Vultures over Iran: The Human Rights Campaign follows the money

vulture-9Why is the Human Rights Campaign hanging out with the friends of homophobe Gary Bauer?

Some background: HRC, the richest US gay group, has gone international. More and more of the news on its website features hard-to-pronounce foreign places: Brunei, Abuja, Alabama … And now “Iran,” syllabified by most Americans as “Satan.” Yesterday, HRC published an account of a Congressional event with which it seemingly had little to do. Two small House subcommittees held a hearing on “One Year Under Rouhani: Iran’s Abysmal Human Rights Record,” and one-quarter of the testimony dealt with LGBT rights. What’s interesting is the fine print.

The hearing itself (snippets here) was undramatic. The International Gay and Lesbian Human RIghts Commission (IGLHRC) sent its Middle East program officer to testify. Generally, when human rights organizations speak at congressional hearings, it’s because they want to advance a policy goal. In this case, though, it’s hard to define what policy goal for LGBT people’s rights in Iran could involve the US Congress, given that the US has neither sway nor leverage in Tehran. “The United States and other Western countries are in a unique position to make a difference in the future of Iran and in the surrounding region,” IGLHRC said — but they are not. (See note at end.) At least, any difference they’ve made so far has been almost uniformly for the worse. (See Iraq.) If ever there was a situation where the US government should acknowledge the primacy of internal social movements beyond its leadership or control, it’s the issue of sexual rights and state repression in Iran.

No, what’s interesting is how a writeup on this –“Congress Explores Iran’s Persecution of LGBT Community” — got onto HRC’s site, because it wasn’t written by anybody at HRC. It was “submitted” by Toby Dershowitz, vice-president of the Foundation for Defense of Democracies (FDD). HRC has a new partner organization, and thereby hangs a tale.

FDD: FIghting for wars that we will not fight in

FDD: FIghting for wars that we will not fight in

I always quote Glenn Greenwald on FDD: “basically a Who’s Who of every unhinged neocon extremist in the country.” More politely, they are a DC-based neoconservative lobbying group with special interest in the Middle East: “founded,” in their own words, “shortly after 9/11 by a group of visionary philanthropists and policymakers who understood the threat facing America, Israel and the West.” (We’ll get to the identity of those donors later.) From the beginning it drew on the High Hawkish tradition of the Reagan ascendancy, with figures like Jeane Kirkpatrick and Robert McFarlane conspicuous in its ranks; the Cold War being over, though, enemies of Israel displaced the Soviet threat in its demonology. The clearest idea of what they’re up to comes from listing some of the research interests of their fellows:

Iran, Iran – Energy, Iran – Human Rights
Iran – Energy, Pakistan, Syria, Iran – Human Rights
Iraq, Iran, Lebanon
Iran, Iran – Energy
Iran – Energy, Israel, Europe, Iran – Human Rights
United Nations, Arab Spring, Iran – Energy, Iran – Human Rights
Iran – Energy, Europe

It’s like a Symbolist poem. The main function of the Foundation these days is to drum up support for a US assault on Iran. To do this, it courts various constituencies in the American public, from energy conglomerates to women’s groups. Gays are one of them, increasingly endowed with clout; FDD adopts the language of human rights, plants op-eds. colonizes the gay press, and otherwise strives to shock and appall the homintern about the wiles of Sauron in Tehran.

Let me research your family: Gary Bauer

Let me research your family: Gary Bauer

This is not without complications. I first noticed FDD when one of its fellows, Ben Weinthal, published a bizarre piece in New York’s Gay City News three years ago, accusing Iran of an ongoing “anti-gay genocide.” When I paid a visit to FDD’s web page, I found that on their staff and board sat such luminaries as Frank Gaffney (a vicious and paranoid Islamophobe), Andrew McCarthy (perhaps the US’s most vocal advocate of torture) — and Gary Bauer. I remarked that it was strange for a gay newspaper to get into bed with right-wingers boasting such connections. The chipmunk-cheeked Bauer is one of the main strongmen of Christian fundamentalism. He served for eleven years as caudillo of the Family Research Council, named in 2010 as a hate group by the Southern Poverty Law Center for its “false claims about the LGBT community based on discredited research and junk science.” “I don’t believe a healthy society can endorse, subsidize, or encourage” such a “destructive lifestyle,” Bauer said about the sodomites in 1998. (Bauer’s own lifestyle, padded by a web of consultancies and sinecures, is well-subsidized enough to ensure his health.) But he is also a Christian Zionist, militantly intolerant of any criticism of Israel, flush with evangelical faith in the Likud; so there was Bauer’s name, right on the list of FDD’s advisory board, a warning that its love for the homos had limits.

I flatter myself that the FDD learned from my research. Since then the organization, which like most neocon groups was never exactly crystalline about its connections, has become even less transparent. It erased the list of board members from its website. Instead, a short paragraph says,

FDD’s distinguished advisors include Sen. Joe Lieberman, former National Security Advisor Robert “Bud” McFarlane, former FBI Director Louis J. Freeh, former State Department Under Secretary Paula Dobriansky, Gen. P.X. Kelley (ret.), Francis “Bing” West, Wall Street Journal columnist Bret Stephens, syndicated columnist Charles Krauthammer, Weekly Standard Editor William Kristol … [Emphasis added]

This neatly obscures the question of who else is “included,” or whether Bauer still belongs to the family. Still, problems persist. Another “Distinguished Advisor” omitted from the list is KT McFarland; she flaunts her FDD title on her own website, though, and on others. McFarland, now a “national security analyst” for Fox News, ran for the Republican Senate nomination in New York in 2006. Midway through, scandal surfaced when New York magazine revealed how she had shunned and insulted her gay brother, who died of HIV/AIDS ten years before. She

couldn’t abide his sexual orientation. Shortly after she discovered Mike had AIDS, she wrote her parents lengthy, angry, almost Gothic letters in which she outed her brother, blamed her father for his troubles as well as those of her and her other siblings, and cut off contact with her parents. “Have you ever wondered why I have never had anything to do with Mike and have never let my daughters see him although we live only fifteen minutes away from each other?” she wrote. “He has been a lifelong homosexual, most of his relationships brief, fleeting one-night stands.”

This was too much even for the GOP; she lost the nomination, and the privilege of getting steamrollered by Hillary Clinton. No wonder she’s quietly disincluded from the FDD page; she’d crimp the outreach.

KT McFarland does Fox: He ain't heavy, and he is not my brother

KT McFarland does Fox: He ain’t heavy, and he is emphatically not my brother

One advisor FDD proudly names is Bill Kristol — he’s too big, and full of himself, to omit. Kristol edits the Weekly Standard, a conservative rag sweeping in its influence. (Dick Cheney, in the days when he ran the country, would send for 30 copies each Monday morning.) His work there has drawn the praise of no less than Austin Ruse, fanatical campaigner against LGBT rights, women’s rights, and reproductive freedom. “Do a site search at The Weekly Standard on social issues,” Ruse writes,

and you find – alone  among conservative magazines? – a publication that  has never wavered on them. …A great deal of credit for the Weekly Standard not abandoning the social issues can be given to one man, William Kristol. …

Where does this come from? Perhaps it’s the influence of friends. For years, the Kristol family took a summerhouse with Gary Bauer and his family. … For this, we all owe Bill Kristol a mountainous debt of gratitude and our regular prayers. He could have caved. But he never has. Bill Kristol is square and getting squarer.

Kristol does Fox, and answers the big questions

Kristol does Fox, and answers the big questions

Kristol has called those who deviate from “traditional marriage” “pathetic.” He’s perhaps best known as the divine voice who drew the Pucelle of Wasilla — the armor-clad Joan of Alaska, Sarah Palin– into the national fray. Long before he blessed the mama grizzly and anointed her Veep-to-Be, though, Kristol was staking out his orthodox, orthogonian positions on morality. In 1997, he gave the closing speech at a Washington conference meant to expose homosexuality as ”the disease that it is.” Afterward, he helped assemble a collection of essays on “Homosexuality and American Public LIfe,” actually about keeping homosexuality out of American public life: a book for “activists who want to keep the ‘hetero’ in ‘sexuality,'” as one right-wing reviewer said.

