Business writer Umar Haque, on the riots in the UK, austerity, and the failure of elites:
From Tahrir Square to Syntagma Square to Puerta del Sol Square, social upheaval’s spreading — sometimes in droplets, sometimes in floods, sometimes placidly, sometimes…not so placidly. Each example is very different from the others. Yet, the underlying ruptures might be said to be similar: What happens when a nation willfully ignores perhaps the most fundamental lesson of economics, and hopes rent-seeking will equal real prosperity? This does. What happens when a nation either loses, or prevents, a stabilizing middle class? This does. What happens when a government — any government — gets so out of touch with the governed? This does.
Our institutions are failing — they’re failing us; failing the challenge of igniting real, lasting human prosperity. If institutions are just instruments to fulfill social contracts, then ours are shattering because the social contracts at their hearts have fractured.
I call it a Great Splintering — not purely an economic phenomenon, as in “Great Contraction,” but a social one: an era when social contracts are being torn up, abrogated, betrayed, abandoned, by accident, by design, by “regulatory capture,” or simply by polities too gridlocked to progress. Broken social contracts aren’t just tidy abstractions, empty of visibly real consequences, disconnected from the noise and clamor of our messy human lives. As they break, yesterday’s ways of living, working, and playing rupture; yesterday’s organizations, from corporations to banks to nations, creak and crack.
It’s important that this is not just happening in the UK. It’s happening throughout the Eurozone – Greece, Ireland, Spain, Portugal, Italy and France. It’s happened in Egypt, Tunisia, Libya, Syria, and Yemen. It’s happening here in the United States. Economic and political elites have crashed economies and destroyed governments. Rather than account for their failures honestly, they have tried to fix them on the backs of the poor and working class people of their country. This has lead to outrage, protests, riots and rebellions. The consequences continue, but so do the bad decisions which are destroying peoples’ lives and, in course, destroying countries.
Originally via Baratunde Thurston, this video is both a good explanation of how and why the riots in the UK started. There’s profound economic distress, along with decades of racial tension and treatment of black Britons by the police as a suspect underclass. That dynamic plays out in the interview, between Darcus Howe and his white BBC interviewer. Howe is a journalist himself and a long-time racial justice activist. He’s treated like a criminal by the BBC interviewer and afforded less respect than any individual I’ve ever seen appear on TV.
Lots of folks in the US are linking to this excellent post from London blogger Penny Red. The whole piece is worth a read, as it takes the notion that there are real, meaningful underlying causes seriously. This passage stands out:
Violence is rarely mindless. The politics of a burning building, a smashed-in shop or a young man shot by police may be obscured even to those who lit the rags or fired the gun, but the politics are there. Unquestionably there is far, far more to these riots than the death of Mark Duggan, whose shooting sparked off the unrest on Saturday, when two police cars were set alight after a five-hour vigil at Tottenham police station. A peaceful protest over the death of a man at police hands, in a community where locals have been given every reason to mistrust the forces of law and order, is one sort of political statement. Raiding shops for technology and trainers that cost ten times as much as the benefits you’re no longer entitled to is another. A co-ordinated, viral wave of civil unrest across the poorest boroughs of Britain, with young people coming from across the capital and the country to battle the police, is another.
Months of conjecture will follow these riots. Already, the internet is teeming with racist vitriol and wild speculation. The truth is that very few people know why this is happening. They don’t know, because they were not watching these communities. Nobody has been watching Tottenham since the television cameras drifted away after the Broadwater Farm riots of 1985. Most of the people who will be writing, speaking and pontificating about the disorder this weekend have absolutely no idea what it is like to grow up in a community where there are no jobs, no space to live or move, and the police are on the streets stopping-and-searching you as you come home from school. The people who do will be waking up this week in the sure and certain knowledge that after decades of being ignored and marginalised and harassed by the police, after months of seeing any conceivable hope of a better future confiscated, they are finally on the news. In one NBC report, a young man in Tottenham was asked if rioting really achieved anything:
“Yes,” said the young man. “You wouldn’t be talking to me now if we didn’t riot, would you?”
“Two months ago we marched to Scotland Yard, more than 2,000 of us, all blacks, and it was peaceful and calm and you know what? Not a word in the press. Last night a bit of rioting and looting and look around you.”
Eavesdropping from among the onlookers, I looked around. A dozen TV crews and newspaper reporters interviewing the young men everywhere ‘’’
There are communities all over the country that nobody paid attention to unless there had recently been a riot or a murdered child. Well, they’re paying attention now.
Tonight in London, social order and the rule of law have broken down entirely. The city has been brought to a standstill; it is not safe to go out onto the streets, and where I am in Holloway, the violence is coming closer. As I write, the looting and arson attacks have spread to at least fifty different areas across the UK, including dozens in London, and communities are now turning on each other, with the Guardian reporting on rival gangs forming battle lines. It has become clear to the disenfranchised young people of Britain, who feel that they have no stake in society and nothing to lose, that they can do what they like tonight, and the police are utterly unable to stop them. That is what riots are all about.
