interest payments. But the leverage is all around. Life assurance companies, for example, buy financial assets in order to keep their promises to pay out on death or on the termination of policies. Regulators insist on resilience tests to ensure that the insurers have sufficient assets to fulfil those promises. As equity markets fall, these tests can force insurers to sell equities and buy less volatile bonds. That can force markets into a death spiral as falling prices oblige insurers to sell equities, which pushes share prices down further, forcing more sales of shares. To avoid this problem, the UK and Irish resilience tests were relaxed after September 11. But there are fears that the recent falls in markets have revived the problem. There has been talk this month that European insurance companies have been forced sellers of equities while last week UK bank Abbey National paid £150m ($225m) to bolster the finances of its life assurance arm, Scottish Mutual. UK insurance companies were quick to say on Wednesday that they would not be forced to sell equities and buy bonds because of the WorldCom news. But there are fears that the crunch point may not be far below current market levels. General insurers also represent a source of leverage for the system. Traditionally, they have lost money on their underwriting operations - money they have made up through investment returns. But as those returns have fallen, insurers have been forced to push up premiums, increasing the costs of the corporate sector. Furthermore, insurance companies form a significant proportion of the stock market: as worries about their finances increase, their share prices decline, putting further downward pressure on the market. The same problem applies to banks, which have exposure to falling markets via their trading
CEOnistas make a run for it.
CEO's On The Run... REMAINING U.S. CEOs MAKE A BREAK FOR IT-- Band of Roving Chief Executives Spotted Miles from Mexican Border San Antonio, Texas(Rooters) Unwilling to wait for their eventual indictments, the 10,000 remaining CEOs of public U.S. companies made a break for it yesterday, heading for the Mexican border, plundering towns and villages along the way, and writing the entire rampage off as a marketing expense. They came into my home, made me pay for my own TV, then double-booked the revenues, said Rachel Sanchez of Las Cruces, just north of El Paso. Right in front of my daughters. Calling themselves the CEOnistas, the chief executives were first spotted last night along the Rio Grande River near Quemado, where they bought each of the town's 320 residents by borrowing against pension fund gains. By late this morning, the CEOnistas had arbitrarily inflated Quemado's population to 960, and declared a 200 percent profit for the fiscal second quarter. This morning, the outlaws bought the city of Waco, transferred its underperforming areas to a private partnership, and sent a bill to California for $4.5 billion. Law enforcement officials and disgruntled shareholders riding posse were noticeably frustrated. First of all, they're very hard to find because they always stand behind their numbers, and the numbers keep shifting, said posse spokesman Dean Levitt. And every time we yell 'Stop in the name of the shareholders!', they refer us to investor relations. I've been on the phone all damn morning. YOU'LL NEVER AUDIT ME ALIVE! The pursuers said they have had some success, however, by preying on a common executive weakness. Last night we caught about 24 of them by disguising one of our female officers as a CNBC anchor, said U.S. Border Patrol spokesperson Janet Lewis. It was like moths to a flame. Among former and current CEOs apprehended with this method were Computer Associates' Sanjay Kumar, Adelphia's John Rigas, Enron's Ken Lay, Joseph Nacchio of Qwest, Joseph Berardino of Arthur Andersen, and every Global Crossing CEO since 1997. ImClone Systems' Sam Waksal and Dennis Kozlowski of Tyco were not allowed to join the CEOnistas as they have already been indicted. So far, about 50 chief executives have been captured, including Martha Stewart, who was detained south of El Paso where she had cut through a barbed-wire fence at the Zaragosa border crossing off Highway 375. She would have gotten away, but she was stopping motorists to ask for marzipan and food coloring so she could make edible snowman place settings, using the cut pieces of wire for the arms, said Border Patrol officer Jennette Cushing. We put her in cell No. 7, because the morning sun really adds texture to the stucco walls. While some stragglers are believed to have successfully crossed into Mexico, Cushing said the bulk of the CEOnistas have holed themselves up at the Alamo. No, not the fort, the car rental place at the airport, she said. They're rotating all the tires on the minivans and accounting for each change as a sale. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
where does money come from?
Jim wrote: neither GE Capital nor Fannie Mae can create money (i.e., credit) the way that banks can, since they don't take deposits I don't think this is the way that money works. I think that Fannie Mae creates money (or, if you prefer, paper claims to wealth) by creating a market for mortgages (i.e. flooding the market with cheap mortgage rates and then deals) THEN repackaging them as Asset-Backed securities and then selling those into the capital markets (thus offloading them from their balance sheet) and taking the cash from institutional investors from the ABS sale to finance a new round of mortgages. Meanwhile the recipient of the home loan gives the money to the seller of the house so that they in turn deposit the money into a MMF or CMA or bank account for the inevitable multiplier effect. Doug Noland at prudentbear.com has written quite persuasively of this process. Also see a book called The Grip of Death which is a leftwing approach to the same problem. This may be a matter of semantics about broad v. narrow money but I think deposits are created after money is created not the reverse. The key question I think is who is the mover of the process and I think it is not the depositor but the creator of the original relationship that allegedly has value in it (whether in real estate or manufacturing) i.e. a capitalist (whether financial or production). In this case it is Fannie Mae or GE Capital (in the latter case, e.g., 40% of GE profits come from financing, similar numbers for GMAC/GM). Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Satanism of debt (reply to Jim)
Of course, the Hayekians have an obsession about fiat money, but I think it is very helpful to keep track of their analyses. I am not a gold bug but I think it is interesting that they want to anchor money to value. Of course debt, and all forms of fictitious capital, is not intrinsically bad but there sure is an awful lot of it today. In the late 80's Salomon Bros. economist Henry Kaufman wrote a kind of memoir complaining about the massive amount of debt the economy was piling up - it stood at about 7 trillion then. Well, now it stands at 30 trillion. Are we 400% wealthier? And that does not include US$ obligations like T-bills. In the wake of, for example, the near trillion dollar destruction of paper claims to wealth in the telecom sector alone over the last eighteen months I think it is perfectly reasonable to at least pose the question that there is something seriously wrong here. I would be the first to suggest that it is unfortunate that we have to look to the Mont Pelerin society for some answers, but at least it helps highlight the issues. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
re: centripetal accumulation
On coffee: perhaps a luxury item to some (tho try taking it away from an Italian!), it is the US's leading import after oil and is a global US$50 bn industry, so of some larger significance. On Luxemburg: that primitive accumulation (of surplus value outside of the capitalist world) is essential to sustain the profitability of capitalism; updated, one could argue that paying workers below the cost of reproduction is a modern form of primitive accumulation, as are various forms of environmental destruction (i.e. exploiting natural resources without safeguarding their longterm viability - which some sustainable development arguments get at). Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Enron Execs walk away with the dough again
USA TODAY, June 18, 2002 Copyright 2002 Gannett Company, Inc. USA TODAY HEADLINE: Payouts anger former Enron workers 152 execs, managers got more than $745 million BYLINE: Edward Iwata BODY: Less than a week after a workers' severance-pay agreement was announced, former Enron employees and their attorneys are furious about disclosures Monday that Enron paid more than $ 745 million last year to 152 executives and managers. It's very disturbing, says Damon Silver, associate general counsel of the AFL-CIO. We're appalled at the huge amount of money paid out to a handful of people, while thousands of others were losing their jobs and retirement savings. The disclosures, made in legal filings by Enron in bankruptcy court in New York City, come after a pay agreement was reached last Tuesday by Enron, labor lawyers and an Enron employees' committee appointed by the court. Under the settlement, 4,000 former Enron employees who lost their jobs last winter will get $ 29 million in additional severance pay, on top of $ 24 million already paid. They'll get a maximum of $ 13,500 each, based on their salaries and length of employment. The settlement must be approved by bankruptcy Judge Arthur Gonzalez. The AFL-CIO's Silver says Enron officials did not tell labor lawyers about the $ 745 million while the settlement talks were going on. Enron might have had a fiduciary duty to disclose it, he contends. Attorneys for the employees believed Enron paid its managers $ 100 million or so last year, and they negotiated the severance deal based on that figure. Enron spokeswoman Karen Denne says: All of our filings have been made in accordance with the bankruptcy court's requirements. According to the bankruptcy filing, cash payments last year to Enron officials totaled $ 310 million; stock options were valued at $ 435 million. Former Chairman Kenneth Lay was paid $ 104 million last year, including a $ 1 million salary, a $ 7 million bonus and $ 82 million in loans. He also cashed out $ 34 million in stock options. Former CEO Jeffrey Skilling received $ 8.6 million last year and exercised $ 19 million in stock options, while former Chief Financial Officer Andrew Fastow got $ 2.4 million in salary and bonuses. The news angered Debra Johnson, a former Enron secretary who lost her $ 44,000-a-year job in November. Johnson, 45, a divorced mother with custody of two grandchildren, is depleting her savings and living on unemployment. She hasn't found a new job yet in Houston's hard-hit economy dominated by energy companies. This is not right, she says. Just when you think you've won some justice, you hear about this. The legal papers filed Monday by Enron detail $ 32 billion in payments to creditors last year. Attorneys for the Enron employees' committee did not return calls for comment. LOAD-DATE: June 18, 2002 Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Deregulation steamrolls ahead
The Atlanta Journal and Constitution June 16, 2002 Sunday Copyright 2002 The Atlanta Constitution The Atlanta Journal and Constitution June 16, 2002 Sunday Home Edition SECTION: Business; Pg. 1Q LENGTH: 958 words HEADLINE: Dereg bandwagon steamrollers ahead BYLINE: MARILYN GEEWAX SOURCE: Cox Washington Bureau BODY: Washington --- Last week, Consumers Union said a study of five industries showed that deregulation has been bad for most customers. The advocacy group's study didn't say so, but investors in those deregulated industries also are losing out. US Airways Group Inc., telecom giant WorldCom Inc., cable TV company Adelphia Communications Corp., banker Citigroup Inc. and electricity trader Enron Corp. have lost vast sums lately. With both customers and shareholders hurting, one might assume that political support for deregulation and self-policing is dwindling in Washington. One would be wrong. No significant legislation to re-regulate major industries is moving in Congress. Even after Enron, legislation to strengthen pension protections, toughen accounting regulations and tighten bookkeeping for stock options all have been stalled in committee. Meanwhile, the House has passed a bill to further deregulate regional phone companies. The deregulation movement is also gaining momentum outside Congress. The Federal Communications Commission promises to further lighten government's hand on the television and telecom industries. The White House Office of Information and Regulatory Affairs is rejecting rules proposed by federal agencies at the highest rate since the Reagan administration, The Wall Street Journal reported last week. Many conservatives say the Bush administration and Congress are wise to restrain government regulation. They argue that in an era of rapid globalization and technological change, lawmakers could not hope to write bills that would keep pace with innovation. The world is changing before your eyes, said Fred L. Smith Jr., president of the Competitive Enterprise Institute, a Washington public policy group. It's impossible to imagine where industries are going to be in a few years, he said, so it would be futile for Congress to attempt to write tougher regulations for them. But others say the hands off approach to business remains popular in Washington only because it has the support of one small but powerful group: corporate executives. While millions of consumers and shareholders have suffered from bad service and collapsed stock prices, top executives have reaped immense rewards in the freewheeling marketplace. Executive pay soars A phenomenal escalation in chief executive pay has coincided with the decrease in government regulation, which began in the 1970s. In 1950, when Business Week magazine first tracked the pay of U.S. corporate officers, the highest-paid executive was General Motors Corp. President Charles E. Wilson, whose pay package totaled $652,156. That would equal $4.4 million today, after adjusting for inflation. In its most recent survey, Business Week found that even the average CEO made $11 million last year, a time when when profits were shriveling and stock prices slumping. The highest-paid chief executive was Oracle Corp.'s Lawrence Ellison, who got $706 million in a year when his shareholders saw their investments shrink by 57 percent. Proponents of tougher accounting regulations, stock-option reform and consumer protections believe their arguments don't get serious consideration in Washington because wealthy executives back lawmakers who want to limit government controls. They point to Enron former Chief Executive Kenneth Lay as a dramatic example. His company spent $3.45 million on lobbying in 1999 and 2000 to deregulate the trading of energy futures, among other issues, according to Public Citizen, a consumer advocacy organization. At the same time, Lay, who realized $123.4 million from exercising Enron stock options in 2000, was backing candidates who supported deregulation. For example, Enron sources contributed $1.14 million to President Bush's presidential campaign, Public Citizen reported. Today, Lay remains a wealthy man. Many of the candidates he supported remain in office, fighting regulations. But Enron's stockholders have been virtually wiped out and thousands of workers have been laid off. In California, where Enron was a major player in the deregulated energy markets, consumers paid soaring prices and suffered through blackouts last year. Top corporate officers such as Lay have excessive influence in the political arena, said Mark Cooper, research director for Consumer Federation of America, a Washington nonprofit group. They make a concerted effort to enforce a set of [anti-regulatory] ideas. That effort includes not only supporting candidates, but funding public policy groups and giving large donations to universities. In the end, the lawmakers, economists and academics become unwilling to bite the hand that feeds
frappacinos and Brenner
It was not my intention to spark a renewed debate on Brenner, though it would be interesting to have a good discussion on his new book. Of course, it would be wrong to ascribe to Solidarity, especially Labor Notes, all of the views of Brenner - unfortunately. In any case, I would ask that if someone on the list - like Justin - says my views are mistaken that they explain how - instead of just making what amounts to, well, a gratuitous swipe! He may have just been referring back to his earlier defense of Solidarity/LN where he said that they do indeed care about places like Rwanda. Of course, any one with a soul cares about Rwanda, the point is to understand its relationship to global capitalism. That is the virtue and significance of David Smith's argument which I think shifts the paradigm, so to speak, out of the focus on the core industrialized countries so crucial to LN and Brenner but without doing so with typical third worldist, unequal exchange type thinking. I think it is clear that a lean production theory sustains the militant trade union core of LN/Solidarity politics and so it is hardly gratuitous to discuss the link between the two. Why? Because it ignores how the law of value operates at a global level - even in (perhaps particularly harshly in) remote regions like the hard scrabble Rwandan coffee fincas. Incorporating the way in which a kind of primitive accumulation (defined as absorbing new value into the system at below reproduction costs) operates to sustain they global economy seems particularly important. In doing so, though, one would then have to discuss what impact that has on the sysiphean struggle of trade unionism. The failure to take these two steps is I think a flaw in Moody's thinking that makes its way into the Post review of Negri and Hardt's Empire. As for Bob, I believe that Loren Goldner made some telling comments on the problems in his earlier NLR essay that I am told have been modified in the new ms. but I have not seen it yet (except in an early stage draft that I have not had a chance to look at). In any case, there was little discussion in the early ms., if I recall, of the role of the dollar much less mechanisms like the clash of coffee buyers and producers in central africa leading to the mass murder of hundreds of thousands. If the left cannot develop a critique of political economy that explains such a development in a coherent way then we have no chance of developing a perspective inside the labor movement of the industrialized countries that can respond to the problem and we risk seeing the catastrophic success of new authoritarian movements in the developing countries. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
reply to Doug and Justin
Doug, On the source and amount of value - I think it should at least be considered an open question for research but I am not sure that my point is dependent on the amount from the core as opposed to the so-called periphery as much as the question of whether the core can survive without it - if the latter is the case then it is vital to the system as a whole and to political responses. There is an interesting debate stimulated by Michael's book on primitive accumulation on the new website run by Massimo de Angelis - URL: http://www.commoner.org.uk/#dEbAtE:%20on%20primitive%20accumulation And I am currently looking at the apparently growing use of coercion in labor markets on a global basis (and this may explain my bias on this question). I take Justin's point about the diversity of views found in Solidarity and, of course, I know very little about the various internal debates and layers (since the organization, like so many left groups has very little transparency as far as I know). I do know of Dan LaBotz's work, of course, but I do not think his work strays from the militant trade union view - he just transposes it to Mexico and Indonesia. And Labor Notes is a very significant part of Solidarity and it has an almost apolitical approach to problems facing labor (tho the latest issue debates the recent moves by organized labor to endorse Republicans!) In any case you do seem to be admitting my point that lean production theory does suffer from certain critical limitations. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
A review of Brenner