It goes without saying: any organization counting Bauer, Kristol, and McFarland among its patrons has no genuine interest in the rights of LGBT folk, in Iran or elsewhere. On moral matters, they are more likely to empathize with Ayatollah Khameini than to abhor him. (Mozilla got slammed with a boycott for way less than FDD has done.) FDD’s attempts to seduce American LGBT communities are opportunism, and riddled with the contradictions of the right-wing ideologies they promote. That doesn’t stop them, though, from trying to bury the paradoxes and insinuate themselves into the good graces of LGBT organizations; and HRC is a very powerful one.

What does HRC get, though, for associating itself with Gary Bauer and company?

Money.

One of the two big donors who offered HRC $3 million to start its international program last year is billionaire hedge-fund owner and vulture capitalist Paul Singer. Singer, a major funder of the GOP and other right-wing agglomerations, is also the second-biggest donor to the Foundation for Defense of Democracies. He gave it $3.6 million between 2008 and 2011 alone.

The details of my life are quite inconsequential ... Paul Singer

The details of my life are quite inconsequential … Paul Singer

Singer isn’t just a “visionary philanthropist,” as FDD calls him; he’s an investor; his generosity expects returns. When HRC announced it was getting Singer’s largesse, one naturally wondered what Singer would demand back. The answer’s clearer now. He wants HRC’s cooperation with his other pet causes, including his lobbyists for the Likud. As The Nation observes, “Singer is a huge supporter of groups advocating for hawkish policies against Iran, including promoting the use of military force against Tehran.” He presses HRC to lend space to the war brigade.

The quote Singer approved in the HRC press release about his donation said:

LGBT individuals face arrest, imprisonment, torture and even execution just for being who they are … Some of the worst offenders in this area also happen to be the same regimes that have dedicated themselves to harming the United States and its democratic allies across the globe.

It’s evident which offenders he wants his philanthropic objects to focus on: not Egypt or Saudi Arabia, US clients, but anti-American miscreants like Russia or Iran. This conflation of LGBT people’s rights with a particular set of geopolitical exactions radiates through the little piece he asked HRC to publish. It uses the LGBT issue solely to bash a possible nuclear agreement, reproducing the legislators’ most belligerent rhetoric — Republican Ed Royce, for instance:

Let’s imagine that Iran and the [US] come to an agreement next month are we comfortable leaving this regime with much of the critical nuclear infrastructure in place. [sic] How can this regime which holds the noose in one hand be trusted with the keys to a nuclear bomb in the other?

It quotes Ileana Ros-Lehtinen (a conservative Republican whose interest in LGBT rights draws urgency from the many White Party gays in her Miami district), speaking “with an obvious sense of exasperation”:

Rouhani knows that all he needs to do is smile, and tweet, and promise the US and the West that he will cooperate on the nuclear issue … it’s way past our time for our administration to stand up to these thugs and to stand up for the people who cannot stand up for themselves. If we won’t do it, who will?

All this armchair-heroic stuff — voices for the voiceless, saviors with drones — is war talk in its essence, and HRC is endorsing it. FDD suppresses any mention of IGLHRC’s one concrete, pacific ask, that the US fund technological fixes to help Iranians circumvent Internet censorship. (See the note below.) The Foundation doesn’t want LGBT Iranians to surf the Web freely. It wants LGBT Iranians to die, with their compatriots, under a rain of bombs.

The moral compromises involved in an association with Paul Singer are intricate, and, for HRC, likely to be incessant. When you deal with the devil, don’t expect to be released from the contract. As I wrote last year, Singer’s fortune comes from one of the least ethical activities in the world of international capitalism. His vulture fund, Elliot Management, buys up distressed countries’ debt at bargain prices when they’re verging on default; he then goes to court in other countries, to force the states he’s scamming to repay the face value of the debt in full. The profits are astronomical, and some of the world’ most impoverished populations (Congo-Brazzaville, for instance) have been among his victims.

I'll take my ball and go home: Singer, by the Financial Times

I’ll take my ball and go home: Singer, by the Financial Times

Last week, a few days before the Iran hearing, the US Supreme Court ruled on Singer’s case against Argentina. 13 years ago, he began buying some $2.5 billion of Argentina’s then-cheap government debt; he held out fiercely for his full return, defying two negotiated debt restructurings in 2005 and 2010, when most other creditors accepted around 30% of face value. The Supremes handed Singer a victory, allowing him to start ransacking Argentina’s assets in search of money to repay him. They also opened the door for other vulture extortionists to move on the country, meaning Argentina could be compelled to pay $15 billion to opportunistic creditors — or could be manhandled into default. An economy that slowly rebuilt itself after the chaos of a 2001 collapse faces a new cycle of catastrophe.

“The decision makes no economic sense,” a prominent economist said. But Daniel Loeb, a fellow hedge-fund billionaire and the other megadonor to HRC’s international work, praised his colleague: “Whether it is gay marriage or Argentina or affecting the political landscape, Paul is intense and tenacious in seeing things through. He is intensely focused and result-oriented yet extremely principled.” It’s a study in how donors ostensibly supporting human rights define “principle.”

Argentina has a comprehensive battery of legislation protecting LGBT people, and the single most progressive law on gender identity recognition anywhere in the world. In the confrontation between a supportive Southern country and foreign capitalists who want to demolish its democratic governance, do you think HRC would put out a press release in Argentina’s cause? Do you need to ask?

(Struggling to win over US opinion in the Argentine debt battle, Singer didn’t hesitate to launch a campaign accusing his Buenos Aires enemies of ties to the definitive American bête noire — Iran.)

Meanwhile, Singer’s inflows of money continue to find new use. in May, he donated $1 million to American Crossroads, a super-PAC for Republican candidates run by conservative conspirator Karl Rove. What will HRC say? Can one expect “the nation’s premier gay and lesbian civil rights group” to find new and unpredicted virtues in Turd Blossom‘s career? Yes.

Argentinian poster: "Paul Singer, the Most Wanted Vulture"

Argentinian poster: “Paul Singer, the Most Wanted Vulture”

NOTE: At the Congressional hearing, IGLHRC specifically praised the Obama administration’s promise to provide technologies Iranians could use to circumvent Internet censorship — in particular, building independent communications networks for linking to the Internet. As Gandhi said of Western civilization: It would be a nice idea.

Many observers note that the US program has gotten nowhere in the last three years, and so far seems to envision only clunky, conspicuous and incriminating hardware — suitcases of stuff bristling with antennae, smuggled in over the mountains. I’ve voiced reservations about this project in the past; and even the New York Times has warned: 

Developers caution that independent networks come with downsides: repressive governments could use surveillance to pinpoint and arrest activists who use the technology or simply catch them bringing hardware across the border.

To which you might add, in our post-Snowden era, that if the US erects the network, it can monitor everything that’s said on it. Move over, Ayatollah, the earphones are mine!

Moreover, as Omid Memarian has written, the blaring publicity the administration has given the program suggests it’s mainly for American consumption: “Many Iranians I spoke to about this news were shocked that the plan has been revealed; bringing such plans to the attention of the Tehran authorities may put people in danger.” He concludes:

The United States’ current plan to change the Iranian Web landscape is simply not realistic. In fact, the current plan makes me suspect that the U.S. isn’t taking Iran as seriously as it ought to.

Open-source, low-profile software tools such as Psiphon, originally developed at the University of Toronto, so far appear more useful to Iranians seeking to evade the censors’ grip.