Riots are about power, and they are about catharsis. They are not about poor parenting, or youth services being cut, or any of the other snap explanations that media pundits have been trotting out: structural inequalities, as a friend of mine remarked today, are not solved by a few pool tables. People riot because it makes them feel powerful, even if only for a night. People riot because they have spent their whole lives being told that they are good for nothing, and they realise that together they can do anything – literally, anything at all. People to whom respect has never been shown riot because they feel they have little reason to show respect themselves, and it spreads like fire on a warm summer night. And now people have lost their homes, and the country is tearing itself apart.
Racial tension. A broken economy. Unaccountable elites waging warfare through legislation on working people. A commitment to creating pain amongst the people who had nothing to do with economic collapse while nothing is asked of those who caused economic collapse. It’s not shocking that there are riots in the United Kingdom, though it’s sad that people have been pushed so far as to resort to this to have their voices heard.
…Adding, this Reuters piece is a good read, as it actually includes interviews with a number of rioters, who cite inequality, gentrification, a lack of educational opportunities, and austerity as reasons for the riots.
“The only way we can get out of this is education, and we’re not entitled to it, because of the cuts. Even for bricklaying you need a qualification and a waiting list for a course. I signed up in November, and still haven’t heard back,” the Kurdish man said.
The government has also raised university tuition fees since coming into power, putting a higher education further out of the reach of youths from places like Hackney.
“They’re screwing the system so only white middle-class kids can get an education,” said another man, who declined to be named. He said politicians were the real criminals, and pointed to a 2009 expenses scandal in which several lawmakers were revealed to have cheated the taxpayer out of thousands of pounds.
Just because people are rioting doesn’t mean they’re uninformed or stupid. Political elites in the UK should be responsive to these people and their anger, otherwise the chances of things getting better is extremely low. Desires to succeed, to be educated, to lift oneself and one’s family out of poverty are not criminal. These are normal human aspirations. They should be respected.
Paul Krugman describes what he calls the Doom Loop – the process wherein political elites are radically (and potentially deliberately) misinterpreting signals from financial markets to enact destructive policies.
1. US debt is downgraded, sparking demands for more ill-advised fiscal austerity
2. Fears that this austerity will depress the economy send stocks down
3. Politicians and pundits declare that worries about US solvency are the culprit, even though interest rates have actually plunged
4. This leads to calls for even more ill-advised austerity, which sends us back to #2
Krugman points out that this loop and the people who are giving it energy are “impervious to evidence.”
Ben White of Politico noted in his daily tip sheet today essentially the same phenomenon:
Moving between NYC and DC as I do it can be jarring at times to hear politicians in Washington talking endlessly about markets demanding that the U.S. focus on spending and deficit and debt reduction. Then I come back to New York and such talk is simply laughed at given rock-bottom Treasury yields and the commonly held (and correct) view that the U.S. does not have much of a debt problem, certainly not in the near term. But it has a MASSIVE and potentially disastrous growth problem.
That’s why traders often mute the TV (or start cursing) when President Obama begins talking about super committees and shared sacrifice and tax hikes. To be fair, they mute GOP leadership as well. It’s hard to recall a time when the debate and rhetoric in Washington seemed more completely disconnected from what is actually going on in markets and the economy.
There’s a disconnect, to be sure. But it’s driven by ideology. People who believe that austerity should happen and that austerity is the only tool in their tool chest will seek out and find reasons for austerity to be deployed, regardless of whether they are right or not.
Well it looks like there’s a new argument for painful austerity. As we see in England, where a massive austerity program has laid of thousands of public workers and cut services, has lead to incredible anger and popular outrage. That, in turn and with other contributing factors driven by elite policies which target working people, has devolved into a rash of riots and property destruction around England. Of course, all of the destroy stores will have to be rebuild and hey, that’s job creation right there!
Recently Yves Smith of Naked Capitalism started a death watch for Bank of America. Smith cited the bank’s massive and growing legal liabilities, as well as the low chances that they will be able to shore up their capital levels through asset sales. David Dayen then joined in the death watch and advanced it following Washington Attorney General Rob McKenna launched a lawsuit against BoA for violating foreclosure law.
Today Gretchen Morgenson and Louise Story in the Times break news that signifies another big step in the Bank of America death watch. AIG is suing BoA for $10 billion:
The suit seeks to recover more than $10 billion in losses on $28 billion of investments, in possibly the largest mortgage-security-related action filed by a single investor.
It claims that Bank of America and its Merrill Lynch and Countrywide Financial units misrepresented the quality of the mortgages placed in securities and sold to investors, according to three people with knowledge of the complaint.