This review of Bob Brenner's NLR piece is the source for some of my thinking about Post piece on Empire. A longer piece by Loren Goldner called The Remaking of the American Working Class is also useful as well as an earlier piece called Conjuncture: World Capitalism Since the Collapse of the Bretton Woods System. The URL is: http://home.earthlink.net/~lrgoldner/ I don't agree entirely with Loren's views nor with many specifics, but his world accumulation framework is very useful. It should be noted that Brenner has apparently accomodated some of these criticisms in the new book. Total Capital Rigor and International Liquidity: A Reply to Robert Brenner by Loren Goldner It is only in the markets of the world that money acquires to the full extent the character of the commodity whose bodily form is also the immediate social incarnation of human labor in the abstract. Its real mode of existence in this sphere adequately corresponds to its ideal concept. (Capital, vol. 1, Part I, Chapter III, Section 3c) Robert Brenner (The Economics of Global Turbulence, New Left Review #229, May-June 1998) has written a plausible Marxist economic history of the post-Marshall Plan world. This in itself is no mean achievement. It would of course be a trifle demagogic to say that events since the appearance of this piece are the best lead into the flaws of his analysis. I did not foresee them either, except in the broken clock that's right twice a day sense, and in economics (i.e. the critique of political economy, as Marx called it) timing is everything. But this crisis, like every major capitalist crisis in which depression emerges as the uninvited guest, brings to the fore the question of international liquidity which is not central enough to Brenner's piece, nor to most Marxist attempts to analyze the world economy since the creation of the Bretton Woods system, and and its post-1973 demise. My gut reaction to Brenner's piece is that I may be the last debt-deflation Marxist crisis theorist. There's wonderful material here; it saves others, myself included, the trouble of reading a lot of the mainstream literature of the dismal science, and has lots of useful statistics. Brenner basically gets the chronology right. His analysis of the 1965-1973 outbreak of world crisis perfectly encapsulates (though this is not his intent) the period of New Left euphoria, largely predicated in the very same years on the irrelevance of economic issues. Brenner shows persuasively how each recovery after the end of the postwar boom (71-73, 75-79, 82-90, 92-??) was more superficial than the preceding one. I agree with Brenner's attacks on the supply siders and wage push theorists-- as far as they go. But one could very nearly get the impression, reading this piece, that, for Brenner, unlike for Marx (cf. Capital, vol. III, sections IV and V) finance is purely secondary : a veil, as it is treated by mainstream economics, not an autonomous destructive force in its own right. Brenner does make many points I would make, i.e. 1) the history of the unraveling of Bretton Woods, 2) the great ficticious component of post-1979 investment (LBOs, etc.) 3) the rapid increase in FIRE (finance- insurance- real estate) investments 4) the increasing disconnect between the stock market and the real economy, 5) the impact of the fluctuations of the dollar on other countries. But-- and this is a major diveregence-- Brenner doesn't draw a systematic link between the process of devalorization in manufacture (technodepreciation) through increased productivity, and the international financial system. What follows is something between a critique of Brenner's piece, and a series of criticisms. Something about Brenner's piece reads like a Marxist version of an OECD report, which winds up inadvertently making things sound better than they really are. Reading it, taking only the case of the U.S., I don't see devastated ex-industrial regions and cities, armies of homeless people, almost 1% of the population in the prison system, and increasing numbers of working-class families squeaking by with 3-4 MacJobs. As a general introduction, I register my (mild) consternation at the absence--in a critique of wage push theories of the crisis-- of a discussion of actual Marxian value theory. I agree, as I said, with Brenner's attacks on the supply siders and the wage push people. But I don't think it's enough-- though it's very important, and rare-- to show the source of the crisis of accumulation in the technodepreciation process. Our task as Marxists is, after all, to determine the nature of the epoch. An epoch is defined by what preceded it and what will follow it. To set the stage for an analysis of the post-war boom, Brenner would probably agree that it is possible to see 1914-1945 as one protracted crisis. It broke the logjam that arose in 1870-1914 as the U.S. and Germany arrived at and surpassed Britain's real economic level. It broke up empires and broke
Fw: Chossudovsky on Rwanda and the coffee battle
In 1987, the system of quotas established under the International Coffee Agreement (ICA) started to fall apart. World prices plummeted, the Fonds d'egalisation (the State coffee stabilisation fund) which purchased coffee from Rwandan farmers at a fixed price started to accumulate a sizeable debt. A lethal blow to Rwanda's economy came in June 1989 when the ICA reached a deadlock as a result of political pressures from Washington on behalf of the large US coffee traders. At the conclusion of a historic meeting of producers held in Florida, coffee prices plunged in a matter of months by more than 50%. For Rwanda and several other African countries, the drop in price wreaked havoc. With retail prices more than 20 times that paid to the African farmer, a tremendous amount of wealth was being appropriated in the rich countries. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Frappacinos and the law of value: a reply to the Post review of Empire
Charlie Post's review makes a number of excellent points in his critique of Hardt and Negri's Empire. However, his attempt to use Kim Moody's lean production model to explain globalization, or should I say explain away, globalization seems fundamentally flawed to me. It is not surprising to see Post attempt this approach since it is consistent with the pseudo-syndicalist point of production view of capitalism that predominates inside the Solidarity milieu, especially those close to the Labor Notes organization. This perspective often provides helpful insights on the shortcomings of business unionism, though it blinds the follower of this viewpoint to the larger dynamic of global capitalism. For example, since LN and Solidarity put huge emphasis on an attempt to revive some form of militant trade unionism as the core of their politics, they clearly want to find that the dynamic of global production chains is the key that can unlock our understanding of global capitalism. But that leads Post into problems. For example, he mentions briefly the masses of the developing world but only to suggest that they serve as a reserve army of labor. Instead he thinks the key is in the core of the accumulation process found in the most developed economies. It is certainly true that as one measures capital flows, most are found to go back and forth between Europe, Japan and the United States with some additional flows growing up in the key peripheries around those three countries in southern Europe, Mexico and south and southeast Asia. But so what? Does that mean that the billions who live outside the core countries are irrelevant? I would argue for their relevance not on the basis of some kind of third worldist viewpoint about the countryside overtaking the cities (a perspective still to be found in various anti-globalization circles among others). Rather, it is because I think the law of value functions at a global level. The concentration of accumulation in the core triad also means that the tendency of the rate of profit to decline hits those countries as well. Thus, capital must find new sources of surplus value. Much of it is found in greater accumulation through technological advances, speedup, and other forms of restructuring. But an important source of that surplus value comes from the toil of the billions in poor countries that is then fed into the global system. Some of this is obviously an extension of Post's aside about the reserve army but the absence of any discussion about the dynamic impact of the law of value makes me doubt that this is critical to Post's thinking or to the politics of Solidarity and Labor Notes. Further, the problems associated with declining profits are often solved on the backs of the masses in poor countries. Sociologist David Smith has written about the impact that U.S. backing of the coffee buyers' cartel (centered in the US) against high coffee prices had on countries like Rwanda. His careful research demonstrates that the IMF then forced the Rwandans to impose a coercive labor regime to squeeze more production out of overworked coffee fincas to make up for lost profits and government revenues. Hence, cheaper coffee from Rwanda helped resolve the profit squeeze on U.S. coffee buyers. The result was a social revolt that the government eventually suppressed through the 1994 genocide. Only an analysis which examines the global process of value creation and destruction in all its complexity can account for today's capitalism. Think about that next time you order a frappacino at the local Starbucks. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Rwandan references
Smith, David Norman. Postcolonial Genocide: Scarcity, Ethnicity, and Mass Death in Rwanda. In The Coming Age of Scarcity: Preventing Mass Death and Genocide in the 21st Century edited by Michael N. Dobkowski and Isidor Walliman (Syracuse Univ. Press, 1998) I guess sociologists think the glass is half empty. The key cite for the cartel reference is: Chossudovsky, Michel. IMF-World Bank Policies and the Rwandan Holocaust. Published online by Third World Network (tho I have not found it yet). Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
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Hot Air in American Corporate Balance Sheets
THE RISE AND FALL OF ENRON Former SEC Official Tells Senators Corporate Accounting Needs Review Associated Press QUESTIONING THE BOOKS WASHINGTON -- Companies' balance sheets are bloated because of faulty accounting practices that include fake assets and must be changed to prevent future Enrons, a former Securities and Exchange Commission accountant testified Tuesday. Corporations are able to report as assets things that have no market value, such as goodwill, deferred income taxes and costs of raising debt capital, Walter Schuetze, SEC chief accountant from 1992 to 1995, told the Senate Banking Committee. The same practice goes for liabilities. This is the kind of stuff that allows stock prices to soar when in fact the corporate balance sheet is bloated with hot air, Mr. Schuetze said. Following Enron's collapse, Congress is grappling with whether to change the private board system that has oversight for the accounting industry and sets the rules. Some members support keeping the system intact with minor changes and others want a major overhaul with help from the government. Schuetze urged Congress to step in and require the reporting of a company's true financial condition based on today's market value of all assets and liabilities, called mark to market accounting. For example, faulty accounting rules were partially responsible for the savings and loan crisis of the 1980s, he said. When short-term interest rates were raised dramatically, causing long-term rates to spike, the market value of previously acquired mortgage loans and government bonds held by savings and loan associations dropped significantly. But accounting rules allowed the mortgage loans and bonds to be reported at their historical cost. That made savings and loan associations appear solvent when they were not, he said. The federal government paid for the losses that were hidden in the balance sheet under the historical cost label, Mr. Schuetze said. His far-reaching plan would dissolve the private-sector accounting oversight board, the Financial Accounting Standards Board, and would require Congress to set the basic accounting rules. I am intrigued, but I am not yet convinced, said Sen. Zell Miller (D., Ga.). Other accountants testifying had problems with the idea. For one, there are different notions of what assets and liabilities are, said Michael Sutton, an SEC chief accountant from 1995 to 1998. Some senators questioned whether Congress should get involved in establishing accounting rules for the industry. I still support an independent body setting accounting standards, said Sen. Phil Gramm (R., Texas). It scares me to death to think of government or politicians setting accounting standards. Separately, Congress also is examining whether the nation's pension laws should be changed. Sen. Chuck Grassley of Iowa, senior Republican on the Senate Finance Committee, said he will introduce legislation to tighten protections for participants. Enron could happen to a lot of other companies if we don't do something about it, he said. Mr. Grassley's legislation includes several principles outlined by President Bush, such as allowing a participant to sell matching company stock after three years. Current law requires workers to be age 55 with 10 years of service to a company. His plan would require 30 days notice to temporarily suspend access to a 401(k) account, and ban company executives from selling stock during such a blackout period. Copyright © 2002 Associated Press Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Washington Consensus in question?
A policy briefing from the Levy Institute suggesting that the globalization drive is in trouble. http://www.levy.org/docs/pn/01-7.html Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Dark Clouds on the Horizon?
Below is the complete text of the latest from Doug Noland of Prudent Bear. It is getting rave reviews in the PruBear chat room so I thought I would post it. It focuses as always on the complex dimensions of the Credit Bubble, or fictitious capital as it could be called. But now in particular on the mortgage bubble and the post-Enron era. In particular he responds to the Wall St. Journal's recent editorial on the GSE's (analogizing them to Enron) - I take some credit for this since several days in advance of this article I wrote to Noland and asked him if he could explain why the WSJ would risk knocking over the house of cards. This is a long read, but here is the conclusion, to whet your appetite: We don't even like to contemplate the ramifications for when the sorry truth is exposed. In truth, buried in a sea of complexity and obfuscation is a rather simple bottom line: there is an egregious and growing amount of systemic risk domiciled in a limited number of fragile hands. And while risk is expanding exponentially, the number of hands happy to carry it is in marked decline. No one ever thought it would be like this. The Clan of Seven February 22, 2002 From today's Wall Street Journal: The Federal Reserve Bank of New York is examining J.P. Morgan Chase's accounting for commodity-related trades with Enron Corp., according to internal central-bank documents reviewed by The Wall Street Journal. The trades being reviewed by the Federal Reserve appear to relate to an offshore entity set up by the old Chase Manhattan Bank a decade ago through which it came to do substantial business with the once-mighty energy company. The big volume of trades between the offshore operation, called Mahonia Ltd., and Enron surfaced weeks ago in litigation connected with Enron's bankruptcy-court filing, raising questions as to whether Mahonia was a vehicle for loans disguised as trades that helped Enron draw a misleading financial picture for investors. Today from Bloomberg - J.P. Morgan Chase Co., the second-largest U.S. bank, has suddenly become a growing risk for bond investors. The cost of insuring J.P. Morgan Chase's $43 billion of notes and bonds against default more than doubled in the past month.The price for default protection rose to $80,000 for $10 million of J.P. Morgan Chase debt from $35,000 on Jan. 28, according to Morgan Stanley. At that price, the highest since the bank was formed in a January 2001 merger, investors are paying about twice as much as for comparable insurance on the bonds of Citigroup Inc., the world's largest financial-services company, and Bank One Corp., the sixth-largest U.S. bank. Also from today's Wall Street Journal: Two hedge funds run by prominent money manager Kenneth Lipper were forced to slash the value of their portfolios by about $315 million, following heavy losses in the convertible-bond market. The losses, representing a decline of as much as 40% in one of the funds since the end of November, sparked selling in both the stock and bond markets Thursday as investors worried that Mr. Lipper would be forced to dump investments to raise money.The firm said it was forced to slash the value of its holdings after concluding that the value of its securities had tumbled and wouldn't recover anytime soon. That problem was made worse by the fact that the firm focused on riskier and relatively illiquid securities that were difficult to price accurately... The money supply numbers continue to be rather interesting. For the week, M3 declined $3 billion, while M2 increased $10 billion to a new record. Total (non-large time deposits) savings deposits, a component of M2, jumped $21.5 billion, and are now up $464.6 billion - 24% - over the past 12 months. Institutional money market fund assets, having surged almost $200 billion over 14 weeks (post-WTC), have now declined about $44 billion over two months. This largely explains the recent stagnation of broad money supply growth, but it is a bit of a stretch at this point to read too into this development. During frenetic refinancing booms, like we witnessed during the fourth quarter, there is massive Credit creation with the GSEs and leveraged players expanding holdings of new mortgages and securities. These purchases create enormous amounts of liquidity for the sellers. These funds are then deposited, often to institutional money market accounts. Homeowners that have refinanced or taken out home equity loans also have additional liquidity that makes its way into banking or money market deposits. But once the refi boom dissipates some of these funds then are drawn back into the securities markets as companies rush to issue longer-term debt. Fixation on money supply at the expense of general Credit and liquidity conditions is analytically disadvantageous. Bloomberg keeps a running tally of bond market issuance. Since some of the debt issued is used to repay higher yielding debt, this data cannot be
on the dollar, debt, credit and inflation
A useful discussion by Peter Warburton, whose book Debt and Deflation is a valuable read (many on this list are no doubt familiar with Warburton but this column seems a useful reminder of the kind of world we live in.) The debasement of world currency: it is inflation, but not as we know it by Peter Warburton April 9, 2001 Peter Warburton is the author of 'Debt and Delusion', Penguin, 2000. More than twenty years ago, I was a research officer in a forecasting unit at the London Business School. We called ourselves international monetarists then and we had a model that determined the inflation rate from the growth of money stock per unit of output, with long and variable lags. The value of a currency was determined, in the long run, by its monetary growth per unit of output in relation to that of the rest of the developed world. Being a young man, I was heavily into econometrics - or economic tricks, as some would have it - and our research group published papers showing how well this model fitted the data of that time. Basically, we had it sown up. We knew how to predict inflation; we knew the equilibrium value of currencies and the untidy realities of economic life were mopped up in the balance of payments. We felt sure that if the authorities could regulate the growth of the money supply, all would be well. How wrong we were. By the mid-1980s, central bankers had begun to enjoy a measure of success in controlling inflation, not by strict regulation of the money supply, but as a by-product of financial de-regulation and the liberalization of credit. Even allowing for the lapses of 1988-90, there was a growing confidence that the battle against inflation was won. Throughout the 1990s, economists were absorbed by the issue of the permanence of low inflation, as measured by the annual change in a weighted basket of consumer goods and services, the CPI. But was inflation dead, or merely sleeping? Residual fears that it may only be a long sleep led the US authorities to establish the Boskin commission, whose charge was to deliver inflation a heavy blow to the head. Stunned into submission, the CPI took a long while to stir from its slumbers and did not do so until higher oil prices came along last year. However, it is far from certain that this surge will persist, and quite conceivable that it will recede later in the year in response to weakness in the real economy. To all intents and purposes, inflation in its popular form looks dead or comatose. The paradox of disconnection During these past 15 years, the Anglo-American economies (US, UK and Canada) have experienced episodes of weak growth in broad money (M2 or M3) with moderate inflation (in the early-1990s) and episodes of strong monetary growth with little measured inflation of consumer prices, as now. As a result, most economists have given up on the monetary aggregates as a useful guide to anything important. Government economists, who have remained skeptical of monetary transmission mechanisms throughout, feel especially vindicated. They argue that, if double-digit money supply growth can sit happily alongside a 2% or 3% inflation target and an appreciating currency, then surely the argument is settled. I no longer regard myself as a monetarist, but I retain a deep respect for the behaviour of bank liabilities and their close substitutes. There are some things that only money can do. However, there are many other things that credit can do just as well. The avalanche of non-bank credit that has swept across the economic landscape over the past 20 years has altered it beyond recognition. On the one hand, it has enabled the monetary aggregates to grow much more slowly than the credit aggregates, helping to keep inflation lower. On the other hand, the non-bank credit avalanche has enabled a furious pace of fixed investment in physical assets that has promoted structural global excess capacity in virtually all manufactured products and exerted downward pressure on product prices. The particularly vigorous investment in information and communications technology has served a dual purpose, through the spectacular lowering of capital goods prices and by connecting disparate market participants to a common network and database. And what of the periodic bouts of monetary excess, in late-1998, late-1999 and again over the past 3 months? These can be explained by the increasing fragility of the financial system. The more obvious are the system's weaknesses, the greater is the fear of collapse and the larger the demand for liquidity within the financial markets. In these stressful episodes, it is the financial markets themselves that are the principal driving force behind the monetary expansion. Hence, there is relatively little monetary impact on the product and labour markets, that is, on prices and wages. In this way, we can arrive at a crude understanding of the paradox of disconnection: how volatile and often rapid monetary growth rates can be
Link for Warburton piece
http://www.gold-eagle.com/gold_digest_01/warburton041801.html Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Warburton and gold
This particular Warburton piece was posted by gold bugs but he is not a gold bug per se. He is fanatic about debt - and who can blame him? What he and others like David Tice and Doug Noland contend is that non-money forms have distorted the economy. That is the strength of their argument in my view, highlighting the role that financial innovation (engineering) have played in recent years. Of course, the danger of this world view is that it ignores the role of the social productivity of labor and has a rather narrow view of the role of the state (and this is, in the end, is probably what makes their arguments attractive to the gold bugs.) Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
excess capacity and credit
what's kept inflation low in the US has been low oil prices, low raw material prices in general, and the high dollar. JDevine And the excess capacity in manufacturing world wide that has increased competition and prevented the excercize of monopoly pricing. No? And that excess capacity was made possible by credit creation, according to Warburton. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
The Enron Effect: Rogue or Symptom?