HRC and the vulture fund: Making Third World poverty pay for LGBT rights

marriage-equality-red blood copyThe Human Rights Campaign (HRC), the largest US gay organization, is going international. It’s just been given at least $3 million to spread the word of marriage equality to benighted countries that treat gays badly. Unfortunately, there’s a catch. Its chief partner and donor in this project wants the people in those countries, LGBT folk included, to starve – their economies wrecked, their incomes shipped abroad, their resources squeezed and stolen to pay off odious debt. HRC is receiving its money for gay rights in the Third World from the man who “virtually invented vulture funds”: a form of speculation that’s one of the worst contributors to Third World poverty ever.

But if you’re poor and getting poorer, look on the bright side (as long as river blindness hasn’t got you, that is). You can still have a nice white wedding; and you’ll save on the food bill if your nation has no food.

HRC is understandably happy about the sunny prospects opening up. It says,

The need to support LGBT advocates and call out U.S.-based anti-equality organizations abroad has never been greater. … At the same time, opportunities exist for a global equality movement as a growing number of countries are passing pro-equality legislation and recognizing marriage equality.  Seventeen countries around the world afford, or will soon afford, committed and loving gay and lesbian couples the legal right to marry.

One of the two big donors to this project is a little more explicit about how the enterprise relates to the projection of US power:

“Every day around the world, LGBT individuals face arrest, imprisonment, torture and even execution just for being who they are,” said Paul Singer. “Some of the worst offenders in this area also happen to be the same regimes that have dedicated themselves to harming the United States and its democratic allies across the globe. [Emphasis added] As an organization that has been at the forefront of the equality movement for over three decades, the Human Rights Campaign is uniquely positioned to work in tandem with NGOs to empower LGBT and human rights advocates abroad and help stop these abuses.”

Well, yes, except … this doesn’t quite sound like “human rights” envisioned from the high vantage of universality and internationalism. It sounds like LGBT rights uneasily painted into a picture of US interests.

Paul Singer (Jacob Kepler/Bloomberg/Getty Images)

Paul Singer (Jacob Kepler/Bloomberg/Getty Images)

On the other hand, it’s natural to couch the project in terms of what the US will get out of it. After all, its two deep-pocketed benefactors are Singer, who runs a hedge fund called Elliott Management, and Daniel S. Loeb, who runs another called Third Point LLC. They’re both conservatives and huge donors to the Republican Party. Singer underwrote last year’s GOP National Convention with $1 million of largesse. One operative called himthe big power broker in the Republican financial world.” The Wall Street Journal wrote that 

He has given more to the GOP and its candidates—$2.3 million this election season—than anyone else on Wall Street, helping make his hedge fund … one of the nation’s biggest sources of political donations, the vast majority to the GOP.

My little man: Singer, with full-sized Mitt in front of him, for Fortune magazine

My little man: Singer, with full-sized Mitt in front of him, for Fortune magazine

The New York Times writes that Singer “believes in the doctrine of American exceptionalism and is wary about United States involvement in ‘international organizations and alliances.’” (Apparently HRC won’t be supporting the hundreds of LGBT activists and groups who fight for their rights at the vile, collectivist UN.) Singer is a nexus of con and neocon ties and tendrils; he chairs the Manhattan Institute, a conservative think tank, and has served on the board of Commentary magazine, the national journal of Podhoretzstan. He’s ladled at least $3.6 million to the self-styled Foundation for Defense of Democracies, a hawksh outfit which Glenn Greenwald called “basically a Who’s Who of every unhinged neocon extremist in the country.” Dan Senor — the glib apologist who served as authorized liar and TV personality for the Coalition Provisional Authority while the Bush Administration devastated Iraq — is one of Singer’s foreign policy advisors.

Na na, na na, na na, come on, come on, sticks and stones may break my bones: Loeb

Na na, na na, na na, come on, come on, sticks and stones may break my bones: Rihanna Loeb

Loeb, meanwhile, supported Barack Obama in 2008, but turned on him when the President ungratefully demanded that Wall Street let itself be regulated a little. In a celebrated email announcing his desertion he cast the President as abusive husband, with a bunch of submissive bankers as his bruised brides: “When he beats us, he doesn’t mean it … he usually doesn’t hit me in the face [so] it doesn’t show except for that one time … he’s not that bad really, unless he gets drunk (from power) …” Probably this was irony; I mean, a sheltered guy worth billions wouldn’t seriously compare himself to a poor woman living in a shelter, would he? By April 2011, Loeb had given almost $500,000 to the GOP, and he kept giving. In mid-2012, he co-hosted a $25,000-a-plate fundraiser for Mitt Romney in the Hamptons. Mocked for extravagance, the proceedings seem to have furnished Romney with the intellectual foundations for his later comments about the wrongly franchised 47%. A guest lumbering up in a Range Rover told the media that

“I don’t think the common person is getting it. … We’ve got the message,” she added. “But my college kid, the baby sitters, the nails ladies — everybody who’s got the right to vote — they don’t understand what’s going on. I just think if you’re lower income — one, you’re not as educated, two, they don’t understand how it works, they don’t understand how the systems work, they don’t understand the impact.”

But all this GOP-ness isn’t the most interesting part. What matters isn’t where these guys give their money. It’s where they get it.

Curious how no one asks this. In gratitude for their generosity, HRC arranged for the two donors to feature in a puff piece yesterday by Frank Bruni, the New York Times’ designated homosexual.  “Elliott Management’s lofty offices in Midtown Manhattan look north, south, east and west across the borough’s thicket of skyscrapers …” The view was terribly distracting for Bruni, who probably lives, like most Times writers, in a windowless Bronx tenement where he makes matchsticks to pay the bills.

I sat in a 30th-floor library with the hedge fund’s founder and chief executive, Paul Singer, a billionaire who was one of the most important donors to Mitt Romney in 2012 … He’s wary of speaking with journalists, so much so that I’ve seen the adjective “reclusive” attached to his name.

The piece is all about Singer’s lavish giving for gay marriage, and it exhibits, if beneath the surface, the historical function of philanthropy: to silence annoying questions about where you got your fortune. “The battlefield” for gay rights “isn’t what it used to be,” Bruni wrote gauzily. “From the 30th floor, I could see that most clearly of all.” But there are other battlefields Bruni chose not to see.

Paul Singer runs a vulture fund. He makes his profits from the debt incurred by Third World countries — I won’t use the PC term “developing” countries, because the point of the debt is to prevent them from developing — and from the misery it causes their citizens. Of all the parasites in the global economy, of all the profiteers of poverty, vulture funds may be the worst.

Vulture funds operate by buying up a country’s distressed debt just as the original lenders are about to write it off  — usually, as the Guardian describes it, when the country “is in a state of chaos. When the country has stabilised, vulture funds return to demand millions of dollars in interest repayments and fees on the original debt.” In other words, you purchase the right to be a hardassed debt collector, and to harass and impoverish whole populations till you get your cash. Singer, says the BBC, “virtually invented vulture funds.”   A University of Pennsylvania expert on emerging-market debt told Bloomberg that Singer’s “actions are amoral,” adding that he puts the squeeze on “without worrying about the potential consequences for the country involved.”

That’s an understatement. Three examples of Singer’s work:

Peru. In 1996, just as Peru embarked on restructuring its massive debts, Singer’s hedge fund bought $20.7 million worth of old loans to the country — paying only $11.4 million, a huge discount. They immediately rejected the restructuring and sued Peru in a New York court, for the original value of the loans plus interest.  As the USA Jubilee Network explains, they “won a $58 million settlement and made a $47 million profit — a 400% return.”

Peru, however, couldn’t pay the sum. Instead, it put priority on paying back its other debtors, who had participated in the restructuring. Singer actually took out an injunction to keep Peru from repaying anyone else, thus shoving the entire country back toward default in the name of his own profits. Jubilee writes that “Elliott pioneered this litigate-into-submission strategy that allows these vultures to collect astronomical profits on countries in economic stress.”