Morgenson and Story also reported that AIG plans to join other investors and New York Attorney General Eric Schneiderman in objecting to BoA’s $8.5 billion mortgage backed security settlement with Bank of New York Mellon.
Yves Smith has a post on the Morgenson and Story piece, which draws out one passage which is tremendously important in terms of framing how to think about private litigation in an area that has been essentially devoid of federal investigations. The quote from Story and Morgenson:
The private actions stand in stark contrast to the few credit crisis cases brought by the Justice Department, which is wrapping up many of its inquiries into big banks without filing any charges. The lack of prosecutions — the Justice Department has brought three cases against employees at large financial companies and none against executives at large banks — has left private litigants, mainly investors and consumers, standing more or less alone in trying to hold financial parties accountable.
“When federal authorities don’t fulfill their obligation to enforce the law, they essentially give an imprimatur to the financial entities to do whatever they want and disregard the law,” said Kathleen C. Engel, a professor at Suffolk University Law School in Boston. “To the extent there are places where shareholders and borrowers can pursue claims, they are really serving the function of the government. They are our private attorneys general.”
Smith says federal authorities and AGs driving the 50 state settlement talks should be ashamed for trying to settle without doing any meaningful investigation. But Engel’s quote really goes beyond that. The lack of real investigation and criminal prosecution constitutes the government taking the side of Wall Street banks while providing a functional whitewash of massive criminal behavior. Yes, having private investors bring suits which will help them individually can still be a means for banks feeling pain for their bad behavior, but the interests of individual private investors don’t necessarily align with the interests of struggling homeowners, let alone the general public. Private suits aren’t a substitute for federal law enforcement and federal regulators doing their job in the first place.
It’s fortunate that a handful of attorneys general at the state level – Schneiderman, Beau Biden, McKenna, and a few others – are actually pursuing accountability for fraud connected to residential mortgage backed securities and foreclosure. Even a handful of actions at the state level, plus suits by private investors, has created an environment where there is real merit to watching for the death of Bank of America. The rot is deep and these suits are bringing it to light.
The United States — which now pays 2.4 percent to borrow money for 10 years, more than a percentage point less than it paid six months ago — seemingly has no desire to try to save its own economy, let alone anyone else’s.
When things get bad, governments do stuff. That’s not just limited to America. There isn’t a government in the world that doesn’t try to ameliorate hard times, whether they be economic, natural disaster-related or something else.
The recent action in Washington really does call into question whether the Washington Put exists at all. One party was completely unyielding in its demands, and seemingly willing to seriously damage the economy to pursue its agenda. And it’s not just the debt ceiling where you see this. This FAA nonsense shows again a total inability to do basic, obvious stuff.
There are lots of things the US government could do to improve the economy. Austerity wasn’t one of them, but it was the one thing that there was bipartisan consensus for. Also, tax cuts for rich people.
The problem isn’t that our government is no longer good at doing things. We do lots of things very well. We cut taxes for rich people. We transfer the wealth of poor, middle, and working class Americans to the rich. We cut social support programs. We bomb countries into oblivion and then stick around to make sure that when these countries get rebuilt, they’re rebuilt at high cost by multinational corporations who also happen to be donors to our political class. We also spy on our citizens, abet the theft of countless homes by banks, and keep black prison facilities around the world to disappear and torture people who we think are bad. Our government is very good at doing these things.
What our government is not good at is doing things that benefit poor, working, and middle class Americans. Our government is not good at promoting peace, nor the rule of law. It is not good at creating a more equitable society. It is not good at finding new ways to help those in need of help, nor is it good at finding new ways to care for the sick.
Our government isn’t broken and certainly still functions at a disturbingly high level. It just doesn’t function for you and me. The real problem is that the government is not controlled by nor accountable to the bottom 98% of the country.
The New York attorney general is moving to block a proposed $8.5 billion settlement struck in June by Bank of New York Mellon and Bank of America over troubled loan pools issued by Countrywide. A lawsuit filed late Thursday accuses Bank of New York of fraud in its role as trustee overseeing the pools for investors.In papers filed in New York State Supreme Court, lawyers for Eric T. Schneiderman, the attorney general, contended that Bank of New York misled investors about its conduct as overseer of the securities. The bank also breached its duties to investors by agreeing to the deal with Bank of America, according to the complaint, because the trustee is conflicted and “stands to receive direct financial benefits” as a result of the agreement.
Questioning the fairness of the deal, the attorney general’s lawsuit said that it could “compromise investors’ claims in exchange for a payment representing a fraction of the losses” that have been suffered by investors.