Debating the Enron Effect Business World Divided on Problem and Solutions By Steven Pearlstein Washington Post Staff Writer Sunday, February 17, 2002; Page A01 To Thomas J. Donohue, the pugnacious president of the U.S. Chamber of Commerce, Enron is a rogue corporation, an unfortunate and dramatic exception to what is otherwise the most transparent, honest and efficient capitalist system the world has ever known. To Arthur Levitt, the former chairman of the Securities and Exchange Commission, Enron grew out of a pervasive culture of gamesmanship in a corporate world that has become so focused on stock prices and quarterly earnings that it has lost its moral compass. The business community now looks at things in terms of what they can get away with, not what is right, Levitt said this week as he shuttled between Enron hearings on Capitol Hill. Those starkly conflicting views now define the poles of a crucial debate that is just beginning to play itself out -- in Washington, which must decide the scope of regulatory reforms necessary to prevent future Enrons, and on Wall Street, where investors and lenders will decide how much more they will charge for investment capital to reflect the risk that other companies could have Enron-like problems. To a business community that largely views Enron as a corporate rogue, the widespread concern is that the media and political frenzy will generate excessive regulation that, in the words of the Business Roundtable, would unnecessarily inhibit the ability of U.S. corporations to compete, create jobs and generate economic growth. But those who see Enron as emblematic of wider, systemic problems with American-style capitalism see the need for fundamental changes in how executives are compensated, how companies report their financial results, how financial analysts rate stocks, how boards of directors are chosen, how accounting standards are devised and what rules should govern the legal and accounting professions. Business lobbyists acknowledge that over the past two weeks public opinion seems to have swung toward the fundamentalists. A Gallup poll last week found that about 3 in 4 Americans believe that the type of business practices found at Enron could also be found at some or most other large corporations. Another survey found that public confidence in big corporations had fallen to the low levels long endured by Congress and health-maintenance organizations. Scrambling to stay ahead of the wave, the Securities and Exchange Commission announced Wednesday that it would push new rules requiring companies to disclose more detailed and timely information about their finances and their executives' stock trades. Also, on Friday, the SEC's enforcement chief said the agency would ask Congress for authority to ban corporate officers and directors who have committed wrongdoing from serving in such positions in the future. Within hours of Wednesday's SEC announcement, the Financial Accounting Standards Board, the industry-funded rulemaking group criticized for taking as long as a decade to close accounting loopholes, vowed to tighten rules that have allowed thousands of corporations to inflate reported earnings while keeping debt and other liabilities off their balance sheets. On that same day, the New York Stock Exchange commissioned a panel co-chaired by former White House chief of staff Leon Panetta to review issues such as the independence of corporate board members and how they are compensated by companies whose shares are traded on the world's largest exchange. Meanwhile, key members of Congress are putting together Enron-inspired packages, including a proposal to eliminate tax breaks that encourage companies to lavish stock options on top executives. While the options were once thought to better link the interests of managers with the interests of shareholders, even some former supporters now believe that the option awards have grown so large that they have distorted business and ethical judgment, encouraging some executives to do anything to report strong earnings every quarter so the stock price will rise. If a million-dollar salary doesn't align managers' interests with shareholders' interests, then they're the wrong person for the job, said Sarah Teslik, executive director of the Council of Institutional Investors, who previously supported the tax breaks. Among the professions that cluster around the corporate boardroom, the accounting industry is in full battle gear now that the expression our auditors have reviewed it and approved it is viewed by many as an indication that something must be amiss. The president of the American Bar Association, Robert Hirshon, said he was considering appointing a special committee to figure out a way for lawyers to sound the whistle on corporate misdeeds without violating their ethical responsibilities. The corporate chief executives who make up the Business Roundtable, horrified by top Enron executives and directors
Debt Bomb Ticking Away?
http://www.bondmarkets.com/Research/osdebt.shtml Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Bank exposure to Enron and Argentina
The American Banker, February 14, 2002 Copyright 2002 American Banker, Inc. The American Banker February 14, 2002, Thursday SECTION: WASHINGTON; Pg. 3 LENGTH: 464 words HEADLINE: $17B of Trouble for Top 25 Banks BYLINE: BY BARBARA A. REHM DATELINE: WASHINGTON BODY: The 25 largest banks still have $16.6 billion, or nearly 5% of their equity capital, exposed to 2001's two biggest credit problems -- Enron Corp. and Argentina -- according to a report released Wednesday by the Federal Deposit Insurance Corp. Loans to the collapsed energy trader and the South American country made up nearly half the banks' nonperforming assets, which on Dec. 31 were $35.3 billion, or 9.69% of equity capital, the FDIC said. Of those 25 largest banks, 11 blamed Enron or Argentina for fourth-quarter hits. Net chargeoffs by the 25 were up 64% in the fourth quarter, to $3.4 billion, from a year earlier. The FDIC said 30% of the net chargeoff total could be traced to either Enron or Argentina. Asked to divide the remaining loss exposures, FDIC researcher Warren G. Heller said that both Citigroup Inc. and FleetBoston Financial Group are still exposed to $6 billion of losses in Argentina, while J.P. Morgan Chase Co. has the largest exposure to Enron, at $2.06 billion. Nonperforming assets rose 25% at the 25 banks last year. The five at which they equaled the most equity capital were Bank One Corp. (18.23% of equity capital), KeyCorp (15.07%), UnionBanCal Corp. (13.89%), Comerica Inc. (13.04%), and Citigroup (12.33%), according to the FDIC. Fourth-quarter additions to loan-loss reserves held by the 25 banks totaled $11 billion, up 32.1% from the third quarter. Provisions outstripped chargeoffs by nearly $2.2 billion, according to the FDIC, but the ratio of reserves to nonperforming assets declined to 138% from 143%. Still, the FDIC noted that the equity capital and reserves held by the 25 are more than 11 times total nonperforming assets. Moving beyond the numbers, Mr. Heller noted that adverse events often highlight areas for reform and said that Enron and Argentina may require better anticipation and monitoring of overseas exposure, as well as more rapid collection of current and forward-looking domestic banking data. Last week an American Banker story took a look at much of the same data for the 10 largest banks. It quoted the Office of the Comptroller of the Currency's credit czar, David D. Gibbons, as saying that credit quality problems tend to peak six to nine months after an economic recovery begins. In his report, Mr. Heller sees a slightly longer time horizon. A 12-to-15-month period often separates the end of a recession and peak loan writeoff activity at banks, he wrote. The FDIC report includes many other details about the 25 largest banks, which hold 62% of the industry's total assets. The results can be found on the agency's Web site at http:// www.fdic.gov/bank/analytical/fyi/fyi021302.html. Copyright c 2002 Thomson Media. All Rights Reserved. http://www.americanbanker.com LOAD-DATE: February 13, 2002 Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Enron's energy trading unit goes to UBS
Michael, In bankruptcy management can run the business and engage in ordinary course transactions but they now have to shift their fiduciary duty to include creditors, not just shareholders. Certain transactions require the approval of the bankruptcy judge. The management has 180 days to develop a reorganization plan for the overall future of the company that must be approved by the creditors in a rathe complicated voting scheme. From the following story it seems clear that the expectation is that UBS will generate some future cash flow back to Enron through its independent control and management of the trading operation, so it would likely have been viewed favorably by the court and the creditors. An order approving the deal was probably issued by the bankruptcy court and is probably available on the FindLaw Enron site. Steve Feb. 11, 2002, 11:55PM Former traders for Enron start work under UBS By TOM FOWLER Copyright 2002 Houston Chronicle The fifth and sixth floors of Enron Corp.'s new downtown tower were back in action on Monday as about 650 former EnronOnline traders began operating UBSWenergy.com. UBSWenergy.com, created using the Internet-based trading software and much of the people power of the former EnronOnline, posted prices for four natural gas contracts and two electricity contracts. It was a modest start compared with its predecessor, which at its peak offered more than 1,700 different products, but it was the first step in what may become a source of payment for Enron's hundreds of creditors. While transactions are backed by the Swiss bank's investment-grade credit rating, energy buyers and sellers say it is too soon to know whether UBS Warburg Energy, owned by UBS Warburg AG, can revive a trading business that once generated most of Enron's profit before its Dec. 2 bankruptcy filing. A lot of people are still getting documents in place to set up trading accounts with UBS, said Thomas Padron, head of natural gas trading at energy brokerage GFI Group in New York. He expected it to take two to four weeks before UBS Warburg's new venture's chances for success are known. About 650 former Enron traders and support staff are running the site, which is headed by former Enron President and Chief Operating Officer Greg Whalley. Enron's trading business was the company's largest revenue generator, accounting for about 80 percent of the firm's profits. With 800 trading desks around the world, Enron once dominated the oil, natural gas and electric power markets, while also swapping a host of other commodities. In 2000, the system conducted as many as 548,000 trades, valued at more than $330 billion, according to Enron. Former Enron Chief Executive Officer Ken Lay once called EnronOnline one of the three most significant changes to the energy industry in the past 20 years. When it went live in 1999, it brought a new level of price transparency, liquidity and efficiency to energy and other commodities, Lay said. I believe it will be an enduring Internet success story, he said. But Enron's collapse last fall led customers to flee, helping to bring on the resulting bankruptcy filing in early December. Even in bankruptcy, the company considered the business unit to be valuable, and paid millions to its top employees to stay with the unit. John Lavorato, president and CEO of Enron Americas, received a $5 million retention bonus, while Louise Kitchen, Enron's former head natural-gas trader in London, received $2 million. Both have been hired by UBSWenergy.com. In bankruptcy, Enron tried to lure bidders to take a stake in the business to operate it as a joint venture and begin generating cash for Enron again. Negotiations with two parties, UBS Warburg and Citigroup, ran almost nonstop for two days in January before UBS Warburg was chosen. The deal was not what many expected, however. Instead of paying cash for a stake in the business, UBS Warburg will pay 33 percent of the new trading business' before-tax profits to Enron for the first two years, with higher payments possible later if UBS Warburg buys Enron out. UBS Warburg assumed none of Enron's liabilities or past trading positions, but did agree to pay $5 million of the $11 million in retention bonuses paid to top traders. UBSWenergy.com has its work cut out for it. Following Enron's collapse, many traders took their business to the Intercontinental Exchange, an Atlanta-based Web site that's owned by 13 energy-trading firms, such as BP, Morgan Stanley Dean Witter Co. and American Electric Power Co. Other traders, who lost money because of Enron's collapse, said they wouldn't return until UBS Warburg replaces the former Enron managers. Michael Barbis, an analyst with Fulcrum Global Partners in New York, said the new organization faces a tough challenge to succeed, given its association with Enron. No one expects them to be what they were, Barbis said. It will be a tougher time for them to get going, is my bet. The Associated
Enron Creditors
Remember that the creditors do not necessarily want their principal back if there is a way to generate cash flow sufficient to meet interest payments. Of course, if the company is really going down the drain then a reorganization becomes necessary and creditors may be forced to accept new lower yield securities in order to avoid liquidation altogether. So the short answer is that the money UBS pays to Enron (if the trading operation generates sufficient returns) will be used to continue to pay creditors. Of course, while in bankruptcy there are various ways to delay paying out cash to creditors, but only if management gets the approval of the court and that really means in essence approval of the creditors. Keep in mind that Enron is now run by a new CEO (a restructuring expert who is out to please the creditors) and a new Board chairman who are, in effect, agents of the creditors not shareholders now. In 8 out of 10 public company bankruptcies, common shareholders never get their money back, but creditors can often do much better. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Labor confronts big capital at Qualcomm shareholders meeting
This makes great listening. It is part of an initiative by the AFL-CIO to get Enron directors off the boards of other companies. http://www.qualcomm.com/IR/ir36.html Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Enron and California: The Smoking Gun?