Investigative journalist Greg Palast claims that Singer finally got his money when authoritarian President Alberto Fujimori had to flee the country in 2000.  Singer and his repo men, he says, put a lien on the Presidential plane before Fujimori could reach it — then demanded the full sum from the desperate dictator before giving it back. Singer piously defends his work as promoting “transparency” among foreign governments. Getting a corrupt leader to ransom away his country’s resources to save his skin hardly fits that description.

Vulture funds in Africa

Vulture funds in Africa

Congo-Brazzaville.  In the late 1990s, Singer’s Elliott Associates used a Cayman Islands-based subsidiary called Kensington International to buy, at a discount, over $30 million worth of defaulted debt issued by the Republic of Congo (Congo-Brazzaville) — by some reports, paying only $1.8 million. It then sued the government for almost $120 million in repayments plus interest. That’s a 10,000% profit.

A UK court handed Singer victory in a succession of judgements in 2002 and 2003. The Congolese government couldn’t pay up, though: interest continued to accrue at a rate of $22,008.23 per day. Congo-Brazzaville’s GDP per person at the time averaged around $800. More than a quarter of deaths of children under 5 were from malnutrition. The country had, according to the Financial Times, “one of the highest foreign debts per capita of any developing country, estimated at $9 billion for a population of fewer than 4 million people” — and, following Singer’s model, private vulture funds hurriedly bought up about a tenth of that.

Singer and Kensington relentlessly chased Congolese assets in courts around the world. In 2005, another UK judge gave them partial satisfaction. He let Singer intercept and expropriate $39 million in Congolese oil sales to a Swiss firm. That’s still more than a 2000% profit, not bad when your only productive work is pushing paper. Other firms that have speculated in Congolese debts, though, continue hounding the impoverished country’s resources from court to court.

December 2001: Riot police and tear gas used against protesters in Buenos Aires

December 2001: Riot police and tear gas unleashed against protesters in Buenos Aires

Argentina. In 2001, Argentina had a revolution: citizens banging pots and pans in the public squares threw out a neoliberal regime that had driven the country into depression and stolen almost everybody’s savings. A new government of economic nationalists defied the Washington Consensus by defaulting on more than $80 billion in foreign debt and devaluing the currency. It worked: reasserting domestic control gradually revived the moribund economy.

That was the good news. Meanwhile, though, one of Singer’s companies called NML Capital Ltd. sniffed future profit. It bought over $180 million of the defaulted debt at between 15 and 30 cents on the dollar.

Impounded: Argentine warship Libertad, seized by Singer in Ghana, 2012 (Leo La Valle/EPA)

Unenduring freedom: Argentine flagship Libertad, seized by Singer in Ghana, 2012 (Leo La Valle/EPA)

In 2005, Argentina’s President, Nestor Kirchner, offered lenders 30 cents on the dollar to forgive its debts. The vast majority of bondholders accepted the offer; Singer rejected it and demanded full repayment. Argentina’s legislature passed a law that barred the government from raising the offer — a sign, if one were needed, that Singer’s demands flouted the democratic will of a nation of 40 million. Singer refused to budge. He took Argentina to court in the US and elsewhere. In 2012, he actually managed to impound an Argentinian naval vessel while it rested in an African port, demanding an extortionary sum to release it until the International Tribunal on the Law of the Sea ordered it freed.

European judges have found against Singer, but in 2006 he won a judgment for $284 million in the U.S. (That would be at least a 500% profit.) The case is still in court. Singer’s pursued the same strategy he did with Peru, demanding that Argentina be barred from paying any creditors who joined the restructuring unless he‘s repaid in full. Either Argentina will be semi-bankrupted by his greed, or it will suspend its obligations indefinitely; in either case, that’s too much uncertainty for most lenders. Singer has pretty much singlehandedly kept Argentina an unsafe investment. The US judiciary’s willingness to buy his arguments has shaken Latin American financial markets, doubled the cost of Argentina’s borrowing, and pushed the country toward a new, disastrous default. Paul Singer is like honey badger. He don’t care.

Protestor outside the London offices of Elliott Management, Febuary 2013

Protestor at a Jubilee Debt Campaign demo outside the London offices of Elliott Management, February 2013

The World Bank has called on developed countries to put an end to profiteering like SInger’s. “Vulture funds are a threat to debt relief efforts,” its Vice-President for Poverty Reduction said.  “Their increasing litigation against countries receiving debt relief will penalize some of the world’s poorest countries.” George W. Bush’s Treasury Secretary told Congress in 2007 that “I deplore what the vulture funds are doing.” Gordon Brown, the UK Prime Minister, accused them of “perversity” and called them “morally outrageous.” I could go on and on — but so do Singer and his proteges. They don’t stop. The World Bank estimates that vulture funds have sued a third of countries receiving debt relief. Jubilee USA notes that

As of late 2011, 16 of 40 Heavily Indebted Poor Countries (HIPC) surveyed by the International Monetary Fund were facing litigation in 78 individual cases brought by commercial creditors. Of these, 36 cases have resulted in court judgments against HIPCs amounting to approximately $1 billion on original claims worth roughly $500 million.

Red sky at morning

Red sky at morning

And no wonder Singer buys up political influence so assiduously. Hector Timerman, Argentina’s Minister of Foreign Affairs, wrote in 2012:

Vulture funds abuse the system, acquiring distressed debt in secondary markets to multiply profits at the expense of the poor and weak. As these activities are ethically repellent, well-prepared propaganda machinery keeps their lucrative business alive.

It’s not just propaganda. Singer needs his paid politicians to fend off scrutiny and guard the “lucrative business” from disruption. A bill to curtail vulture funds’ profiteering was introduced in the US Congress in 2009. The next year, Singer told his heavily funded Manhattan Institute they had to combat “indiscriminate attacks by political leaders against anything that moves in the world of finance.” Will HRC flex its legislative muscle to fight the Stop Vulture Funds Act as well?

It’s a sick irony that the money HRC takes to fund its new work in the Third World is made off the backs of Third World suffering. It’s even worse when HRC’s PR machine colludes with the New York Times to whitewash — pinkwash — Singer’s record of destruction. It’s politically disastrous for an LGBT group to operate this way. They’re sending a message to governments in the developing world that the US really does see LGBT people as a privileged class, and is willing to promote their rights while condoning the immiseration of whole populations. But it’s self-defeating also. LGBT people don’t want this kind of “help.” LGBT people are citizens, workers, children, parents too. HRC should know that they are as affected as anybody when a parasite like Singer enforces endless debt service on states, devastates the necessary services that governments provide, litigates countries into permanent submission.  What does HRC think it can give the victims, after Singer has stripped their assets and sold off their national resources? Is same-sex marriage supposed to be a consolation? I’m afraid HRC is acting like old honey badger, too. It just don’t care.

Alejandra Sardá-Chandiramani

Alejandra Sardá-Chandiramani

Since Argentina has been one of Singer’s targets, I went to an old colleague of mine, the great Argentinian feminist and sexual rights activist Alejandra Sardá-Chandiramani. Alejandra has fought for the rights of LGBT people throughout Latin America for more than 20 years. She was sad but not shocked at the assembled ironies. She told me:

“International work” done “for” LGBTs (or women, development, girls, you name it) from the USA is, first of all, a great industry giving jobs to a vast majority [within the organizations] of USA citizens and also to a few privileged ones from the Global South (I was once among the latter, so I know what I am talking about). There are always a few good souls thrown in the mix, who normally can’t resist too many years. For too long our misfortunes (patriarchal social norms, authoritarian governments, condoned forms of violence, subordinated economies) have made the North rich, sometimes through jobs “saving us” and other times more directly, like in the case of the profits made by the vulture funds or the arms dealers. And they also serve to hide the existence of quite similar phenomena in the Global North itself and to keep the fragile national pride and self-esteem of our “saviours” intact.