This is a major allegation. Schneiderman is saying that the game-playing with securitizations, which has been well-documented, represent violations of securities law on the part of the trustee and the originator of the loans. They knowingly sold junk to investors and violated their own agreements. And now they’re trying to whitewash it through a settlement where the bank and the trustee are colluding with one another. As Schneiderman says, “the Trustee stands to receive direct financial benefits under the Proposed Settlement.”And here’s the real bombshell: Schneiderman alleges that Bank of New York Mellon was aware that Countrywide failed to transfer loans properly to the trust. This means they sold what amounted to non-mortgage backed securities to investors, who should then be granted the full value of these bonds back. The pooling and servicing agreements governing the loan transfers are very precise, and were violated in this case, according to the AG.
We’ll see how this plays out in the courts, but it’s clear that Eric Schneiderman is one of the few real cops on the beat policing Wall Street. His actions here could have serious consequences to the ongoing 50 state attorneys general negotiations being lead by Iowa AG Tom Miller, who has sought to immunize banks from the consequences of robosigning and foreclosure fraud in exchange for a small cash settlemen. While the Miller negotiations have sought to move past this lawlessness (look forward, not back!), Schneiderman’s actions demonstrate the impossibility of a global settlement being anything but a disservice to homeowners, investors, and the American public. There needs to be more investigation and real accountability. Schneiderman’s intervention in the Bank of New York/Bank of America settlement is a strong start.
Yves Smith at Naked Capitalism has more about what Schneiderman is doing and what the consequences of his actions should be.
Above is a rant by Ari Melber on the Super Congress that’s a big piece of the deficit deal that passed earlier this week. Here’s a snippet of the transcript:
I think that brings us to the last ingredient in this farce: the idea that these arbitrary cuts are magically going to result in equal pressure on both sides. …Well many Republicans opposed default too, but in practice you know and I know this GOP congress has proven itself willing to risk great harm in pursuit of its agenda.
There are other larger issues with the Super Congress, but the notion that it will work out of a fear of mutually assured destruction is bogus. For starters, it’s a central tenet of the modern Republican Party’s governing philosophy that the social support network should be removed and Americans should all be on their own. As we saw with the deficit hysteria, conservatives are anxious to use this narrative as a means of destroying the Big Three social programs and many smaller ones as well. While some Democrats have sought to reduce waste and Cold War era weapons systems from the Pentagon budget, reducing the size of the defense budget isn’t exactly a driving force of the Democratic Party. And since all of our many wars aren’t funded out of the Pentagon budget, this Super Congress isn’t affording liberals a mechanism to speed the end of the wars in Iraq, Afghanistan and Libya. Reducing defense spending is no Democratic holy grail. Dennis Kucinich and Mark Warner aren’t in the same place on it. Decreasing the raw Pentagon budget just isn’t a guiding star for the Democratic Party, particularly given the amount of Democrats who supported and funded the war in Iraq, the President’s escalation of the war in Afghanistan, and his initiation with little Democratic objection of a war congressionally irrelevant kinetic action in Libya.
And that’s just the Democratic Party’s tensions on defense spending. There’s a real tension in the Republican Party between war hawks and tax cutters. This is has the potential to undercut the Republican fear of the Super Congress not reaching a deal and snap cuts to defense. Since that fear, we are told, is critical to good-faith negotiation within the Super Congress, this is actually a pretty large structural problem with the mechanism for finding future spending cuts.
As Melber points out, the nut result is that there will be tremendous pressure on Democrats to block social spending cuts and some amount less pressure on Republicans to stop defense cuts, paired with rabid pursuit by conservatives of social spending cuts with some degree of understanding that defense should be cut some too coming from Democrats. This structural asymmetry seems destined to produce deeper social spending cuts that inflict more damage and more pain on working American families than will be felt by cuts to contracts with Halliburton, Raytheon, BAE Systems, and KBR.
What we have here is actually a poverty of imagination. There are plenty of things that the executive branch can do – power they’ve had since they came into office – to boost jobs. They have $80-$100 billion in unused TARP funds that could be put to productive use, including at least $40 billion dedicated for housing. They could use Fannie and Freddie much more aggressively than this renting idea, creating a kind of modern-day HOLC to buy up homes. They could use authorized programs like TALF to give aid to states or fund infrastructure projects. They could use monetary policy to force bank reserves into the lending sphere; at the very least they could fill the slots on the Federal Reserve Board of Governors, at least one of which has been vacant since the beginning of the Obama Presidency. They could get any of the $30 billion small business lending fund out into the economy. They could use Treasury to legitimately punish China for manipulating their currency. Put these all together, along with ones I haven’t thought of, and you have a “second stimulus” of equal or greater value than the first. And you don’t have to consult John Boehner at all.
Well either the administration just hasn’t thought of these things or has thought of them, but decided associated political costs are too high, or the administration just doesn’t want to actually do things that create jobs outside of getting Congress to pass tax cuts. Time will tell which bears the most evidence, but as Dayen points out, these are not recently available ideas for job creation.
Hold Fast 