This crucial story in the LA Times explains the link between the California energy crisis and the collapse of Enron. As the excerpt below indicates, Enron needed huge amounts of cash to act as a market maker in energy futures. The company then assumed that its early profit margins in this segment of their business would continue into the future and by marking to market they recorded as present day revenue those expected future returns. http://www.latimes.com/business/la-10818feb12.story?coll=la%2Dheadlines% 2Dbusiness The only reason the contracts were worthwhile was that mark-to-market, he said. You were able to take today 10 years' worth of minimal profit. But once you're into it, if your curves aren't as good as what you hoped for, your revenue line deteriorates. You lose money. And lose money EES did. Unforeseen problems with California deregulation threw off the models that predicted profits for the California book of retail customers. The exact amount is unclear, but Dickson said, We had a couple hundred million dollars of position that EES had taken for that regulatory risk, where we predicted one thing and now it was different. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Interview with Doug Noland
of Credit Bubble Bulletin and the Richebacher Letter.: http://www.netcastdaily.com/1experts/exp020202.ram Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
For Fred M. on the Enron SPV's
Fred, The private placements are debt instruments (or variations on what is near equity-like deeply subordinated debt), backed by the collateral of the asset sold to the SPV by the parent. Often, the parent may continue to hold on to some risk associated with the SPV. And the SPV's equity (i.e. voting control) is held by the SPV. Without access to the private placement memorandum for a particular deal (in possession of the purchasers, like the MacArthur Foundation and various pension funds), one cannot tell the answer in this particular case. In most cases, the accounting reality attempts to track the underlying economic reality - i.e. is the SPV really no longer a risk to the parent. But that clearly did not happen in the core transactions at ENE. Today's release of the Powers report should be useful in assessing this. There is no way to know, however, at this point about the structure of the entire 3,000 entities. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Enron SPV's and debt
I probably do not have a satisfactory answer to Fred and Rakesh's questions. Here is what I do know. The typical SPV (special purpose vehicle), and this applies to many of the Enron vehicles, are: i) capitalized initially by a small cash or security infusion by the Parent together with a minority partner (the infamous 3% partner, tho there is in fact no actual rule requiring 3% - i.e. Andersen could have pushed an economic reality test on Enron and many of these off balance sheet vehicles would have had to have been consolidated on ENE's balance sheets - i.e. they would not have ever been set up in the first place). ii) The SPV then borrows, let's say, $100 mn from a bank, perhaps with a guarantee by the majority equity holder, i.e. Enron (notice how risk never really shifts to the SPV fully, thus the public shareholder in ENE retains some downside, but has no financial statement to point to understand the risk). iii) The SPV then uses the $100 mn to buy an asset (i.e. a cash flow discounted to present value by Enron and valued at $100 mn). iv) Enron books the $100 mn as revenue today tho it may have made various promises to the bank and to future investors in the SPV to make them whole for losses (through warrants or issuance of additional ENE stock, again without full disclosure to current public shareholders). v) the SPV packages the asset into a security and sells it to large institutions or wealthy individuals as some kind of debt instrument typically, promising a return linked to the asset's future cash flows. This is done in a private placement, thus not registered with the SEC. I do not know FOF data records private placements of securities. The list of private investors in the various SPV's is only partially known. Pension funds, endowments, foundations, trust funds, are typical purchasers. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Enron's SPV's
Yes, I realize I left out a few things. The debt that the SPV takes on is used to front the money for the asset (like speculative broadband futures) from the parent. But the SPV soon pays off this loan by selling its new securities in the private placement. In fact, the loan that the SPV takes on might just be an LOC (letter of credit) or very short term since the private placement with 3d party investors is done almost simultaneously. In the deals I worked on of this general type while in private practice, the SPV was set up at the same time as the placing of the securities, tho I am certain there is a wide range of possibilities. Keep in mind that in most cases the SPV's underlying equity is controlled by the Parent, thus they really set the value of the asset. In the case of Enron, CFO Jeff Fastow was an officer (or general partner) of these types of entities. One can see how this can easily lead to an inflation of the value of the asset. It is this step that creates the fictitious value - establishing some notion of the present value of an asset that will only pay out over a long time in a very inefficient, even nonexistent, market (what IS the market for broadband? ENE was creating it thus they could decide the price!) It is hard not to conclude that this was an elaborate pump and dump scheme (see the terrific film Boiler Room to get a sense of what kinds of snakes these people really are). Also, I understand your interest in the debt, but keep in mind that the bank that provides the loan for the SPV is only taking on the risk that the SPV will not be able to complete the private placement to the third parties - in fact, the loan is really just a guarantee - serving to provide some reputation effect to help get the private placement done - in one case, for example, a piece of the private placement was sold to the MacArthur Foundation, so you have to convince one of their fund managers that this was a great deal - the investment banker marketing the deal will, of course, point to the loan from, e.g., JP Morgan. Often the loan would not go through unless the private placement was clearly going to succeed. Once started the entire operation - for up to a billion dollars - can be done in six weeks. Steve Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Take the Money Enron.
Take the Money Enron: America's really existing capitalism By Stephen F. Diamond* January 29, 2002 As the Enron debacle is dissected by almost a dozen Congressional committees, we are in the midst of one of the biggest scandals in American history. How could our system of corporate governance and finance have broken down to such an extent? Republicans hope to paint the collapse of the giant energy trading company as a failed business model so that they can extol the genius of American capitalism, in the words of Treasury Secretary Paul O'Neill, which allows businesses to fail as well as succeed. Meanwhile the Democrats are looking for someone on Wall Street to blame. There is certainly enough blame to go around. There are the analysts who notoriously pump up stocks so that their investment banking clients can dump them on an unsuspecting public. And there are the accountants who indeed have grown so entangled with their clients that they can no longer be relied upon to provide objective audits of the actual financial condition of America's public companies. Scandal and fraud are certainly present, but they are not the real problem. In response to the demands of today's brutally competitive global economy, conscious political and legal changes, not criminal behavior, shaped and enabled this crisis. Consider two obscure but crucial changes in our securities laws that helped facilitate the Enron collapse. In 1995 pressure from corporate America, particularly Silicon Valley, led to a limit on the damages paid to investors who successfully sue companies, accountants, lawyers and banks for their role in selling stock to the public at inflated prices. Prior to 1995, accountants, for example, were liable for the entire amount of damages that might be imposed on the players in this process. That was a strong incentive for auditors to be very careful about the information they certified in a company's public documents and equally cautious about the financial structures they might recommend through their consulting arms. If a company fails, investors look for deep pockets and a multi-billion dollar accounting company looks like a much more attractive target than a failed dot-com. But after the 1995 law was passed, the accountants were only on the hook for that percentage of the verdict or settlement that they directly and willingly caused. Investors had lost a powerful source of leverage over the auditors, who were now encouraged to take greater risks in their work. This change came at the same time that corporate America and Wall Street were taking increasing advantage of a 1990 change in the law that provided a safe harbor for private placements to large institutions of a wide range of financial instruments. That meant that offerings of these securities no longer required disclosure of key information to the public or to the Securities and Exchange Commission. In fact, that is one important reason it is so difficult to understand what Enron was doing with other people's money, in Justice Brandeis' famous phrase. Many of those hidden partnerships and off balance sheet vehicles used these so-called private placements, hidden from the view of public shareholders. There is no publicly available disclosure of the details of these transactions. Unless the FBI is able to reconstruct the shredded documents now being recovered from Enron and Arthur Anderson we may never fully understand what was going on inside the company. Unfortunately, hundreds of companies now rely on this explosive combination of private placements and off balance sheet entities. The last decade has seen the American economy create a massive amount of new paper financial obligations using these structures that cannot possibly be supported by the productive base of the economy. In fact, little attention is being paid to what is happening in this real economy, made up of steel mills, auto assembly plants, health care services, and our physical infrastructure, which turn out the products and services that a society truly needs to eventually pay off all of these fictitious claims to society' s wealth. To remedy this situation we must make significant institutional and structural changes in the way that we conduct economic activity. As a first step, we must close these loopholes to rein in the unscrupulous behavior of private actors. But we must go beyond that. We should no more leave auditing in the hands of the private sector than we now leave airport security - it is every bit as important as airport x-ray machines to our survival. Auditing should be conducted under the direct supervision of the federal government. Further, public corporations should indeed be public corporations, committing themselves to greater transparency and accountability. This should mean that representatives of the public and large institutional investors like public employee pension funds should sit on the boards of major public
Fictitious Capital and Enron
From Doug Noland's Credit Bubble Bulletin: Reading through Frank Partnoy's (attorney, law professor, former Morgan Stanley derivative salesman, and author of F.I.A.S.C.O) candid and informative testimony (http://www.senate.gov/~gov_affairs/012402partnoy.htm) presented this week before the Committee on Governmental Affairs, I could not help but ponder to what extent Enron exemplifies a microcosm of the contemporary U.S. Credit system. We can only hope that fraudulent activities have not risen to epidemic proportions but, regrettably, we just have no way of knowing. Fraud and malfeasance have a way of only making their way to the surface after a particular asset class falters (like energy and Enron!). We are today forced to wait for the protracted boom in mortgage finance and asset-backed securities to run its course. Yet the profound shift to off-balance sheet entities and vehicles, derivative contracts, and other sophisticated instruments, certainly makes any discussion of transparency or accurate risk assessment a bad joke. It is surely not comforting to learn how entangled our nation's largest accounting firm and bank, not to mention Wall Street and Washington, were in the Enron sham. I remember back to early 1998 when I read in the Financial Times of the explosion in ruble derivative hedging contracts throughout the Russian banking system. This piece of information, along with the knowledge that the global leveraged speculating community had been aggressively accumulating large holdings of high-yielding Russian government bonds, was sufficient to appreciate that the Russian financial system had drunk the poison. There was, nonetheless, no way of knowing when crisis would erupt - in fact, the boom survived for many months - only that when the speculative flows eventually reversed this Bubble would quickly implode into illiquidity, dislocation and financial collapse. The structure of the debts and degree of systemic leverage, the nature of the hedging instruments, and the character of the financial players involved ensured it. The day the foreign speculators began any meaningful attempted to liquidate holdings (get their money back!), the Russian debt market and ruble would tank. The Russian banks would then be called upon to pay against their derivative insurance, although they would by then be hopelessly insolvent. The ruble and government bond market would swiftly collapse and this sordid financial scheme would be over. The Russian debacle offered a potent mixture of fraud and wild speculative excess (wrapped in the presentable garb of contemporary finance), with the critical assumption that Western policymakers would not tolerate a market collapse. It is worth noting how the most spectacular Bubbles and consequent devastating busts occur to markets holding the most faith in the muscle of authority. Ignoring the fraud, it was at best a complex contemporary financial scheme with the age-old problem that foreign players would have no opportunity to exit the Bubble quietly. The idea that legitimate insurance protection could be purchased from highly leveraged and exposed financial players was similarly ridiculous, in an intriguing contemporary twist to traditional schemes. It is unfortunate that there has been little appreciation for the critical role the availability of such insurance played in fostering the speculative Bubble. It was a key enticement that altered risk perceptions for the leveraged speculators, while presenting irresistible opportunities to Russian bankers and fraudsters alike. This insurance thus guaranteed the degree of interrelated market excess and malfeasance that would end in spectacular simultaneous collapse in the bond, currency, and insurance markets - Russian financial collapse. There were critical pertinent lessons from the Russian experience that were not learned. A sense of déjà vu all over again came over me this week when I read David Gonzales' article, Enron Footprints Revive Old Image of Caymans, in Monday 's New York Times: Today, there are more than 400 banks and 47,000 partnerships registered or licensed in the Cayman Islands. The banks include about a dozen full-service institutions, with the rest being offshore banks that by law must be affiliated with either a local or overseas bank. By some estimates, Cayman banks hold $800 billion in American money - a figure that last year led Robert M. Morgenthau, the district attorney in Manhattan, and others investigating tax cases to question how much of it was there to keep it from the reach of tax collectors. But Cayman bankers and officials, long accustomed to these criticisms, said that most of that figure represents money from major American banks that has been booked in Cayman accounts in order to gain interest, among other advantages. 'Those $800 billion are not physically in the Cayman Island, it is all in New York,' said Conor O'Dea, managing director of Bank of Butterfield. ' It is booked
Excellent column, but
Dear Mr. Rich, I am a law professor and teach courses in securities regulation and corporate finance. I am former corporate lawyer having practiced on Wall Street and in Silicon Valley for five years before becoming a fulltime academic. While in private practice I represented a wide range of public and private corporations and investment banks conducting complex financial offerings and mergers and acquisisitions. I also worked on creating off balance sheet vehicles similar to those created at Enron, though for other unrelated corporations. I thought your column in today's Times was excellent at exposing the deep political ties that lie behind the Enron scandal. I do want to take issue, however, with one aspect of your story. You suggest, understandably, that Enron may turn out to be the largest flimflam in U.S. business history. This approach to the problem is one that several writers seem to share: how could our system of corporate governance and finance have broken down to such an extent? Surely this must be the result of some kind of fraud, not too distinct from that which was so widespread in the days of wild west medicine salesmen. I would urge you and other journalists who are following this very important story to resist this temptation. That is why I put the word scandal itself in scare quotes. The problem, I believe, is very different. The collapse of Enron is, in my view, symptomatic of the nature of modern post-Cold War capitalism. Today's capitalists face a world of intense global competition, rapidly advancing technologies and massive initial capital requirements to get any kind of truly sophisticated business off the ground. Under such daunting circumstances, the ability of large corporations to find ways of making a profit has become so difficult that increasingly corporations are turning to financial manipulation, on the one hand, or to sweatshop labor, on the other, to squeeze an additional dollar out of their existing assets. Thus, in the Asian Financial Crisis or in the current Argentine crisis, the source of the problem lies every bit with the lenders and creditors who kept pumping money into those economies even though their social and political structures were groaning under the demands of this capital investment. There is a tendency to think that throwing money at a problem is a possible solution. But in fact without the appropriate legal and political frameworks - which, in my view, must be far more transparent and democratic here and in places like Argentina - that money is an obligation that weighs heavily on the recipients. At Enron, as its executives realized that their model - making markets in a wide range of products and services - appeared to work their stock price soared. And like that money that kept flowing into Argentina as they chained the peso to the dollar, this soaring stock price raised the pressure on the executives to produce further gains. But in the end Enron had really made a series of one-way bets, perhaps very similar to the huge risks that Long Term Capital Management took in the mid-90's, and when the winds shifted (for example, when California energy prices were capped or when the U.S. dollar continued to strengthen) it became clear that their profit margins were far less robust and stable. Using the corporate form to bet with what Louis Brandeis famously called Other People's Money turned out to be a disaster. It is certainly true that, as the Wall Street Journal and Paul O'Neill want to argue, that this was just a failed business model. Unfortunately, the Enron business model is the model for almost all of modern capitalism! The last decade has seen the American economy create a massive amount of new debt and other financial obligations that cannot possibly be supported by the productive base of the economy. Despite the fallout of the last two years, many companies continue to trade at truly unprecedented valuations. Meanwhile, our semi-public housing loan entities, Fannie Mae and Ginnie Mac, continue to pump massive amounts of securities into the capital markets to keep money flowing into the hands of consumers with little attention paid to what is happening in the real economy - steel, autos, infrastructure - the products that a society truly needs to advance and eventually pay off all of these paper claims to wealth. I believe that it is important to absorb the truly staggering impact of the words of Arthur Levitt on the op-ed pages of the Times earlier this week. He argued that all the gatekeepers of modern capitalism had to be examined - lawyers, auditors, managers, directors. Based on my experience in this environment he is certainly right. The apparent involvement in this process of every single layer of Enron, of all of its outside advisors and professionals and now apparently of many inside the federal government, indicates that we are encountering a fundamental problem with modern capitalism no different than
Brazil - the real danger?