“Another thing that does not surprise me,” she writes,

is that a USA based “LGBT” organization accepts money from such a source … [P]articularly in the USA many/most LGBT activists have a hard time linking their issues to broader social, economic and political realities, as they are too self-absorbed in all their identity politics. I hope that not many people in the Global South will agree to do work funded with this extremely dirty money — if they know where it is coming from. But sometimes, people are facing such difficult circumstances that they can’t afford to be so principled.

She adds that “in some Global South countries, activists belong to social and economic elites (this happens particularly in the early stages of movements, as these are the ones that can afford to be out) and they are as ignorant or unconcerned about broader social issues as their USA colleagues, so anything can happen.”

Vultures and their masters: Argentinian cartoon

Vultures and their masters: Argentinian cartoon

Maybe she’s right, but here I’m inclined to differ. Most LGBT movements in the larger world aren’t in their early stages any more. They’re mature and politically sophisticated. They don’t need HRC; try telling someone in South Africa (where LGBT rights are in the Constitution) that they should “learn” from the US. Far more valuable to them are their connections with local civil societies and social movements that fight for people’s real rights and freedoms. They ally with groups that combat maternal mortality, defend the rights to health care and education, press the State to keep the social welfare system functioning, ensure that votes count and that people can decide their collective economic as well as civic future. That’s not what Singer stands for, and outsiders paid from his dirty money may get an unexpectedly cold welcome.

I forgot about Daniel Loeb. He too has a history of bold international interventions, it turns out. If you want to read about him, Vanity Fair has a long piece coming out in its December issue, less puffy than Frank Bruni’s by far. There’s a nugget about how, on a 2002 vacation in Cuba with the heir to the von Furstenberg money, Loeb ran down a child with his car. Cuban authorities held him in the country until — well, whatever. Perhaps he made some investments. A friend recalled,

“I truly felt so sorry for him when he told me he had found himself unable to leave the country, curled up in a ball on the floor of his room crying, promising God that he’d do anything if the Almighty got him out of his predicament. It wasn’t as if Dan had done it on purpose, and who really knows what ended up happening to the kid?”

A benighted country that’s not the United States, a rich guy, a poor child with tire marks on his back, and — who knows. Isn’t that what the new landscape of LGBT organizing is all about?

Forward to freedom, and fresh meat

Forward to freedom, and fresh meat

Where did the debt come from? Understanding the austerity disaster

The new capitalism: What's Mayan is yours

Oh, sweet Jesus, this is going to be one hell of a year.

Maybe you’re one of those people who’ve stopped reading the paper because it’s too depressing. Is that why you’re so quiet? Maybe you eschew any headline that holds the word “Crisis,” or “Euro,” or (God forbid!) both together, because those augur something incomprehensible, and no knowledge is good news. Maybe you’re counting your dwindling cents and thinking things can’t get worse. Well, it would be hard for things to get worse, but the reality of our economies at this moment is that they’re drawn toward disaster like a gawker passing a massive car crash — and while he puts on the brakes to look, the cars behind him pile up too, till the wreckage stretches down the freeway for miles. Reading the business pages used to be like listening to the traffic reports, telling you what roads to avoid in the morning. Now it’s like tuning in to the Emergency Broadcast System’s slow, terrible whine, and realizing you should have figured out where the nearest fallout shelter was years ago.

But hiding won’t help. I can promise you the only way through the year ahead is to be radical: I mean, to be unflinching in looking at the tangled roots of this mess, to try against all our instincts to see things as they are.  There is a reasonable chance we will have to rebuild the world in our lifetimes. If that happens, we had better be armed with knowledge about how the one we have went wrong.

So let me share the little bit I know these days. You surely saw Friday that Standard & Poor’s went after Europe with a machete.  The ratings agency downgraded the credit of nine countries in the Eurozone.  Austria and France lost their triple-A status. Malta, Slovakia and Slovenia also came down one notch.   Italy, Spain, Portugal and Cyprus lost two; the last two countries now join Greece as issuers of junk bonds. It’s a comprehensive declaration of disbelief in Europe’s ability to save itself.

Into the abyss

This happened the same day that talks broke down between Greece and the commercial banks it owes money.  You remember that last year, the European Union promised to write off 100 billion euros of Greek debt if bondholders –that is, the banks — would agree to take a 50 percent loss on their Greek lendings. This is Angela Merkel’s idea, a way of forcing the banks that made the dumb loans, not just European taxpayers (read: not just Germans, since they’re the only ones in Europe with any money) to take a hit. The dumb banks are not happy. Their representative said, ““Discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach.” The New York Times explains that this might (might!)

be a not-so-subtle message that if Europe pushed too hard on this point, then the creditors could no longer accept the agreement as a voluntary one. That is crucial, because an involuntary debt revamping would be seen by creditors as a default — a step Greece and Europe are trying hard to avoid.

If Greece defaults, it could set off the activation of credit default swaps — a type of financial insurance. [Basically, the banks have bought insurance against the possibility that debtor countries default.] If the issuers of that insurance have to start paying up, many analysts fear the same sort of falling dominoes of i.o.u.’s that cascaded through the financial industry after the subprime mortgage market collapsed in the United States in 2007 and 2008.

What can you say? To quote Rick Perry: oops?

All this follows a month when Europe seemed to be looking up a little. Italian bond sales were doing reasonably well. (If you asked me a year ago whether I’d ever care about Italian bond sales, I would have said basta! assurdo!)  In November,when Berlusconi resigned, the interest rate on Italy’s bonds climbed to almost 7.5%, a point that means the markets expect default: “even higher yields aren’t enough to attract buyers. That kind of panic is self-fueling, and once it starts it can destroy its target within days.”  Yet Italy clawed its way back, thanks to reassuring infusions of money from the European Central Bank. Friday its three-year bonds were selling  at an average rate of 4.83 %, not great but the lowest, most manageable rate they’d seen in four months. The Standard & Poor’s blow, however, means the markets still don’t trust Italy as far as they can throw it. Try throwing Italy. It’s heavy.

Greek gross domestic product (GDP) collapsing: Atlas died, consumption shrugged

Here’s the problem. The markets insisted on austerity plans so that governments could repay their debts. But now the markets see that the austerity plans are keeping the economies — Greece, Italy, Spain, and many others — from growing, perhaps for more than a decade to come. And without economic growth, there’s little long-term prospect for repaying debt. Hence the markets are losing confidence in the governments anyway, pushing them toward increasingly likely default.

Take the Greek case. The Washington Post notes that after two years of austerity,

increasingly, critics of the quick-cuts theory are pointing to the worsening recession [in the country] as evidence that the medicine is killing the patient, with the nation’s sharp, sustained decline leading some economists to suggest that the country has entered a more serious depression.

“Suggest”? Stathis Kouvelakis lays out the details:

Workers and the retired alike have lost around a third of their incomes. Wage arrears in the private sector have now reached three months on average, while public-sector pensions—around €500 to €700 a month—are in many cases not being paid at all. Public services are in a state of collapse: schools are without textbooks, bringing teaching to a virtual halt, while hospital patients are being told to buy their own medication from pharmacies. The suicide rate, traditionally one of the lowest in Europe, has increased by 40 per cent in just one year, and the health of the population is deteriorating dramatically.

And here’s the kicker, killer, whatever:

The actual unemployment rate is said to be around 25 per cent (the official rate is 18.5 per cent), with the figure twice as high among 15-to-24-year-olds, while GDP [gross domestic product] has declined by at least 12 per cent since the start of the crisis, a proportional drop comparable to the effect of the 1930s Depression.

Greece has suffered, he says, “one of the most drastic drops in living standards that postwar Europe has seen.” It’s akin to what happened in the former Soviet Union in the 1990s — and we know how well that turned out.  Putin, here we come! It’s even more like the effects of structural adjustment on Latin American economies in the ’80s, and on Africa in the ’90s. “The Mediterranean economies are being sentenced to years of rot and hyper-unemployment,” Mike Davis writes. The policies the industrial West inflicted on the developing world for thirty years are coming home to roost.

