Tuesday, March 26, 2013
"The '147 People' Destroying the US Economy"
"The '147 People' Destroying the US Economy"
by Richard Eskow
"Can 147 people perpetuate economic injustice and make it even worse? Can they subvert the workings of democracy, both abroad and here in the United States? Can 147 people hijack the global economy, plunder the environment, build a world for themselves that serves the few and deprives the many? There must be some explanation for last weeks economic madness.
Take a look: Cyprus: The European Union acted destructively and self-destructively when it tried to seize a portion of the insured savings accounts of the citizens of Cyprus. They were telling anyone with a savings account in the financially troubled nations of the Eurozone: Forget your guaranteed deposits. If we need your money in order to bail out the big banks banks which have already gambled recklessly with it we'll take it. That didn't just create a political firestorm in Cyprus. It threatened the European Union s banking system, and perhaps the Union itself. The fact that the tax on deposits has been partially retracted doesn't change the basic question: What were they thinking?
The Grand Bargain: The President and Congressional Republicans reportedly moved closer to a deal that would cut Social Security and Medicare while raising taxes mostly on the middle class without doing more to create jobs. A Grand Bargain like that would run counter to both public opinion and informed economic judgement. Who would impose more economy-killing austerity when there s so much evidence of the harm it does? Why would the White House want to become the face of a deal to cut Social Security, killing its own party's political prospects for a generation?
There's more: Him again: Washington reporters once again sought the opinion of Ex-Wyoming senator Alan Simpson, a vitriolic blowhard with no discernible knowledge of either economics or social insurance, and then wrote up his opinions on those topics in flattering pieces like this one.
Derivatives, the Sequel: Four short years after too-big-to-fail banks nearly destroyed the world economy, as the nation continues to suffer the after-effects of the crisis they created, a Congressional committee moved to undo the already-insufficient safeguards in the Dodd/Frank law. Within days of a Senate Report which outlined the mendacity, extreme risk, and potentiality criminality surrounding JPMorgan Chase's London Whale fiasco, the House Agriculture Committee approved new bills that would legalize trades like the London Whale.
Above the Law: The Attorney General of the United States remained silent as the controversy continued over his recent admission that banks like Dimon's were too big to face prosecution. And yet there were no moves to change either Holder's policy or the size of these institutions. Politico, the Washington insiders tip sheet, ran a piece entitled "Why Washington Won't Break Up The Big Banks."
Dimon Unbound: The Senate report also provided evidence that JPMorgan Chase's CEO, Jamie Dimon, failed to manage his banks risk and concealed information about its losses from regulators. We learned last week that regulators lowered their rating of Dimon's bank after chastising the bank s leadership for management failures that included inadequate safeguards against money-laundering, poor risk management, and failure to separate the banks own investments from those of its customers. Illegalities during Dimon's tenure as CEO have cost his shareholders billions in settlements and fines. Poor risk management (and additional potential illegalities) cost it another $6.2 billion in Whale-related losses. And yet last week Dimon's own Board strongly endorsed his dual role as CEO and Board Chair, an unusual concentration of power at what is (by some measurements) the world's largest bank, and commended itself in a proxy filing for the strength and independence of its oversight, adding: "The Firm has had strong performance through the cycle since Mr. Dimon became Chairman and CEO." All this, in just seven days.
Has the world gone insane? What is everybody thinking? That's where the number 147 comes in. Anthropologist Robin Dunbar tried to find out how many people the typical person really knows. He compared primate brains to social groups and published his findings in papers with titles like "Neocortex Size As a Constraint On Group Size in Primates". Dunbar concluded that the optimum number for a network of human acquaintances was 147.5, a figure which was then rounded up to 150 and became known as Dunbar's Number. He found groups of 150-200 in all sorts of places: Hutterite settlements. Roman army units. Academic sub-specialties. Dunbar concluded that there is a cognitive limit to the number of individuals with whom any one person can maintain stable relationships. Around 150 or 200 people form a human being's social universe. They shape his or her world view, his or her world. That means that 147 people can change the course of history. Not necessarily the same 147 people, of course. But the small social groups which surround our world's leaders have extraordinary power.