Global: Risks to US Corporate Profits Mount in Brazil 17 January 2002 Joe Quinlan/Rebecca McCaughrin (New York) (Morgan Stanley) The devaluation of the Argentine peso, down over 40% since the one-to-one peg with the dollar was abandoned, has no doubt added even more strain to the balance sheets of US multinationals with heavy exposure to Latin America. As the peso slides, so do the dollar-based earnings of many US firms in such sectors as energy, financial services, and consumer products. The only good news against this backdrop is that problems in Argentina have been largely priced into equity valuations over the past few months. Less apparent to US investors, however, is the plunge in foreign affiliate earnings in the Latin market that matters most to US firms -- Brazil. While Brazil has remained relatively immune to its neighbor's troubles, the global recession has not spared the economy, with real growth decelerating to an estimated 1.5% in 2001 from 4.4% in the prior year. Add in a 16% depreciation of the Real against the US dollar (in nominal terms) over 2001, and there is little wonder that US affiliates have been finding it harder to generate earnings in Brazil. Contagion or no contagion, Brazil's deteriorating economic prospects caused US affiliates to post losses of $47 million in the third quarter of last year. That follows very weak numbers in 1Q and 2Q, when US affiliates earned only $284 million and $102 million, respectively. In contrast, affiliate quarterly earnings were in excess of $500 million over the second half of 2000. Taken together, affiliate earnings totaled just $339 million in the first nine months of 2001, off nearly 75% from the corresponding period a year earlier. With declining industrial production and weak retail sales in the final months of 2001, US foreign affiliate earnings in Brazil last year likely plunged to their lowest level since the late 1980s. The decline may result in a potentially nasty earnings surprise in the upcoming reporting season. Argentina's problems have been largely discounted by the market, but when it comes to US corporate exposure to Latin America, Brazil matters more than Argentina. In 2000, for instance, US affiliate earnings in Brazil of $1.8 billion were nearly seven times as large as earnings from Argentina. In the same year, Brazil accounted for 40% of total affiliate earnings in South America versus Argentina's 13% share. Over the 1990s, US earnings in Brazil were more than four times the earnings in Argentina, with affiliate income from the Latin giant averaging $3.1 billion on an annual basis against $670 million annually from Argentina. The bottom line is that it's Brazil, not Argentina, that represents a clear and present danger to the earnings of US multinationals. Unexpected earnings weakness among US foreign affiliates in the region's largest and most important market could turn out to be a drag on 4Q profits for many US firms with exposure to Latin America. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
state power theory of money
David Friedman, the anarcho-capitalist son of Milton, has a piece arguing for private money. The problem I see with the state power/fiat money argument is that there are lots of instruments out there that should qualify as money that are not creatures of state creation. A recent article in one of the Hayekian journals actually makes this kind of argument in a discussion of money market funds - which, of course, have no reserve requirements. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Greg Palast on Argentine crisis
Inside corporate America Time to cry for Argentina There are few tears from the IMF when a South American economy dies, but the latest cut, cut, cut reforms are the unkindest of all Gregory Palast Observer Sunday August 12, 2001 The news last week in South America was that Argentina had died, or at least its economy had. One in six workers was unemployed even before the beginning of this grim southern winter. Millions more have lost work as industrial production, already down 25 per cent for the year, fell into a coma induced by interest rates which, by one measure, have jumped to more than 90 per cent on dollar-denominated borrowings. This is an easy case to crack. Next to the still-warm corpse of Argentina's economy, the killer had left a smoking gun with his fingerprints all over it. The murder weapon is called a 'Technical Memorandum of Understanding'. Dated 5 September 2000, it is signed by Pedro Pou, president of the Central Bank of Argentina, for transmission to Horst Kohler, managing director of the International Monetary Fund. Inside Corporate America received a complete copy of the understanding, along with a companion letter from the Argentine Economics Ministry to the IMF, from... well, let's just say the envelope had no return address. Close inspection leaves me in no doubt that this understanding fired fatal bullets into Argentina's defenceless body. To begin with, the understanding requires that Argentina cut its budget deficit from $5.3 billion last year to $4.1bn in 2001. Think about that. Last September, Argentina was already on the cliff-edge of a deep recession. Even the half-baked economists at the IMF should know that holding back government spending in a contracting economy is like turning off the engines on an aeroplane in stall. Cut the deficit? As my four-year-old daughter would say, 'That's stooopid.' The IMF is never wrong without being cruel as well. And so we read, under the bold heading, 'Improving the conditions of the poor', an agreement to drop salaries under the government's emergency employment programme by 20 per cent, from $200 a month to $160. But you can't save much by taking $40 a month from the poor. For further savings, the understanding also promised, 'a 12-15 per cent cut in salaries' of civil servants and 'rationalisation of certain privileged pension benefits'. In case you haven't a clue what the IMF means by 'rationalisation', it means cutting payments to the aged by up to 13 per cent. Cut, cut, cut in the midst of a recession. Stooopid. Salted in with the IMF's bone-head recommendations and mean-spirited plans for pensioners and the poor are economic forecasts bordering on the delusional. In the 'understanding' the globalisation geniuses project that, if Argentina carries out its plans to snuff consumer spending power, somehow the nation's economic production will leap by 3.7 per cent and unemployment will decline. In fact, by the end of March, the nation's GDP had already dropped 2.1 per cent below the year-earlier mark, and it has nosedived since. What on earth would induce Argentina to embrace the IMF's goofy programme? The payoff, if Argentina does as it is told, is that this week the IMF will lend $1.2bn in aid. This is part of an emergency loan package of $26bn for 2001 put together by the IMF, World Bank and private lenders announced at the end of last year. But there is less to this generosity than meets the eye. The understanding also assumes Argentina will 'peg' its currency, the peso, to the dollar at an exchange rate of one to one. The currency peg doesn't come cheap. American banks and speculators are charging a whopping 16 per cent risk premium above normal in return for the dollars needed to back this currency scheme. Now do the arithmetic. On Argentina's $128bn of debt, normal interest plus the 16 per cent surcharge by lenders comes to about $27bn a year. In other words, Argentina's people probably won't net one penny from the $26bn loan package. Little of the bail-out money escapes New York, where it lingers to pay interest to US creditors holding the debt, big fish such as Citibank and little biters such as Steve Hanke. Hanke is president of Toronto Trust Argentina, an 'emerging market fund' that loaded up 100 per cent on Argentine bonds during the last currency panic, in 1995. Cry not for Steve, Argentina. His annual return that year of 79.25 per cent put the Toronto trust at the top of the speculation league table. This year he'll do it again. Hanke, it seems to me, seems to profit on the failure of the IMF's policies. In his day job as professor of economics at Johns Hopkins University, Maryland, he freely offers straightforward advice to end Argentina's woe, advice that would put him out of the speculation game: 'Abolish the IMF.' To begin with, Hanke would do away with the 'peg' - that one-peso-for-one-dollar exchange rate - which has proved a meat-hook on which the IMF hangs Argentina's finances. It's not the peg
Excellent analysis of Argentine crisis
Note the argument that links Argentinian crisis to hollowing out of American manufacturing. - International Perspective- by Marshall Auerback AMERICA'S 'STRONG DOLLAR' POLICY AND ARGENTINA'S DEFAULT: A ROOT CAUSE THAT DARE NOT SPEAK ITS NAME 28 December 2001 www.prudentbear.com Argentina has been a habitual problem throughout 2001, so it is perhaps appropriate that the country's new government has ended the year by announcing the largest sovereign debt default in history. So much for former Citibank Chairman Walter Wriston's belief that only companies go bust, not countries. Needless to say, the blame game has already started as to who or what caused this fiasco with the usual suspects now being lined up in front of us: the IMF, former Presidents Menem and De La Rua, former Economics Minister Domingo Cavallo, the currency peg system itself, Argentina's fiscally irresponsible provincial governments, the list goes on. Curiously, there has been very little attempt to look at the problem from another perspective, namely the consequences of Argentina being yet another in a string of international casualties emanating from America's strong dollar policy. As was the case in emerging Asia, Argentina's decision to retain a link with a manifestly overvalued currency must surely rank as one of the leading root causes of the default. While this is not the sole cause of Argentina's current woes, retaining the peso-dollar convertibility peg ultimately did a huge amount to undercut the competitiveness of the country' s external sector, consequently rendering its debt servicing requirements untenable. Even when it was becoming clear that Washington's economic policy makers were adhering to a strong dollar policy solely as a means of appeasing the increasingly large foreign constituency financing America's huge and growing private sector financial deficit, the Treasury and the IMF continued to insist that Argentina retain its convertibility system (with no modifications) as a quid pro quo for receiving continued assistance. This left Argentina in an economic cul-de-sac, with virtually no policy options left to alleviate the country's 4-year long recession. They were forced to operate under conditions that no American politician would dare advocate for the US - cutting public expenditure in the midst of a fully blown recession, raising interest rates - in short, the exact opposite of what American policy makers have been doing since the US economy began to descend into recession. Yet the multifold adverse effects from these policies have thus far occasioned little analysis within the context of Argentina's current plight. It is one thing to say that the US should not allow its policy on the dollar to be subject to an international veto (as Washington and others seem to be urging on Tokyo in regard to the yen). It is quite another to ignore the international implications of such a policy, whilst simultaneously seeking to assert global dollar hegemony. It is also perverse to continue to advocate a strong dollar policy independent of any considerations relating to trade competitiveness in the US itself and the corresponding threat posed by debt trap dynamics in the event of a substantial current account deficit. Under Treasury Secretary Rubin and his two successors who have slavishly continued his policy, short run speculative trend following capital inflows which buoy domestic stock and bond markets and keep domestic interest rates low have been deemed to be consistently more important even as the strong dollar policy has wreaked havoc domestically in America's manufacturing heartland and created huge external imbalances in the current account. It has also propelled asset markets ever higher with unstable fuel from inflows of short term global speculative capital. In the case of the US it is now hurtling the world's largest net debtor nation toward a record current account deficit as a share of GDP, whilst concomitantly drawing desperately needed capital funding requirements away from the emerging world (thereby helping to create the kind of underdeveloped gangster states that we now recognize pose formidable risks to American domestic security). Finally, the strong dollar policy has helped to perpetuate a high tech bubble rife with capital expenditure excesses, and a stock market and real estate bubble, all of which are symptoms of a credit system run amok in the US itself. Washington's attempts to deal with the aftermath of these excesses has already begun to exert a powerful deflationary toll on the global economy, thereby further exacerbating the problems of a country like Argentina, as it seeks to export its way out of its current financing crisis. It didn't used to be like this. From the early 1970's onward, American industrialists have been concerned about competitive inroads from lower wage countries on a rapid path toward modernization. In the 1980's the focus was on
A reply to Jonathan Lassen on Chinese workers
Jonathan, I had fully expected the kind of arguments that you make to be made in the reply by Wong and Bernard. As China goes through the process of being merged more fully into the global capitalist economy it is inevitable that the various state and party institutions, including the ACFTU, will go through significant change. I am fully prepared to engage in a thorough analysis and discussion of how the genuine trade union movement can relate to those individuals inside the ACFTU who try to make the ACFTU act like a real trade union. Frankly, I think based on the experience of eastern Europe the best way to do that is to give full support to independent labor activity. And that is also the conclusion of the China Labour Bulletin headed by Han Dongfang which wrote a reply to a longer version of the original Wong and Bernard piece in Human Rights in China. In any case, while I respect the work of Anita Chan, I think that there is very little evidence that the ACFTU is giving much assistance to what Michigan sociologist Ching Lee calls a veritable labor insurgency now underway among Chinese industrial workers. These workers are acting independently. When I have the time, as I indicated in my original post, I intend to explore these kinds of issues more closely and fully. However, this is NOT the kind of argument that was contained in the reply by Wong and Bernard to my letter. If you have not read the letters I would ask that you do (I will be happy to fax you a copy, since they are not available electronically). Their reply ignores my focused factual argument about the nature of the ACFTU and instead they call such argument McCarthyite, racist, conservative and national chauvinist. Those are their words. Frankly, my only conclusion is that these people are out of touch with reality. To suggest that the AFL-CIO is racist and conservative is, frankly, absurd. This is particularly true in light of the near decade long evolution of the AFL-CIO - under both Kirkland and Sweeeney, I might add - to express an independent perspective on foreign policy, beginning with their opposition to NAFTA, developing into the Campaign for Global Fairness and a new progressive view on immigration (both of which were reaffirmed at the recent AFL-CIO Convention). I have an article that will appear in the Pepperdine Law Review in the next few months that explores this evolution more closely (with an emphasis on the international labor rights strategy) that I would be happy to provide you. In any case, what is truly remarkable and inexplicable to me is how the heads of two of our most important labor education centers, UCLA and Harvard, could express views that, far from critiquing what they suggest is a Cold War viewpoint, actually TAKE US BACK to the Cold War by using invective not concrete and constructive discussion. Surely we should expect more from those we count on to provide a broader perspective for the trade union movement. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
reply to M. Maljoo
I found a collection called Cutting Edge: Technology, Information, Capitalism and Social Revolution, edited by Davis, Hirschl and Stack (Verso 1997) to be very useful on the questions you ask. The open question in my mind is the nature of surplus value production on a global basis today: does the emergence of companies like Intel, Msft, Oracle, etc. on the high end add sufficient surplus value to keep the system profitable and growing or does it require supplmentation by sweatshop labor on the low end? Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Contagion of the poor?
I like the bit about the possible contagion of the poor in this analysis from an establishment think tank, Stratfor. Anyone for a FTAA now? - President's Resignation Leaves Argentina on the Brink Summary Argentine citizens this week began venting their anger at the government's failed economic policies. Twenty-two people have been killed after more than a day of looting and rioting, which culminated late Dec. 20 with the surprise resignation of President Fernando de la Rua. Argentina is now effectively left ungoverned, and this will accelerate a massive debt default and a devastating devaluation of the peso. An extended period of political and social chaos will make it extremely difficult for the next government, which likely will be led by the Peronists, to tackle the country's massive economic problems. Analysis A rising tide of protests against the Argentine government's economic policies turned violent Dec. 19 and 20, as thousands of citizens took to the streets of at least six major cities. Twenty-two people have died in 36 hours of rioting that prompted the government to declare a state of siege. Economy Minister Domingo Cavallo, once considered an economic miracle worker, resigned his post Dec. 19, followed by the rest of the Cabinet. In a last ditch effort to save his government, President Fernando de la Rua approached the opposition Peronists about forming a national unity government, but they declined to enter into a coalition. Recognizing his complete powerlessness, de la Rua resigned late on Dec. 20. This effectively leaves Argentina without a government. De la Rua's vice-president resigned in October 2000, taking his Frepaso party with him. Buenos Aires daily La Nacion reports that the Peronists, who have a majority in both houses of Congress, will name the president of the Senate, Ramon Puerta, as de la Rua's provisional replacement. National elections will then likely be called for early 2002. The government's rapid collapse will sharply accelerate the country's formal debt default. It will also accelerate a devaluation of the peso. This will devastate the economy, cause the banking system to collapse and destroy much of the country's middle class. Meanwhile, the rising social unrest and violence that forced the government's collapse will likely escalate as the country is left relatively ungoverned. The social, economic and political situation in Argentina is set to get much worse before it gets better. The risk to neighboring countries comes more from a spread of social and political contagion, as unrest in Argentina could bolster the disaffected poor in other parts of South America. Meanwhile, any remaining hope on the part of foreign investors or the International Monetary Fund that Argentina will avoid a debt default has now faded into the tear gas and rubber bullets of Dec. 19. The violence this week is the culmination of public frustration over the economic course steered by de la Rua and Cavallo. In an attempt to avoid default, Buenos Aires followed IMF austerity prescriptions as far as it could, slashing public spending, cutting crucial payments to regional governments and imposing restrictions on bank withdrawals. These measures resulted in more and more public pain without any tangible results at reviving the economy. Argentines have finally had enough and are now striking back. In order to quell public outrage and maintain his tenuous grip on power, de la Rua had already started to loosen government purse strings, issuing an executive decree Dec. 19 to distribute $6 million worth of food to the provinces. More spending is unlikely, however, considering the poor state of the government's finances. More important, De la Rua's options were limited by his own political weakness. He had very little power within his own Radical Party, and former coalition partner Frepaso had been distancing itself from the government for a year. The Congress this week stripped the president of emergency powers he was granted earlier this year to deal with the economic crisis. To do anything substantial, he needed the political backing of the opposition Peronists, who control both houses of Congress. The Peronists, however, were of two minds. Though they naturally covet the presidency, they were wary of taking control at such a volatile time. They appeared content to wait in the wings as de la Rua's government, which had two years remaining on its current term, imploded. De la Rua did not give them that luxury, however, and they will now be forced to lead Argentina out of its tremendous mess. Two prominent Peronists who have both served as governor of Buenos Aires, Carlos Ruckauf and Eduardo Duhalde, will both likely vie for the presidency in the coming elections. No matter who wins -- including a third party -- they will have to deal with the twin impacts of default and devaluation, as well as a popular backlash against a free-market economic
Re: Chinese working class
Rakesh, At a minimum a real union would defend the interests of its members - to start with, working to improve their wages, hours and conditions of work. While large numbers of Chinese industrial workers have been faced with economic oblivion, the ACFTU has yet to organize a single strike or other effort to defend Chinese workers that I have ever heard of. On the contrary, the China Labour Bulletin reports that the ACFTU usually tries to find excuses for the layoffs and pitiful severance pay handed out by the party or state officials, when it isn't actually in on the restructurings itself! You are right that a business union - not a concept widely understood by many - can be thought a real union - and in my view would qualify. But the ACFTU is not even a decent business union - it is a political organization created by the Communist Party to control the labor force, not to independently represent its interests. If things continue as they are going now in China, I think it will break apart as Chinese workers resist the economic process underway there and form their own organizations.
State of Siege in Argentina!