From the bankers’ perspective, though, the problem is that you can squeeze such a collapsed economy until the pips squeak, and you can’t get repayments out of it. Hence the crisis that last week’s events represent.

Meanwhile, in order to enforce austerity, governments are becoming less democratic — since their people don’t want the plans their leaders are compelled to pursue.  The unelected “expert” governments installed in Greece and Italy augur things to come.  In the London Review of Books, David Runciman channels Carl Schmitt and the theorists of “emergency.” Democracy has a “crucial advantage,” he says, because it can undo itself: it’s

more politically flexible than the alternatives. That is, in a crisis democracies can experiment with autocracy but autocracies can’t experiment with democracy, not even in small doses. They daren’t, for fear of losing control.

But the present experiment in technocratic rule may not be enough to get things done. We may need a full-fledged turn to dictatorship, as spread across Europe in the late ’20s and ’30s:

[The] turn to technocracy looks like a diversion. It served its purpose in allowing the Greeks and Italians to ditch busted governments without holding elections. But if the technocrats are meant to sort out the mess, instead of simply providing a bit of breathing space before elected politicians get another crack at it, then they will need some autocratic powers. They will have to be able to force their nasty medicine down the throats of kicking and screaming populations.  … The hard truth is that democracies do not save themselves by flirting with technocracy. They have to flirt with something nastier.

Democracies have survived worse crises than the present one because their previous experiments with non-democratic methods have always been time-limited. In war, for instance, democratic governments have often had to resort to emergency powers, but when the war is over, those powers get given back. That won’t work this time. The present crisis is not a war, and it’s not going to be easy to tell when it is over.

In short: the endless War on Terror has not so much ended as it’s been forgotten. The War on the Poor is bidding to succeed it.

We are in Stage II of the massive crisis that began in 2007. In Stage I, the world’s banks threatened to collapse under the weight of unpaid debts owed to them.   Governments everywhere bailed them out — which meant assuming their debts. But now, as Michael Lewis writes,

The financial crisis of 2008 was suspended only because investors believed that governments could borrow whatever they needed to rescue their banks. What happened when the governments themselves ceased to be credible?

Where did all this debt come from?

There are as many answers as economists. Strikingly, though two recent books — the late Chris Harman’s Zombie Capitalism and David McNally’s Global Slump: The Economics and Politics of Crisis and Resistance — both turn back to one of Marx’s core but most controversial ideas.

It’s called, in that peculiar Marxian manner of legislating, the Law of the Falling Rate of Profit. The gist is this: Capitalists want to increase the amount of productivity they can extract from labor every hour. They can Taylorize — make work time more efficient; they can cut wages; but after those means are exhausted, the best route is to invest in new labor-saving technologies. The first businessmen to introduce these machines and tools will get a short-term boost: they can produce more cheaply than their competitors, but sell at comparable prices. That means their profits will rise.

However, the ultimate source of value for Marx is labor. If investment grows more rapidly than the labor force, it is also growing faster than new value is being created. (Moreover, as investment grows faster than wages, it grows faster than the money available to workers to buy the goods and keep the economy going.) “When productivity rises, profits fall. The more ‘capital-intensive’ is a business, the less profit is made in proportion to the amount of money invested.” As businesses continue to invest, then, the profits they can make — the value they can extract, above what they’re spending on both technology and labor — will inevitably start to spiral down.

Although versions of this theory date back to Adam Smith and David Ricardo, it wasn’t popular in the 20th century. Mainstream economists hated it because it suggested that the recurrent crises of capitalism couldn’t be fixed: the system itself contained a cancerous paradox, a spore of decline. “At a certain stage,” Marx wrote, capitalism “conflicts with its own further development.” Revolutionary Marxists of all stripes disliked it because they expected the system to fall through their indispensable action, not some internal contradiction: the workers, led of course by the vanguard Party, would rebel against exploitation and install Utopia. These pages of Marx, read literally, suggested that capitalism could consume itself regardless of what the workers did.

However, the Law provides a very good description of the major cycles of capitalism since the 1920s. Each was a period distinguished by new technologies and new investment that created soaring rates of profit — which gradually declined till the system couldn’t sustain itself, and a major crisis set in.

All those commodities! Don't forget the bombs, though.

Consider the period after the Second World War, with the planet recovering from slaughter and a Great Depression. The French, much catchier than Marx, call the thirty years from roughly 1945-1974 les trente glorieuses. It was an age of almost unbroken growth across the whole industrialized world, Europe and North America alike. So-called “Fordist” production methods, chiefly the glory days of the unified factory assembly line, helped sustain it, as did growth in consumer goods like cars and helpful household machinery.  However, massive military spending by the US (and arms industries all over Europe), along with the technologies military research produced, was its mainstay.

It all crashed starting in the early ’70s. It used to be customary to blame this on the oil price shocks of the period, in 1973 (post-Yom Kippur War) and 1979 (post-Iranian revolution).   Suddenly the one critical commodity that powered economies quintupled in cost. Obviously this devastated profits, but it’s clear that profit rales were already falling precipitately since the late 1960s.

Price shock: Crude reality

The strange response of business to the crisis proved its unusual severity. Businessmen across the developed world both cut wages (and jobs) and raised prices.   Slashing prices as wages and employment decline (that is, when you fire people) is usually the logical thing to do.  When there is less money to spend in the economy, prices should go down, along with demand. The strange phenomenon of “stagflation” instead dominated the 1970s: unemployment and economic stagnation came coupled with galloping inflation, prices jumping steadily higher. This wasn’t just the result of oil prices driving production costs upward. Rather, it’s hard not to interpret it as a campaign to break the back of labor, and the rights (and wages) it had won during the trente glorieuses. Capital wanted to destroy labor’s will to resist by squeezing workers from both ends: shrinking the money they had to spend, while raising the pricetag on the things they had to buy.

What brought developed economies out of the crisis of the 70s, however, was first of all a side-effect of the 1973 oil price shock. A huge amount of money went into the hands of oil-rich states. They deposited most of it back in Western banks, which had to do something with it, and found few investment opportunities amid a recession.  However, a great many Third World states, especially in Latin America and Africa, also found their economies wrecked by the oil roller-coaster; they needed money. The banks happily, joyfully lent to them, to put that money to use! Wonderful, until the second oil shock in 1979 wrecked the Third World’s economies again — along with the so-called “Volcker shock” at the same time, when the head of the US central bank raised interest rates sky-high, causing a worldwide downturn, and making loans almost impossible to repay.

“Structural adjustment” was the result. As countries confessed inabillity to cover their debts, international institutions — the World Bank and the International Monetary Fund — stepped in to oversee structured payment plans. Invariably these involved mandated economic “reforms”: privatization (selling off factories and resources, usually to the West), drastic cutbacks in state services (so the savings could go to debt servicing), reorienting whole economies from manufacture to shipping raw materials off to the developed world.

One critic writes:

According to UNICEF, over 500,000 children under the age of five died each year in Africa and Latin America in the late 1980s as a direct result of the debt crisis and its management under the International Monetary Fund’s structural adjustment programs. These programs required the abolition of price supports on essential food-stuffs, steep reductions in spending on health, education, and other social services, and increases in taxes. … Extrapolating from the UNICEF data, as many as 5,000,000 children and vulnerable adults may have lost their lives in this blighted continent as a result of the debt crunch.

Destructive across two continents, structural adjustment sent windfalls of money to rejuvenate the European and North American economies. Jubilee 2000 estimates that by the 1990s, debt servicing alone was moving $300 billion per year from the South to the North. As J. W. Smith says, the debt crisis beginning in the ’80s produced “the greatest peacetime transfer of wealth from the periphery to the imperial center in history.”

Structural adjustment: The medicine that makes the malady worse

Debt-related transfers helped power the economic revival of the 1980s and 1990s in the developed world.  New modes of production also boosted profits– breaking up factories and moving whole segments of the production process to cheap-labor areas — along with new technologies, especially the computer explosion. Still, Chris Harman estimates that the rate of profit in the period never reached much more than half its stellar heights of the trente glorieuses.  There were also sporadic but sharp recessions, far more frequent than anything the postwar boom had seen — not only the 1979-82 downturn, but sequels in 1991 and 2001.   These suggest the profit rate was undergoing an irregular but inexorable decline. The second trente glorieuses was turning out pretty ingloriously.

Here is where the debt comes in.

1975 – 2005: that’s thirty years, an entire generation, of slashing wages across the developed world, while spending more and more money on new technologies.  That’s a recipe for a crisis of demand. Who, under those conditions, has money left to buy things? Of course, if you’ve cut wages at home, you can try to resolve the problem of popular spending power by finding new markets abroad.  With structural adjustment plans still leaving much of the world’s population reeling, though, new markets on many continents were limited to the small elites surfing on the flow and froth of global capital. Mass markets for anything more than cheap exports were getting hard to find. Moreover, even in the age of globalization, when money runs around giddily from point to point like hamsters in a maze, some goods can’t be exported. Housing is a prime (or sub-prime) example. You can take all the jobs in Flint, Michigan, and export them to Guam or Guadelajara; but the houses people lived in will stubbornly remain behind, where nobody has cash to buy them. They can’t be packed up or moved to some Shanghai or Kobe where folks can afford them.

Debt was the answer. Debt re-entered the picture like a third-act deus ex machina. If debt in the developing world had powered Northern economies’ initial revival, debt in the developed countries fueled the frenzy of spending that postponed, then precipitated, the end. If people’s spending power was shrinking, you could always give them fictitious money to spend. And housing, the paradigmatic commodity that couldn’t be moved where the real money was, was the perfect place to encourage them to spend it.

Credit ballooned. Capitalism in the last phase of the period was turbo-powered by a huge wave of fake money.   Mortgages, credit cards, auto loans, and other kinds of credit became incredibly easy to obtain. The housing bubble that resulted in the US —  housing prices driven up by demand, and an enormous number of people indebted to buy houses they couldn’t in the end afford — started to collapse first, in 2006. But the tidal wave of loans, of spending fueled by nonexistent money, had surged around the developed world. Whole countries were swept up in it. John Lanchester cites symptoms of the mania. Spain and France ran up debts that totalled ten times their annual revenues.  Meanwhile, though, “Iceland’s stock market went up ninefold; … in Ireland, a developer paid €412 million in 2006 for a city dump that is now, because of cleanup costs, valued at negative €30 million.”

Most people with a special interest in the events of the credit crunch and the Great Recession that followed it have a private benchmark for the excesses that led up to the crash … phenomena that at the time seemed normal but that in retrospect were a brightly flashing warning light. I came across mine in Iceland, talking to a waitress in a café in the summer of 2009, about eight months after the króna collapsed and the whole country effectively went bankrupt under the debts incurred by its overextended banks. I asked her what had changed about her life since the crash.

“Well,” she said, “if I’m going to spend some time with friends at the weekend we go camping in the countryside.”

“How is that different from what you did before?” I asked.

“We used to take a plane to Milan and go shopping on the via Linate.”

Since that conversation, I’ve privately graded transparently absurd pre-crunch phenomena on a scale from 0 to 10, with 0 being complete financial prudence, and 10 being a Reykjavik waitress thinking it normal to be able to afford weekend shopping trips to Milan.

There’s a tendency these days to treat these people as morally weak for succumbing to temptation. Michael Lewis sees all of Greece as a study in “total moral collapse”:  “a nation of people looking for anyone to blame but themselves.”  But what were they supposed to do?  Fold their hands demurely and stay poor, while everybody else was getting rich? After all, the easy credit was being pushed on them by banks who seemed to know what they were doing.  Of course, we all know now what turned the banks into playground money pushers. They had found ways of repackaging debt into mathematically incomprehensible financial securities, and then selling it to someone else. The sale and resale of debt itself became a fantastically profitable industry, with the securities layered and combined so that nobody could tell how much of what they were buying (or selling) was solid debt, and how much was subprime stuff careening for default. The whole world economy was running on funny money. It ran for a while, and then fell apart.

And that leads us to where we are now. The banks, burdened by bad debt they’d lent or bought, by customers right and left defaulting, tottered on the verge of failure. The governments bailed them out –first the US and the UK, then other countries from Portugal to Greece to Ireland. All that bad debt the banks owned on their balance sheets suddenly became the property of you, the taxpayer, pretty much wherever you are. I’ll let Robin Blackburn summarize the story:

The Great Credit Crunch of 2007 has developed into a contraction of wider scope and great tenacity, centred in the main OECD countries. Governments acted to avert collapse, but in doing so themselves became a target. Bail-out measures adopted during the early phase of the crisis between 2007–09 saw the US, UK, and eurozone authorities increase public indebtedness by 20–40 per cent of GDP … The transfer of debt from private to public hands was carried out in the name of averting systemic failure, but in some ways it aggravated the debt problem since bank failure, however disruptive, is actually less devastating than state failure. Before long, the bond markets were demanding plans to cut these deficits by slashing public spending and shrinking social protection.

And this gets us back to my starting point. The markets wanted austerity; but austerity cannot give them economic growth, and some degree of growth is needed for governments to pay off this mountain of bank-debt-become-public debt — as well as to care for the minimal needs of populations pushed to the margins of endurance.  There is no easy way out, no simple formula for starting the business cycle up again. Capitalism is trapped in this contradiction, feeling blindly for the exit, and coming up against bland, impassive, smooth-featured walls.

What’s coming? What does the New Year hold? I can’t say — like you, I barely want to imagine it. The threat is not only to our livelihoods; it’s to democracy. Already, in Greece and Italy, the markets have shown themselves more powerful than the publics.  Governments responsible to no party, transcending the voters’ will, were set up at the beck of bondholders, who form a Higher Electorate against whom mere citizens are simply beggars.

Moreover, the post-austerity state, stripped of its capacity to provide for public welfare and of many of its other powers, has little to legitimate itself except its willingness to repress and kill. Recently the New Yorker profiled Nicolas Sarkozy, France’s tiny president presiding over an increasingly tiny state, its authority whittled away not only by the European Union (which the article, like most French people, tends to blame) but by the pressure to slim down to Thatcherite or Reaganite dimensions.  The profile tries to explain Sarkozy’s ferocious rhetoric against immigrants, criminals, Muslims, Gypsies.

“People need to understand why the President puts so much stress on the question of security,” one adviser told me. “It’s precisely because it’s something which is entirely in your hands.” When it came to crime in the streets, he said, “there is no Europe here.”

The same logic leads to governments that massacre the poor in Jamaica and Nigeria in the name of vindicating their withered existence, to the tear gas staining the air of New York and Oakland. The welfare state turns into the security state. Many have perished; more will.

Austerity, we’re told, is the answer. But austerity makes the problem worse. Is there any comfort to be found?  Livy wrote, of the last years of the Roman Republic: “They had reached that final point when the difficulties they faced were less terrible than their solutions.”  We seem, to the unjaundiced eye, to be inching there.   “Another world is possible,” they chant in the demonstrations. Possible? It’s urgent.

Directed democracy, III: Harry Potter is a banker

don't worry, the EU isn't behind it

The EU has unveiled yet another plan to rein in credit agencies’ unquestioned sway over the market in sovereign debt — their ability, in effect, to overthrow governments by downgrading their ratings. The Irish Independent paints a rosy picture of an attempt to restore “political sovereignty”:

The proposals, unveiled yesterday in Strasbourg by the EU‘s internal market chief Michel Barnier, are the third clampdown on agencies in as many years, and build on existing rules that force firms to register in the EU before they can operate here. Mr Barnier said ratings agencies had made “serious mistakes” in the past and that the spate of sovereign downgrades since the start of the Greek debt crisis last year had compounded market instability.