News 12/19 19:26 Argentina Suspends Constitutional Rights for 30 Days (Update3) By John Lyons and Daniel Helft Buenos Aires, Dec. 19 (Bloomberg) -- Argentine President Fernando de la Rua suspended constitutional rights for 30 days and called in federal police to bring order after mass looting broke out in the nation's three biggest cities. The decision marks the third time Argentina has declared a so-called state of siege since a military dictatorship ended in 1983. Argentines faced the restrictions in 1985 after bomb threats and then again four years later because of food riots that toppled former President Raul Alfonsin's government. De la Rua, who has cut wages and pensions and frozen most deposits in banks in a failed attempt to avoid a debt default, signed the order after a meeting with advisers, his office said. All day, police clashed with hundreds of Argentines who stole food and appliances from supermarkets and attacked government buildings across the country; at least four people died. ``There is total anarchy,'' said Jose Manuel de la Sota, governor of Cordoba province, where police fired tear gas to disburse dozens of state workers who stormed city hall, ransacked offices and set off explosives. The lower house of Congress, in an extraordinary session, voted to revoke special powers granted to Economy Minister Domingo Cavallo, a decision that still requires Senate approval. The minister, who was welcomed by foreign investors when he took office in March as the best chance for helping Argentina avert a debt default, had authority to set tax rates and introduce various economic measures. Desperation The protests underline the desperation of many Argentines after the government proposed $4 billion of spending cuts next year, seized retirement savings to pay its debts and limited bank withdrawals. A three-year economic slump has left more than 18 percent of the workforce unemployed and a third of the population of 37 million unable to meet basic needs. ``Necessity makes you do things that you don't want to do,'' said Patricia Andrada, who stood with about 100 others in front of the Disco SA supermarket, owned by Disco Ahold International Holdings, in Lomas Zamora near Buenos Aires. ``It is degrading.'' Pedro Alvarez, 78, who lives in a neighborhood near the capital, said the protesters' motivations went beyond hunger, as many stole televisions and money and destroyed as much as possible. ``If those guys were hungry, why didn't they just take the food?'' he said. Bank Controls Public outrage in Argentina picked up after the government's decision Dec. 1 to cap bank withdrawals and transfers abroad in a bid to prevent a devaluation of the peso, which for 10 years has been pegged one-to-one with dollar. The peso since has weakened at private exchange houses. Provinces have printed IOUs to pay bills, undermining the fixed exchange rate and increasing the likelihood of a peso devaluation, investors and analysts said. The government last month began defaulting on at least $95 billion of bonds through a swap of debt for lower-value securities, and analysts expect Argentina soon to start missing bond payments. The country's bonds trade at the widest yield spread of any emerging market debt at a yield spread of more than 41 percentage points over U.S. Treasuries with comparable maturity, according to a J.P. Morgan Chase Co. index. As de la Rua met with his advisers, police in riot gear battled looters in the nearby neighborhood of Consitution. In the township of Ciudadela, on the outskirts of the capital city, Sergio d'Agostino looked over the remains of two small markets he owns after he said 300 looters broke in, stole what they could and smashed the rest. `Not Hunger' ``That is not hunger, that is crime,'' he said as a carload of police sat nearby. ``I have to close this place down. What do you want to do now?'' The owner of the Coto supermarket in Ciudadela called for federal intervention after workers armed with sticks surrounded the store seeking food, radio reported. ``What is the government doing?'' Alfredo Coto, the store owner, said on Radio 10. ``They have to intervene.'' The president's approval rating has tumbled to 4.7 percent from 16 percent last year and 70 percent when he took office in December 1999, according to Consultora Eequis, a research company. Last week, after a nationwide strike, he met with former president Carlos Menem, leader of the opposition Peronist party, who was in office in the 1990s. De la Rua's governing alliance lost a legislative election in October to the Peronist party, which now controls both houses of Congress. Leaders of both ruling and opposition parties since have called for Cavallo to step down. The Peronist party is divided into factions backing at least six leaders who plan to run for president in 2003 and have varying economic views. Menem backs a policy of replacing the peso with the U.S. dollar and opening up the economy to
What is really happening inside the Chinese working class?
(Feel free to distribute this short piece.) In the most recent issue of New Labor Forum, a publication of the Queen's College Labor Center, an exchange of letters appears between me, on the one hand, and, on the other, Elaine Bernard, director of the Harvard Trade Union Program, and Kent Wong, director of the UCLA Labor Center. My letter argued that the All China Federation of Trade Unions (ACFTU), the official state sponsored labor organization in China, is not a real trade union, but a Chinese state body that implements the policies of the Chinese Communist Party rather than representing the interests of Chinese workers. Wong and Bernard just repeat their assertion (which first appeared in an article in the same journal a few months ago) that the ACFTU is a trade union but they do not provide any factual evidence. They also argue that my assessment of the ACFTU is racist and evidence that I am a conservative relic of the McCarthy era (no, I am not kidding, they really say that! - if you want a copy of the letters, send me your fax number). I intend to prepare a longer assessment of what Wong and Bernard have written but in the meantime it occurred to me to provide some background for understanding what is happening inside China today. There is growing concern that China is increasingly subject to unrest. A new book predicts the coming collapse of China sparked by economic collapse after China's entry into the WTO. The International Herald Tribune wrote recently of similar fears inside the ruling elite itself. Thus, I think it is important to keep track of what is going on in China, in particular among workers and nascent efforts to organize independently. This seems particularly imporant in light of the strange arguments made by Wong and Bernard, two of our country's leading labor educators, that the ACFTU is really a trade union and that anyone who criticizes such a view is a McCarthy-era conservative racist. So as background I prepared the following brief summary of independent working class history in China since the 1949 revolution. It is based on the excellent material prepared by the Hong Kong based China Labour Bulletein. I hope you find it useful and feel free to distribute this to anyone you think would be interested. --- What has been going on inside the Chinese working class? The China Labour Bulletin, headed by 1989 independent labor activist, Han Dongfang, prepared a paper in November 2000 on Chinese trade union history since the 1949 CCP ascension to power. (Worker Passivity in China - A Maoist Myth, online at http://iso.china-labour.org.hk/iso/) It provides a fascinating summary of the independent activity of the Chinese working class. Interestingly, in the first few years of CCP rule the newly established ACFTU was independent and militant - somewhat like the trade unions in the first few years of Castro's rule. But as in Cuba the state soon stepped in and deposed the independent ACFTU leader turning the organization into a party run transmission belt organization after the classic Stalinist model. But worker restiveness did not take long to reemerge, with a strike wave in 1956-57 that CLB argues was directly influenced by the Hungarian uprising. Repression followed. Periodic worker unrest continued, particularly during the Cultural Revolution and in the wake of the death of Chou En lai. In each case, the state cracked down. In the early 80's the Democracy Wall movement included specific references to Polish Solidarity. As economic reform under Deng gathered steam worker unrest resurfaced. The spring 1989 movement led to the most important period of independent worker organizing in recent years. CLB points out that the Beijing Workers Autonomous Federation (BWAF), which sparked numerous WAF's all over the country, was initially met with some coldness by the students, who restricted the BWAF presence in Tiananmen to a corner of the square (I had noticed this during the events - it was clearly visible on news reports - but had never understood why). CLB describes what happened: As the numbers of students directly participating in the Democracy Movement slowly began to dwindle, the WAFs became stronger. Links between WAFs all over China were being forged and some activists travelled to Beijing for discussions. Correspondingly the position of the ACFTU hardened towards the WAFs and on June 2, 1989 the official Workers Daily called for the banning of the WAFs as illegal organisations. The call was perhaps premature. Two days later government troops fought their way into the Square and made straight for the BWAF tents. In the repression that followed, thousands of workers suspected of taking part in WAF organisations were rounded up and shot or sent to prison. The CLB picks up its narrative of the post 1989 period: Between 1990 and 1994, there were three initiatives taken by dissident workers and
Chinese working class
In response to Jim, Yes, of course, since the ACFTU is massive it is inevitable that some activists within it will try to make it act like a real union. To the extent that happens I think it deserves support. But there is very little evidence that that has happened to date. When it does it will likely run into brutal opposition from the current Party controlled leadership. But Wong and Bernard, for some reason, ignore this dynamic and argue that the ACFTU as it exists now IS a real trade union deserving of the surpport of the international labor movement. They ignore the actual independent labor insurgency underway in China right now and they charge anyone in their way with being a racist, national chauvinist, etc. etc. They advocate a kind of constructive engagement similar to that put forward by Wall Street. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Fw: What is really happening inside the Chinese working class?
(Feel free to distribute this short piece.) (Please excuse any duplicates.) In the most recent issue of New Labor Forum, a publication of the Queen's College Labor Center, an exchange of letters appears between me, on the one hand, and, on the other, Elaine Bernard, director of the Harvard Trade Union Program, and Kent Wong, director of the UCLA Labor Center. My letter argued that the All China Federation of Trade Unions (ACFTU), the official state sponsored labor organization in China, is not a real trade union, but a Chinese state body that implements the policies of the Chinese Communist Party rather than representing the interests of Chinese workers. Wong and Bernard repeat their assertion (which first appeared in an article on China's entry into the WTO in the same journal a few months ago) that the ACFTU is a trade union but they do not provide any factual evidence. They also argue that my assessment of the ACFTU is racist and evidence that I am a conservative relic of the McCarthy era (no, I am not kidding, they really say that! - if you want a copy of the letters, send me your fax number). I intend to prepare a longer assessment of what Wong and Bernard have written but in the meantime it occurred to me to provide some background for understanding what is happening inside China today. There is growing concern that China is increasingly subject to unrest. A new book predicts the coming collapse of China sparked by economic collapse after China's entry into the WTO. The International Herald Tribune wrote recently of similar fears inside the ruling elite itself. Thus, I think it is important to keep track of what is going on in China, in particular among workers and nascent efforts to organize independently. This seems particularly imporant in light of the strange arguments made by Wong and Bernard, two of our country's leading labor educators, that the ACFTU is really a trade union and that anyone who criticizes such a view is a McCarthy-era conservative racist. So as background I prepared the following brief summary of independent working class history in China since the 1949 revolution. It is based on the excellent material prepared by the Hong Kong based China Labour Bulletein. I hope you find it useful and feel free to distribute this to anyone you think would be interested. -- What has been going on inside the Chinese working class? The China Labour Bulletin, headed by 1989 independent labor activist, Han Dongfang, prepared a paper in November 2000 on Chinese trade union history since the 1949 CCP ascension to power. (Worker Passivity in China - A Maoist Myth, online at http://iso.china-labour.org.hk/iso/) It provides a fascinating summary of the independent activity of the Chinese working class. Interestingly, in the first few years of CCP rule the newly established ACFTU was independent and militant - somewhat like the trade unions in the first few years of Castro's rule. But as in Cuba the state soon stepped in and deposed the independent ACFTU leader turning the organization into a party run transmission belt organization after the classic Stalinist model. But worker restiveness did not take long to reemerge, with a strike wave in 1956-57 that CLB argues was directly influenced by the Hungarian uprising. Repression followed. Periodic worker unrest continued, particularly during the Cultural Revolution and in the wake of the death of Chou En lai. In each case, the state cracked down. In the early 80's the Democracy Wall movement included specific references to Polish Solidarity. As economic reform under Deng gathered steam worker unrest resurfaced. The spring 1989 movement led to the most important period of independent worker organizing in recent years. CLB points out that the Beijing Workers Autonomous Federation (BWAF), which sparked numerous WAF's all over the country, was initially met with some coldness by the students, who restricted the BWAF presence in Tiananmen to a corner of the square (I had noticed this during the events - it was clearly visible on news reports - but had never understood why). CLB describes what happened: As the numbers of students directly participating in the Democracy Movement slowly began to dwindle, the WAFs became stronger. Links between WAFs all over China were being forged and some activists travelled to Beijing for discussions. Correspondingly the position of the ACFTU hardened towards the WAFs and on June 2, 1989 the official Workers Daily called for the banning of the WAFs as illegal organisations. The call was perhaps premature. Two days later government troops fought their way into the Square and made straight for the BWAF tents. In the repression that followed, thousands of workers suspected of taking part in WAF organisations were rounded up and shot or sent to prison. The CLB picks up
Is harvey pitt letting corporate america off the hook?
http://www.cfo.com/article/1,4616,0|83|AD|5987,00.html Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Taliban screwed it up?
Or they were just called off by Pakistan - how else to explain the relatively orderly retreat from Kabul and the way they were able to escape US and southern alliance troops in Kandahar.the U.S. might try to conclude that it was the Daisy Cutters but the close links between the Taliban, the Pakistani ISI and the Saudis (as evidenced by the extraordinary television interview by the head of Saudi intelligence attempting to distance the Saudi regime from OBL - even at this late date they somehow feel compelled to do that) - those close links indicate that the US is facing off against a widespread disaffection - to say the least - with US power in the world - a disaffection that may have been distorted and misused horribly by OBL and the fundamentalist movement, but that nonetheless exists, both abroad and at home. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
RAWA Statement on War
RAWA statement on the US strikes on Afghanistan Taliban should be overthrown by the uprising of Afghan nation Again, due to the treason of fundamentalist hangmen, our people have been caught in the claws of the monster of a vast war and destruction. America, by forming an international coalition against Osama and his Taliban-collaborators and in retaliation for the 11th September terrorist attacks, has launched a vast aggression on our country. Despite the claim of the US that only military and terrorist bases of the Taliban and Al Qieda will be struck and that its actions would be accurately targeted and proportionate, we have witnessed for the past seven days leaves no doubt that this invasion will shed the blood of numerous women, men, children, young and old of our country. If until yesterday the US and its allies, without paying the least attention to the fate of democracy in Afghanistan, were supporting the policy of Jehadis-fostering, Osama-fostering and Taliban-fostering, today they are sharpening the dagger of the Northern Alliance. And because of this policy they have plunged our people into a horrific concern and anxiety in fear of re-experiencing the dreadful happenings of the years of the Jehadis' emirate. Afghans, while keeping in mind the tremendous disasters they faced at the hands of Jehadi and Taliban vultures, just hang onto their hope for the return of the ex-king. However, if he comes to the scene while relying on the Northern Alliance and so-called moderate Taliban, he not only will lose his reputation among the people but it will endanger the stability and success of whatever set-up he forms. In the time of the Taliban's medievalist domination, no Afghan and no honorable and mindful Muslim will be deceived by the nationalistic gestures of Taliban who invite the Afghan people and even the whole Muslim world for Jehad against America. Any person, group or government that supports the Taliban, no matter under what pretext, is the enemy of the Afghan people, the people who also hate the anti-Osama and anti-terrorism acts of the Northern Alliance murderers. Our people not only have not forgotten the five years after the collapse of the puppet regime of Najib --the most horrible years of terrorism and unchastity-- but as well they don't forget the time when the Jehadis themselves were the cheap servants of Abdullah Ezam and Osama bin Laden. Now the Northern Alliance groups lie in ambush like hungry wolves so they, while riding the guns of the US, can assault and swarm into Kabul and in proportion to the depth and width of their conquests, besides committing vandalism like the years before, gain ground in order to bargain for position in the second emirate, and as a consequence again spoil the aspiration of the people for the establishment of a stable and democratic government acceptable to all. The continuation of US attacks and the increase in the number of innocent civilian victims not only gives an excuse to the Taliban, but also will cause the empowering of the fundamentalist forces in the region and even in the world. Our people have two options: Either the eradication of the plague of Taliban and Al Qieda -though they (our people) didn't have any part in its cultivation and germination- and the establishment of a government based on democratic values, or to hand over Afghanistan to these forces who have dependence, looting, crime and national treason as the main components of their perfidious entity. Our compatriots, therefore, must rise up for a thorough demolition of Taliban and their Osamas so the world should understand that the tired, wounded, mournful and deserted Afghans not only in word, but practically too, have no connection with the criminals and don't regard a handful of Arab or non-Arab terrorists as honorable guests. Only an overall uprising can prevent the repetition and recurrence of the catastrophe that has befallen our country before and with or even without the presence of the UN peace-keeping force this uprising can pave the way for the establishment of an interim government and preparation for elections. We believe that once there is no foreign interference, especially of a fundamentalist type, all ethnic groups of all religions, with no regard to the devilish designs of the fundamentalists, will, prove their solidarity for achieving the most sacred national interests for the sake of a proud and free Afghanistan. The Revolutionary Association of the Women of Afghanistan (RAWA) asks that all anti-fundamentalist, freedom and democracy-loving and pro-women's rights forces and also the ex-king of Afghanistan, before it is too late, must play their role in the organizing of mass-uprising and as well thwart the plans of the internal and external enemies of Afghanistan. The peace and justice-loving people of the world will be on the side of the Afghan people. Revolutionary Association of the Women of Afghanistan (RAWA) October 11, 2001
re: Bello on WTO
Note Comrade Bello's opposition to international labor rights. As I suggested some weeks ago, a mouthpiece for the neo-mercantilist politics of the decaying third worldist bureaucracies found in places like Mayalsia and Singapore. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
De Angelis on Keynes
Can anyone on the list direct me to good analyses or reviews of Massimo De Angelis' book on Keynes? Thank you. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
A sharp V-shaped economic downturn and recovery?