Eurozone nations including Ireland and Portugal have undergone repeated downgrades of their debt, even as bailout plans were being put in place, a fact that Mr Barnier said “surprised” him…

“We can’t let ratings increase market volatility further,” he said.

“We need to rebuild our political sovereignty so we’re not subject to the sovereignty of the markets.”

The Guardian is more skeptical about these fanfares of resistance. “Sounds rather like Europe’s efforts to clean up the murky world of credit rating agencies have been put firmly on the back burner,” they say. They quote one observer who notes that “the only major reform left” in Barnier’s quiver is the possibility that a future “error would be referred to the courts”:

[It] quickly becomes clear that Barnier has been forced to ‘postpone’ his proposal of a ‘blackout’ on cutting the credit rating of any country involved in “live negotiations” on a bailout.  He’s now indicating he has been forced to give way elsewhere too…  Barnier has also dropped the suggestion that larger agencies (those with more than 20% market share in EU) should be banned from taking over smaller ones.

Yes, so much for “political sovereignty.”

I was thinking of things like this the other night while watching the penultimate Harry Potter movie. I’ve never quite got what makes these extravaganzas so amazingly popular. The books are devoured and the movie tickets bought, after all, by Muggles. And even setting aside Voldemort’s Nazi ardor for a pure-blood wizard world and his call of “Wir müssen die Mugglen ausrotten,” the stories are not really very kind to the Muggles who consume them. Those artless dullards are plump, powerless,  passive, and irrelevant, while Harry and the magic kids get all the fun. A child or a parent reading them might feel palpably and permanently inferior to these superbly wand-endowed masters of the universe.

Yet that’s the point, isn’t it? The books capture the feel of living in a world, our world, that verges on another, marvelous one to which somebody else has the key. Out there, other people ride broomsticks, own elves, inflict unbearable torture with a cry of crucio, invest their souls in silver commodities, and keep their treasures safe in impregnable goblin-owned banks. Here our cars are repossessed, the elves own us, we save for months to buy a garden gnome, we calculate the cost-benefits of “extreme interrogation,” and worry whether Bank of America is going down. If only you could get past the barrier to Platform 9 3/4!  But you need a Harvard MBA to break through; the other, the masterful King’s Cross is closed to you.

The stories show a split life not too unlike our own. Harry Potter is a masterpiece of realism! it’s the magic universe of sovereigns erected athwart our own subjection.  The final Battle of Hogwarts, the climax of the series, will engross all eyes; but it’ll be fought between forces — Standard & Poors and BNP Paribas, let’s say — that might entice us to admire the one or the other, but that will never admit us as warriors or even allies. We’re too pathetic. All that’s left is to enjoy our spectatorship. You put on the 3-D glasses and exult in your exclusion. It’s a fun world to watch, the one that decides our lives but we don’t live in.

Unfortunately, even the movie tickets get more and more expensive.


“This is the biggest story in the world right now”

Così è, se vi pare!

Forget Obama. The most important politician of our time is Silvio Berlusconi. His career as a leader has been built around two simple principles that are essential, incontrovertible koans of the period:

  • Capitalism is weak and it can’t save itself. It needs to seize control of the state and all its powers, to protect capitalists against their recurrent crises.
  • You don’t need a fascist movement or a coup to do this: how backward-looking, how 1935!  You need to sell appearances to voters, to turn statecraft into a genre of entertainment.

Others, like ex-actor Reagan or Saatchi-&-Saatchi-sculpted Thatcher, may have grasped fragments of the formula ahead of time, but only Berlusconi worked it out with the precision of a logical theorem or a Harvard-MBA business plan, and only Berlusconi put it into practice with his inimitable, retro-ironic garnishes on top, making Italian politics a 3-D, Imax version of The Benny Hill Show.

Unfortunately, it’s over. Berlusconi is stepping down, although with an in-next-week’s-episode waver about exactly when. And, in a minor sideshow to this tragic drama, Italian capitalism is collapsing. The rate for the government’s bonds soared to almost 7.5% today, which means, basically, that the market no longer has the slightest faith in Italy. As Kevin Drum explains, once interest rates climb above 7%

even higher yields aren’t enough to attract buyers, Europe’s main clearinghouse will start to require higher collateral for Italian bonds used in repo trades, and traders will start panic selling, which would send rates spiraling even higher. That kind of panic is self-fueling, and once it starts it can destroy its target within days….

Unless the European Central Bank (ECB) steps in, Italy will be shut out of the bond market very quickly. It will be unable to roll over its debt, and default will follow. This is basically Greece on steroids, since Italy is something like six times bigger than Greece. The eurozone deal announced a couple of weeks ago might have been big enough to handle a Greek collapse—though even that’s not a sure thing—but it’s not even close to being big enough to handle an Italian collapse. … This is the biggest story in the world right now.

Dominic Rushe in the Guardian helpfully offers 10 reasons to be frightened this is the end of the world. I’ll only mention a couple:

The speed at which government bond crises can escalate is startling: in April 2010, 10-year bond yields in Greece hit 7%; within a month they had reached 12%, prompting Greece’s first bailout package. In Ireland, 10-year bond yield hit 7% in November 2010; a month later it had risen above 9%, triggering a bailout. In Portugal, yields hit 7% in November 2010; the bailout came in May. …

“At this point, Italy may be beyond the point of no return,” Barclays Capital said in a gloomy report this week.

The NY Times points out that the spiralling crisis owes a bit to a very Berlusconiesque endeavor in the smoke-and-mirrors department:

Italy is the only country among Europe’s weaker nations that offers investors the opportunity to buy or sell futures contracts tied to Italian bonds. Though the feature was presented initially as a way for investors to hedge their exposures, investors who want to make a negative bet on the euro zone can sell Italian bond futures — which adds to the already significant downward pressure coming from investors who are unloading their bond holdings directly.

I mentioned recently how the market in futures — in purely hypothetical commodities — is driving up food prices to unsustainable levels. Here, the market in hypothetical debt is boosting the price of the real thing. A last game of appearances!

There isn’t enough money in Europe to bail out Italy. Reportedly French and German bankers are murmuring about breaking up the Eurozone, throwing Italy (and Greece, Spain, Portugal) overboard and lashing together a life-raft with the remaining solvent economies. No one knows how this could be done without multiplying the panic tenfold.

In very calm and measured tones (“Unfortunately, the lifeboat-to-passenger ratio is less favorable than it might appear …”), Daniel Gros observes that Italy’s economic woes are mystifying. There’s plenty of capital, technological innovation is chugging along, and structural reforms have already been imposed. What’s the problem? Could it be governance? Could it be that capitalists can seize the state, but only to run it into the ground? In terms of governance, “the three most important indicators for the economy are:  the rule of law; government effectiveness in general; and control of corruption. Italy’s performance on all three indicators has deteriorated dramatically over the last decade.”

Maybe more than appearances matters after all.

the moving finger writes

Meanwhile, Rushe says a bit acidly, “It probably doesn’t help that Berlusconi pretended to fall asleep during key meetings with European leaders.”  How can the show go on when even the showman is bored by it? Alas; the master of the revels has lost interest in the flimflammery. It’s natural for capitalism to collapse like a used condom when the Head Capitalist himself can’t give it his full regard. Even his parting comments to himself suggest a reaching for hootchy melodrama to pepper up the dull technicalities of his exit — an attempt to recapture his own attention. During the vote that spelled the ruin of his government, cameras caught him scribbling on a piece of paper:

“308, – 8 traitors; Government upturn; Vote; Take note; Resignation; Italian President; One solution; Let’s move”

Gnomic as a riddle; crystalline as a haiku! Maybe that’s the epitaph of our era.  As the archaeologists of a future civilization dig through the rubble of this century, the used condoms of our passions, the broken CFL lightbulbs of our great ideas, perhaps they will find in those cryptic words the key to everything, the “Rosebud” to rationalize the great crash and fall, and all their computers will be bent to decipher Berlusconi’s parting sigh.