The following analysis from Lombard St. in the UK makes sense to me - other reactions? 22 nd October, 2001 Violent US downswing followed by recovery V-shape scenario much stronger down and up than Wall Street supposes A US recession was inevitable because of the severe financial imbalances created by the bubble economy. The V-shaped scenario involves severe deflation through mid-2002. But adjustment will now be swift and unlike Japan, the US will be poised for another period of rapid inflation-free growth. The immediate impact effect of the terrorist attack on 11 th September will be sharp but should wear off. That's a reason to expect some rebound before another dip. But it is just as probable that the US economy will be precipitated into a full and immediate correction of the massive imbalances accumulated in the late 1990s. I suspect the contraction in GDP will continue through the first half of 2002. But recovery will follow slowly but with gaining momentum in 2003, followed by a year or more of exceptional growth possibly combined with falling prices. Massive short term gloom, medium term boom. Sector financial imbalances in the US always made a recession inevitable. The personal sector could not continue dissaving (in the sense of running a record financial deficit) or the corporate sector massively misinvesting. The growth in debt both entailed was simply unsustainable. So when investment collapsed and savings recovered, the economy would suffer a slump in private demand. The magnitude of the potential slump can be gauged by looking at the behaviour of the private sectors' financial balance since 1947 1 . This is the excess of private investment over private savings and hence equals the amount to be financed by borrowing, or, in the case of the personal sector, by selling assets such as company shares (which it has been doing). In 00Q2 the private deficit reached a record 7.3% of GDP. By 01Q2 it had fallen to 6.2%. Really big deficits only emerged in 1998 and the private sector's average financial balance from 1947 to 1997, half a century, was slightly positive, 0.3% of GDP. So, if the balance returned to its long run norm, some 6.5% of GDP would be subtracted from private demand. But in recessions the private sector normally moves into surplus in order to reduce debts and restore its balance sheet to health. The surpluses during the 1970s, early 1980s and early 1990s recessions all peaked above 4% and restoring balance sheets to health will require more this time round. It is thus a conservative estimate to assume that the surplus will be at least 3.5%, meaning a 10% cut in private demand. The more rapid the adjustment, the shorter the recession but more severe the fall in private demand. The greater the improvement in the current account, from imports falling relative to exports, the lesser the impact on GDP. But it is axiomatic that the improvement in the private sector's balance must be matched by a deterioration in the public and overseas sectors'. Here, to steal words from Andrew Smithers, the 1 Here taken to be equal, with sign reversed, to the public and overseas sector's balances. It therefore includes errors and omissions. government can choose to allow the recession to cause a budget deficit or can run a budget deficit to impede the recession. Put simply, the recession will cause a cyclical deterioration in the US government balance, which can be reduced however if taxes are cut and spending increased to cause a structural deficit instead. The more the deficit is structural, the less it will be cyclical and the less severe the recession. Hopes that, in the short term, the government can do enough to prevent a US recession are forlorn. The speed with which the private sector can adjust its position, by saving more and investing less, is far greater than anything the government is likely to do by cutting taxes and raising spending. Equally, although the recession will have a big impact in reducing imports, exports will also suffer a severe setback from recession in Asia and Japan and weakness, if not recession, in Euroland. If the private sector adjusted its balance in a single year, there is no way that the government's structural balance could deteriorate by anything approaching 10% of GDP, although an improvement of say 2% of GDP in the US current account would help. Following on my Daily Note on forecast revisions Wednesday last week, the consensus forecast implied a US output gap at 4.2% of GDP in 02Q4, down from a surplus of 0.3% in 01Q1. This 4.5% swing will cause the US structural deficit to deteriorate by little more than 1% of GDP. Obviously the private sector adjustment could be spread over two or three years, not one. The current account deficit improvement could then contribute 3% to 4% to the adjustment process, with the US moving back closely to balance. But this would still leave an adverse movement in the public sector's balance of 6% to 7%. If caused solely by a
The future is in tatters
Global: The End of the New Economy Stephen Roach (New York) Morgan Stanley It now seems as if history will judge the latter half of the 1990s to have been an aberration. It wasn't supposed to have been that way, of course. America's boom was widely presumed to have ushered in a period of unbridled prosperity that the rest of the world became increasingly desperate to emulate. Built on a foundation of IT-led productivity enhancement, the New Economy was widely thought to have broken all of the old macro rules. Sustained vigorous growth -- without inflation and business cycles -- became the new norm. A powerful e-based connectivity was presumed to have created new synergies between businesses, workers, and consumers. Corporate earnings power was judged to be virtually unlimited, especially for those enterprises that embraced the scale and scope that only new e-based platforms could deliver. The New Economy was all that and more. The New Economy had its champions from all walks of American life. It wasn't just the entrepreneurs of Silicon Valley, or the venture capitalists and Wall Street underwriters who did their bidding. Nor was it the legions of investors who reaped the bounty of once unfathomable wealth as the Nasdaq surged toward 5000. The New Economy also found its supporters in serious academic circles. And, of course it had the imprimatur of America's most powerful policy maker -- Federal Reserve Chairman Alan Greenspan. No public official anywhere in the world championed the cause of the New Economy more so than Alan Greenspan. During the latter half of the 1990s, the Fed's unbridled enthusiasm was translated into action -- a willingness to push the envelope on its traditional anti-inflation resolve and tolerate a much faster growth rate in the real economy. The New Economy brought Washington, Wall Street, and Main Street together as never before. It was the dawn of what promised to be a glorious future. That future now appears to be in tatters. Its demise began with the excesses of the Nasdaq -- a classic asset bubble that ended up infecting the real economy. Businesses went to excess in both IT spending and white-collar hiring, believing that capital markets would reward those who moved most aggressively to embrace the precepts of the New Economy. Consumers made a similar mistake, concluding that the Nasdaq represented a new and permanent source of saving. Traditional wage-based saving rates were taken to their lowest levels in 70 years. But then the bubble popped -- as they always do. And the real-economy excesses had to be unwound. Suddenly, the IT and managerial talent of the late 1990s -- dubbed by the gurus as the intangibles that could generate open-ended earnings power and wealth -- became the excesses of bloated corporate cost structures. And the free-spending lifestyles of the American consumer were drawn into question, especially by an aging generation of saving-short baby boomers. As the US economy screeched to a virtual standstill in the first half of 2001, the New Economy was gasping for air. September 11 was the final blow, in my opinion. It shattered the naïveté and innocence that encouraged Americans to buy into the hype of the New Economy. It was a transforming event that struck at the heart of many of the new pillars of the macro landscape -- especially business operating costs, IT connectivity, globalization, and personal security. Post-September 11, the cost of doing business has gone up in America. The cost of shipping, insurance, inventory carry, perimeter office security, and now mailroom security has risen as a result -- and probably by a significant margin. At the same time, the recent outbreak of the lethal Nimbda compute virus has heightened concerns over cyber-terrorism; the necessary upgrade of e-based network security is hardly a trivial cost. The increasingly frictionless world of globalization has also been dealt a blow; this reflects the functional equivalent of a new tax on cross border connectivity -- increased expenses for border security, shipping, insurance, and a higher risk premia reflecting fears of another attack. As a result, there is now sand in the gears of globalization that has the potential to constrain the growth of trade flows, capital flows, and globalized supply chains. Moreover, I am sympathetic to the notion that perceptions of personal security have been fundamentally altered by only the second attack on American soil since the War of 1812. Like it or not, there is now good reason to believe that many of the most critical building blocks of the New Economy have been drawn into serious question. Under these new circumstances, it will be exceedingly difficult to recreate the magic. Nor have these changing circumstances escaped the ever-observant eye of Alan Greenspan. In congressional testimony on 17 October, he conceded the point on higher business operating expenses in the aftermath of 11 September. But since he argued that any retrofit
Greider and Takings Ideology
The Greider piece is excellent. He brings to light one of the hidden mechanisms used in international trade law to carry out the race to the bottom on a global scale. Epstein has always struck me as someone who has some kind of intellectual block on reality. Considering he has spent so much of his career in Hyde Park in the heart of the south side of Chicago it amazes me that he has so little grasp of social reality. At bottom his world view appears motivated by Hayekian arguments that spontaneous order can emerge in a genuine free market. Can anyone on this list direct me to work that connects value theory to a critique of Hayekian ordering ideology? Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
The end of Globalization?
Global: Globalization's Haunting PastStephen Roach (New York) Previously, I have argued that the 11 September terrorist attacks on America could turn out to be a real setback for globalization (see my 21 September dispatch, "Globalization at Risk"). My fear was that this was a transforming event that could result in the functional equivalent of a new tax on cross-border connectivity. The tax would show up in the form of heightened national border security, higher shipping costs, increased insurance rates, and an increased risk premium associated with the uncertainty over what comes next. That would not only raise the price of the trade and capital flows that underpin globalization, but it could also play a key role in crimping the outsourcing strategies that lie at the heart of increasingly globalized supply chains. To the extent that financial markets are still priced for further progress on the road to globalization, investors could be in for a rude awakening. This wouldn't be the first setback for globalization. The integration of the Atlantic economy in the 19th century held out the promise of powerful convergence within Europe and between Europe and the United States. Yet this seemingly unstoppable trend ultimately sowed the seeds of its own demise, leading to a geopolitical backlash that culminated in the Great War of the early 20th century. Yet another wave of globalization occurred in the inter-war period of the 1920s, only to be brought to an abrupt end by the Great Depression and a renewed outbreak of worldwide war. The historians have done a good job in pinpointing several sources of instability in these earlier episodes of globalization. In Globalization and History (MIT Press, 2000), Kevin O'Rourke and Jeffrey Williamson identify three key characteristics of the globalization of the Atlantic economy in the 19th century that led to a backlash -- ever-widening cross-border income inequalities, unstable trade and capital flows, and mounting geopolitical tensions. In The End of Globalization (Harvard University Press, 2001), Harold James focuses on the 1920s and adds two additional sources of instability -- systemic problems in the banking system and a reaction against international migration. Both studies end with the warning that there is nothing inevitable about globalization. In the initial rush to convergence, the trend almost always seems unstoppable. But then it invariably succumbs to the unintended consequences it has spawned. Could that be the case today? Quite possibly, inasmuch many of the preconditions for earlier backlashes against globalization have been satisfied. For example, there is compelling evidence in support of the case for widening global income disparities over most of the past century. That's true of disparities between rich and poor nations, as well as between income groups within most countries. According to research conducted by the International Monetary Fund, real income per capital in many of the world's "poor" countries at the end of the 20th century remained below income levels prevailing in "rich" countries at the start of the century. The IMF also found that per-capita income for the upper quartile of the global population increased more than twice as rapidly as for the lower quartile. Economic convergence is widely viewed as the endgame of globalization. Yet at the end of the 20th century, there was still a large segment of the world's population on the outside looking in. The instability of trade and capital flows was another hallmark of the late 20th century. The volatility of the global trade cycle is without precedent in recent years. By our estimates, global trade volumes surged by a record 12.8% in 2000. But this boom has quickly turned to bust; our forecast of record calls for just a 3% increase in 2001 -- a record deceleration for any one year. Moreover, there is good reason to believe that our estimates are biased to the upside. Based on outright declines in world trade volumes in early 2001, I wouldn't be surprised if there were an actual contraction for the year as a whole -- the first such occurrence since 1982. Unusual capital flow volatility was also evident in the final two decades of the 20th century. The Latin American debt crisis of the 1980s, the Mexican peso crisis of 1994-95, and the Asian financial crisis of 1997-98 were especially notable milestones in this regard. And, of course, the shocking events of recent days underscore what now seems to be the
Turkish newspaper translation???
That article from a "Turkish newspaper" originally appeared last weekend on an Israeli new service website called Debka File (www.debka.com) - it appears to be a very well informed source. There are some editorial changes in the Turkish edition. Stephen F. DiamondSchool of Law Santa Clara University[EMAIL PROTECTED]
Re: Not Good
One of the interesting dimensions of the testimony on the Hill yesterday was the effort people like new SEC Chair Harvey Pitt to stress that the measures taken to "stabilize" the market were not meant to interfere with the private sector as the engine of our economy. Maybe. It will be interesting to see if they are able to keep that up if the market tailspin continues. Stephen F. DiamondSchool of Law Santa Clara University[EMAIL PROTECTED]
Fw: Crusade
Jim, I think the use of the word crusade was consciously chosen, but not to "offend" the Arab world generally. My understanding is that he used it once, there was some protest but then he used it again. I think the aim is to see what kind of reaction there was to the use of the word in the Middle East. Bin Laden's propaganda calls for a jihad against the "Crusaders and the Jews." Thus, I think the aim of the Bush regime was to see if using the word would cause a negative reaction in the Middle East and then they would have some measure of the popular support for bin Laden. There has been little such public support and the the general strike called for today in Pakistan was a bust. I think the confidence of the Bush people is growing, that they have a green light from Congress, very little opposition internationally and that an intense six month war will get underway within a week to ten days. At the end of six months, unless he has clear results, then he may have some problems. Stephen F. DiamondSchool of Law Santa Clara University[EMAIL PROTECTED]
Quote of the Week
"The federal government doesnt seem to understand that the enemy is supposed to be terrorism, not capitalism!" www.mises.orgreaction to government intervention since WTC attack.
Barnett Rubin essay
This essay is excellent. It makes clear that a crucial variable in this environment was the the emergence in the 90's of an alliance among Saudi Arabia, the Taliban and Pakistan with some level of backing from the U.S. because Afghanistan provided a non-Russian and non-Iranian route for oil out of the region. With the recent elections in Iran that country's relationship with the Taliban has been softening. With the bombing of the embassies in Africa by bin Laden and the U.S. cruise missile attack, the U.S. role in this becomes less clear. Most important, though, is the remaining question - if the Saudis and the Taliban and Pakistan had some kind of interest in selling oil to the west (for lack of a better word) why would they have let bin Laden go beyond the pale - i.e., what precisely stimulated this particular attack (which I believe, no matter how horrific, must represent politics by other means - unless someone can credibly argue that bin Laden (and his hundreds or thousands of troops) are psychopaths). Ideas? Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
On Wallerstein
I think Ken's reaction to Wallerstein is generally in the right direction. The paper tiger allusion makes no sense (if you don't think that the Wall Street Masters of the Universe are capable of defending themselves when attacked, think again, or, better yet, ask any experienced American trade unionist). I would add that while I agree that bin Laden looks forward to drawing the U.S. in, the U.S. looks forward to an opportunity to draw a line in the sand with a range of Arab regimes - thsu, the if you are not with us you are against us rhetoric. That could allow them, in their eyes, to redraw the structure of north Africa, the mideast and Central Asia politics. The question, it seems to me, for the left is whether we can find ways to check the advance of the U.S. (and its newfound allies all over the world) while also offering the Arab masses an alternative to the bin Laden's or Prince Bandar's of the world. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Support Cong. Lee
Congressperson Barbara Lee (D.Oak) was the lone Congressperson to resist the drumbeat to war and vote against the hasty Congressional resolution granting the President wide powers to conduct a war in the Mid East. You can thank and encourage Cong. Lee via email at: [EMAIL PROTECTED] Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Congress gave him a blank check
Here is the text of the resolution - it is as open-ended as one could imagine. So much for the argument that Congress was concerned not to repeat the Gulf of Tonkin disaster. Following is the joint resolution authorizing the use of force against terrorists, adopted yesterday by the Senate and the House of Representatives: To authorize the use of United States armed forces against those responsible for the recent attacks launched against the United States. Whereas, on Sept. 11, 2001, acts of despicable violence were committed against the United States and its citizens; and Whereas, such acts render it both necessary and appropriate that the United States exercise its rights to self-defense and to protect United States citizens both at home and abroad, and Whereas, in light of the threat to the national security and foreign policy of the United States posed by these grave acts of violence, and Whereas, such acts continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States, Whereas the president has authority under the Constitution to take action to deter and prevent acts of international terrorism against the United States. Resolved by the Senate and the House of Representatives of the United States of America in Congress assembled, Section 1. Short Title This joint resolution may be cited as the Authorization for Use of Military Force Section 2. Authorization for Use of United States Armed Forces (a) That the president is authorized to use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on Sept. 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States by such nations, organizations or persons. (b) War Powers Resolution Requirements (1) Specific Statutory Authorization -- Consistent with section 8(a)(1) of the War Powers Resolution, the Congress declares that this section is intended to constitute specific statutory authorization within the meaning of section 5(b) of the War Powers Resolution. (2) Applicability of Other Requirements -- Nothing in this resolution supersedes any requirement of the War Powers Resolution. © 2001 The Washington Post Company Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Law or War?
Interview with Francis Boyle, Professor of Law, University of Illinois Subject: NO RUSH TO WAR!/O'Reilly Factor/FOX/13Sept2001 SHOW: THE O'REILLY FACTOR (20:29) September 13, 2001 Thursday Transcript # 091303cb.256 SECTION: News; Domestic LENGTH: 3973 words HEADLINE: America Unites How Should the U.S. Bring Terrorists to Justice? GUESTS: Sam Huessini, Francis Boyle BYLINE: Bill O'Reilly BODY: THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED. O'REILLY: While most Americans are united in their support of President Bush and the desire to bring Osama bin Laden and other terrorists to justice, there are some differing voices. Joining us now from Washington is Sam Husseini, the former spokesman for the Arab Anti -- American Anti-Discrimination Committee, and from Urbana, Illinois, is Francis Boyle, an international law professor at the University of Illinois at Urbana-Champaign.. O'REILLY: Cut his mike. All right, now, Mr. Boyle, Professor Boyle, let's have a little bit more of a rational discussion here. That was absurd. The United States now has to take action against certain segments in this world who we know have been harbouring people like Osama bin Laden. That's going to happen. How will you react to that? FRANCIS BOYLE, LAW PROFESSOR: Well, first I think you have to look at the law involved. Clearly what we have here, under United States domestic law and statutes, is an act of international terrorism that should be treated as such. It is not yet elevated to an act of war. For an act of war, we need proof that a foreign state actually ordered or launched an attack upon the United States of America. So far, we do not yet have that evidence. We could... O'REILLY: All right, now why are you, why are you, why are you taking this position when you know forces have attacked the United States. Now, maybe they don't have a country, but they are forces. They have attacked the United States, all right? Without warning, without provocation. Civilian targets. They've done everything that an act of war does. So, I'm saying that because we live in a different world now, where borders don't really matter, where terrorism is the weapon of choice, that you would declare war -- if I were President Bush, I would declare war on any hostile forces, notice those words, professor, hostile forces to the United States. I would have a blanket declaration of war so I could go in and kill those people. Would I be wrong? BOYLE: Well, Bill, so far you'll note Congress has been unwilling to declare war. And indeed, this matter is being debated right now. Right now, it appears that what they are seeking is not a full declaration of war, but only what we law professors call an imperfect declaration, which means a limited use of military force under the War Powers Resolution of 1973. Precisely for the problem that we don't know if any state was involved and we still do not know who was responsible for this undoubted terrorist attack upon the United States of America. O'REILLY: All right, but we have the secretary of state saying that Osama bin Laden now has been linked into and, you know, we don't have all the intelligence information, as President Bush said today. He's not going to give us, and he shouldn't, the people of America all the information that they have. But when the secretary of state gets up and says, look, we know this guy was involved to some extent, I believe him. And he's a wanted man, professor. He's been wanted for eight years. The Clinton administration didn't have the heart to get him and in the first few months the Bush administration didn't either. We now know, and you just heard the FBI agent say that Afghanistan has been involved for years harbouring and training these kinds of people. Certainly, Afghanistan, Syria, Libya, Iran, Iraq, those five countries, certainly have been hostile to the United States and given safe harbour to these terrorists. That's a fact. BOYLE: Well, let me point out, the secretary of state was very careful in the words he used. He said Osama bin Laden was a suspect. He did not accuse him. And, again, under these circumstances... O'REILLY: No, he didn't use the word suspect. He used another word. BOYLE: The account I read in, just off the wire service, said suspect. But let me continue my point. Under these circumstances, where we have 5,000 Americans dead and we could have many more Americans killed in a conflict, we have to be very careful, Congress and the American people and the president, in not to over-escalate the rhetoric, here. We have to look at this very rationally. This is a democracy. We have a right to see what the evidence is and proceed in a very slow and deliberate manner. O'REILLY: No, we don't. We do not, as a republic, we don't have the right to see what the evidence is if the evidence is of a national security
Is a real war imminent?
If I understand what Warren Christopher, Warren Rudman, Sandy Berger, Bill Kristol, Lawrence Eagleburger, Henry Kissinger and Richard Holbrooke, among others, have been saying in the last twelve to fifteen hours, the Bush administration is planning a regional war against the entire Arab world, with attacks that could reach from Pakistan to Tunisia. I think their aim may be to attempt to take three to to five years to completely restructure the map of North Africa, the Middle East and South Asia. This is how I interpret the rhetorical effort all of yesterday to find a link to a state and to suggest that the operation was so sophisticated that it required state support and that the bin Laden group operates in many states, with a large complex network - in other words, creating political carte blanche to occupy the entire region. Russia and China have as much to fear from radical Islam as the U.S., so they will back this. The Europeans will be too weak to stop it. In their calculus, we cannot stop - this time - halfway to Baghdad. The results, from the point of view of global social progress, will be catastrophic, but they seem to know no other waythey are opening a Pandora's Box, and will be hard pressed to close it. I hope I am wrong and that someone on this list can offer an alternative explanation for this intellectual assault by the grayhairs we have witnessed in the last few hours. Also, can someone explain the relationship between bin Laden and the Saudi regime - it seems to me that, in the end, all of this will turn on the internal politics of so-called moderate Arab regimes, especially Saudi Arabia. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
The Dismal Science at Work
09/11 00:01 U.S. Economy: Analysts Look Beyond the Mainstream Indicators By Simon Kennedy and Liz Enochs Washington, Sept. 11 (Bloomberg) -- When Joel Naroff wants added insight into where the economy is headed, he reads e-mails from cousin Mark about his home furnishings distributorship. ``At the moment he says things are weak and that firms aren't ordering for Christmas,'' says Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. ``Over the years his thoughts have tracked the economy reasonably well.'' Naroff isn't the only economist to supplement his diet of industry and government statistics with anecdotes, observations of daily life, and lesser-known data. Forecasting is trickier as the economy teeters on the brink of recession, and professional economists can't afford to miss a clue. ``You have to watch everything and listen to everyone,'' said Richard Yamarone, chief economist at Argus Research Corp. in New York. ``Everything counts if you want the whole economic picture.'' That includes the first appearance of Santa in shopping malls. Former Federal Reserve Bank of Atlanta President William Ford, senior economic adviser at TeleCheck Services Inc. in Houston, keeps an eye out for that one. Other analysts will look at production of wrapping paper. Douglas Lee, an economic consultant in Potomac, Maryland, kept his economic radar working when visiting his daughter in San Francisco over the Labor Day weekend. He found signs of a still sluggish U.S. economy after growth had cooled to 0.2 percent at an annual rate in the second quarter, the slowest since 1993. Lee stayed in a fancier hotel than during his last trip, a year ago, and paid less. ``You see the economic slowdown in hotel and restaurant rates, in help-wanted adds and rooms-for-rent signs,'' said Lee, president of Economics From Washington. Official Anecdotes Lee noted down some other information: The volume of shipments entering the port, a dock for goods arriving from Asia, had declined. ``You pay attention to things wherever you go,'' he said. This approach to information gathering puts the economists in powerful company. The Fed's ``beige book,'' published two weeks before each meeting of the Open Market Committee, consists of observations and anecdotes from the Fed's 12 regional banks. The last report, covering June and July, found that weakness in manufacturing began to erode demand for office space and shipping services. The Labor Department's August jobs report confirmed a decline in transportation and warehousing employment. Sung Won Sohn, chief economist at Wells Fargo Co. in Minneapolis, tries to anticipate the numbers by talking with railroad companies and producers of cardboard boxes. Both shed light on how industry is faring by revealing how many deliveries are needed to meet demand. Tracking Scrap, Palladium Box production ``has bottomed and is beginning to go up, according to the customers I speak with,'' Sohn said. Private economists also stand in good company when they monitor prices for particular commodities and goods. Fed Chairman Alan Greenspan watches steel scrap production, which is ``not an insignificant determination'' of future growth. Nicholas Brady looked at tire sales when he was Treasury secretary from 1989 to 1993. Argus Research's Yamarone monitors palladium production, a metal used in catalytic converters and therefore car production. Diane Swonk, chief economist at Bank One Corp. in Chicago, finds reason for optimism in cellular-phone stockpiles. ``Days supply of phones has moved down from 90 days to 60 days when 45 is considered average, so that suggests inventories are moving closer to balance, which is good for growth,'' she said. `Great Information' Swonk likes numbers from the semiconductor industry so much she wants them included in national statistics. ``It's great information,'' she said. Analysts have virtually no end of sources. Statistics revealed that in 1999 the productivity at funeral homes and crematoriums dropped 4.3 percent. Lara Rhame, an economist at Brown Brothers Harriman Co., cautions that economists must make note of the time of year when making street observations, just as they do when producing statistics. ``I like to see how many hands are raised for taxis in SoHo, as it's a good barometer of consumption,'' she said. ``The problem is that in August you need to seasonally adjust for the fact that New York empties out that month. ``It'll be a better guide to the economy in September Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Bello and Callinicos
I would very much like to see the full critique of Bello by Callinicos. If someone finds the complete article, please post it. In the meantime, I think it is clear what Bello is up to. If you ask yourself what the world would look like if everything he asks for in this piece were to come true, you realize that he is a shill for emerging third world capitalism - free of unions, free of enforceable labor rights, free of trade restrictions on its agricultural products, free of restrictions on intellectual property, etc. I hope the anti-globalization movement has more to it than his worldview. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
On Bello
To restate my previous response to the Bello essay, I suggested a simple thought experiment: what would the world look like if what Bello asks for were to come true? If we were to shrink the WTO or end the push for enforceable international labor rights we would be encouraging the idea that the developing world should build its own capitalism to compete with that of the developed world. We do not have to put more than half the globe through the same misery that Europe and the Americas went through to establish modern industrial capitalism. But Bello implies that the third world must repeat those horrors - an argument one hears from the apologists for global capital (as in the suggestion that we endured child labor for many decades, so why not in Pakistan?). Unless, of course, he thinks there is something magical about a small is beautiful worldview that would allow the Indias, the Egypts, the Sudans, the Guatemalas of the world to build modern economies on their own without the kind of tragedies inflicted upon the millions of European, African, Asian and American workers who built the United States and western Europe? In my view, the only way to avoid that tragic history is to restructure the global economy from below, not break away from it. The push for enforceable labor rights is a step in that direction. Bello, however, opts to put forward a worldview that he explicitly links to that of right wing British philosopher John Gray. Thus, Bello quotes Gray in defense of the idea that the goal of his politics is to express and protect local and national cultures by embodying and sheltering their distinctive practices. This is a form of relativism that undermines the universal quality of concepts like the rule of law, human rights and labor standards. Thus, it offers hope to those in the developing world elite that the anti-globalization movement is really all about attacking U.S. power or the power of competing U.S.-based multinationals. It is not a surprise, to me, at least, that Bello has suggested in another essay that the current global slowdown is an opportunity. For whom? Not for the third world working class, but for nationalist figures like Malaysia's Mahathir and Thailand's Thaksin Shinawatra. Bello's affinity with the right is not limited to academics, as his optimism about the election of George Bush indicated: The motivation of the incoming Republicans in criticizing the IMF and the World Bank lies in their belief in free-market solutions to development and growth. This may not coincide with that of progressives, who see the IMF and World Bank as a tool of US hegemony. But the two sides can unite behind one agenda at this point: the radical downsizing, if not dismantling, of the Bretton Woods twins. Is Bush Bad News for the World Bank, Focus on the Global South, http://www.focusweb.org, January 2001. Despite the efforts of Bello and others of his persuasion in the anti-globalization movement (like Martin Khor, based in Malaysia) the global labor movement is developing - haltingly, even bureaucratically - a movement for a new internationalism built around basic universally recognized human rights. The AFL-CIO started the process, for all sorts of reasons and subject to all sorts of limitations. But to condemn it as verbal play-acting is to ignore the complex fault lines in the American, and international, trade union movement that have opened up since the end of the Cold War. To make this movement a success requires that it move well beyond the AFL, as it has done to a certain extent in Quebec and Genoa. But in Bello's worldview, this kind of campaign is a remnant of a techno-optimist variant of Marxism that infuses both the Social Democratic and Leninist visions of the world, producing what Indian author Arundathi Roy calls the predilection for 'gigantism.' As anyone who has tried to exercise a right in the face of opposition knows, a right that is not enforceable through a credible institution is not a right at all. And that is why any international movement for human rights, must and will demand that new international institutions include mechanisms for enforcing basic rights - enforcing them against the Mahathirs of the world as much as against the Monsantos and Microsofts. This is not gigantism but the beginnings of genuine internationalism. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
More bellowing
To Carrol: Labor rights are enforced first and foremost because of the efforts of trade unions and workers, not governments. If a regime of international labor rights is ever created it will be over the objections of the U.S. government and practically every other government in the world. To Jim: While law does, of course, allow for certain local and regional differences this does not create gaping holes in universal principles. The right to free association, freedom from discrimination, prohibitions on child labor and forced labor are widely accepted norms in international law. I hope that you are not proposing an exception to these principles, thus allowing nine year olds to stitch together soccer balls in a back alley somewhere in South Asia, based on some kind of cultural relativism. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Full text of Callinicos article...
where he, too, warns of the links between Bello's perspective and that of the right wing: http://www.socialistworker.co.uk/1742/sw174215.htm (tho I doubt Callinicos shares my full argument.) Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
re: JD layoffs
Ironically, law school applications are on the rise - the New York Times is reporting a 20% increase in LSAT takers. Of course, hiding out in graduate school for a few years would appear to make a lot more sense today. On the other hand, I am inclined to call a bottom to the market now that the law firms are laying off - just as I thought we had reached the top when I saw Yale Law classmates of mine leave very good paying jobs at top tier law firms to try to sell dog food and pantyhose on the internet. (Btw, Ian, I am NOT the Steve Diamond who wrote an article on autopoeisis (sic?) - I try to stick to studying the hard core reality of fictitious capital.) Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Fw: World Bank debate offer - not the first time
The 50 Years is Enough rep was Soren Ambrose, so I expected something reasonably substantive, but he punted. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
Re: WB/IMF reconstructing capitalism yet again - !!??
Ian, Really, you can't back down now... you were the one who introduced the piece by referring to reconstruction, after all. In any case, let's look at what Maurer himself says: since he thinks finance discourse is not understandable on its own terms - Securitization, thus, is not obvious or self-evident - he is here to tell us what is really going on - and THAT is the fundamental conceit behind all of deconstructionism, postmodernism, etc. That somehow there really is something behind the wizard's curtain. Well, as someone who spent a little time actually working in and around securities, I can tell you that securitization IS obvious and self-evident to anyone who spends the time acquiring the skillset to understand it - just like any other field of knowledge. Nothing controversial in that, I should hope. The problem here is that Maurer clearly has not taken even the time that a non-securities professional needs to take to speak intelligently about the very real problems associated with fictitious capital. And that leads to his confusion of the term securitization with the completely different concept of a security interest. Of course, there is the possibility that he is purposely trying to make this all sound far more magical and unapproachable than it really isbut I really don't want to go down that road. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
World Bank debate offer - not the first time
Although the World Bank/IMF offer to debate representatives of the anti-globalization movement is being presented as unprecedented, it isn't. Representatives from the World Bank participated in a town hall meeting of some sort during the April demonstrations/meetings in D.C. I was not there but I gather that the Bank representatives did an artful job of presenting the IFI's as being very much on the side of the poor and downtrodden, while the representatives of the anti-globalization movement (including Walden Bello) were reduced to attacking the Bank figures for the size of their personal incomes as Bank employees. A similar sign of the lack of depth or political perspective was on display today at the press conference announcing the lawsuit against D.C. police for possible first amendment violations. Shown on CSPAN tonight, the representative from 50 Years is Enough was asked by Bloomberg News what would do about the crisis in Argentina, their representative literally had no answer. And the groups behind the lawsuit were asked whether they would distance themselves from those who plan to use violence in the upcoming fall demonstrations and they refused to do so. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
WB/IMF reconstructing capitalism yet again - !!??
Re: Forget Locke? From Proprietor to Risk-Bearer in New Logics of Finance Bill Maurer.. God forbid that postmodernism should try to take on global finance. I don't know who this guy is, but he doesn't know a lot about the global capital markets. For example, securitization and secured interests are NOT the same thing.What the World Bank in emerging market countries is trying to do is what every modern capitalist economy has done for decades or more - allow creditors a claim on the assets underlying a financial instrument. Securitization on the other hand is the creation of a new financial instrument based on the bundling together of underlying income streams from another set of assets - if you want to understand, for example, the collapse of Superior Bank in Chicago, the Pritzker subprime lender, you need to understand its ability to bundle together mortgages and sell them into the capital markets - that is securitization. It is a fascinating high wire act underway in modern capitalism. But I don't think deconstruction will tell us very much about it. Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED] Stephen F. Diamond School of Law Santa Clara University [EMAIL PROTECTED]