Economist Simon Johnson mentioned Dunbar's Number last week in a column about incoming Treasury Secretary Jacob Lew and the new SEC chair, Mary Jo White. The issue is not so much their track record, Johnson wrote, because neither has worked directly on financial-sector policy issues; it is much more about whom they know. If most financial experts you know work at, for example, Citigroup, added Johnson, then you are more likely to see the financial world through their eyes. Lew is a former Citigroup executive. That mismanaged megabank is also the former corporate home of ex-Clinton Treasury Secretary Robert Rubin, and the current home of Peter Orszag, formerly President Obama s OMB Director. For her part, White went from prosecuting criminals to defending Wall Street bankers. That was also Attorney General Eric Holder s profession before he was appointed to his current position.
These are the people who surround our President, our Senators, our Representatives. They talk to them every day. They say, This is how the world works. They say, Everybody knows these things. Their European counterparts saw the effects of austerity on the economies of their Union: Unemployment up. Gross domestic product down. Even the deficits, which austerity was meant to reduce, have been rising as the result of these unwise cuts. But, they say, we know Angela Merkel. We know George Osborne and Christine Lagarde. We trust their judgement.
How did the predictably disastrous plan to tax guaranteed savings accounts in Cyprus get approved? It's not hard to imagine: Everybody we know thought it was a great idea. That's how it works here in the US, too. Larry Summers, Alan Greenspan and Robert Rubin were spectacularly wrong about everything: deregulation, the housing bubble, government spending, everything. But we know them. Nobel Prize-winning economists like Paul Krugman and Joseph Stiglitz keep explaining why more stimulus spending is needed. But we don't know them, not the way we know Larry, Alan, and Bob. Same for Simon Johnson, or William K. Black Jr., or Robert Johnson, or any of the other economists we don't know very well. And when we don't know someone very well, their criticisms make us uncomfortable.
Bill Clinton's Third Way triangulation led to welfare reform that's proven disastrous. His Wall Street deregulation ruined the economy, and his brand of old-fashioned pseudo-centrism is out of touch with today s political and economic realities. But we know him. Bill Clinton doesn t make us uncomfortable at all. Investigate Jamie Dimon, or Lloyd Blankfein, or Robert Rubin? But they were our clients, and will be again once we leave government. Investigate them? We know them. Dimon s Board of Directors is a case study in Dunbar's Number. It includes Honeywell CEO David Cote, who was a member of the Simpson Bowles Commission. There's a retired senior executive with another big defense contractor, Boeing. Together with Dimon, that makes three CEOs who earn their money from government largesse. The CEO of Comcast is on Dimon's Board, too. (The media's leaders are always among the 147.) One seat belongs to the head of one of the accounting groups that overlooked massive bank fraud when signing off on their annual statements. Another belongs to the former CEO of Exxon Mobil.
The 147 run companies. They also hold fundraisers for politicians in both parties. When Senator Obama became President Obama, during the gravest unemployment crisis since the Great Depression, one of his first acts was to create a Deficit Commission instead of a Jobs Commission. Why? Because 147 people thought that was the right priority. Then he appointed the dyspeptic, unlikable, and uninformed Sen. Simpson to co-chair it. You see, the 147 people in Washington's political and media circles like Alan Simpson. To them he's not an embarrassment to his President, a paid pitchman for billionaire Pete Peterson's anti-Social Security jihad. (We know Pete!) To them Simpson's not an ill-informed and misogynistic bully who taunts women with comments about 310 million tits. To them he's Al. They know him. They say he's a lot of fun when you get to know him. They really say that.
Then there are the news anchors and journalists who say things like this: Everybody knows that we need to cut Social Security. Everybody knows the deficit is our most urgent problem. Everybody knew that Saddam had weapons of mass destruction, too. Everybody understands that the right-wing, anti-government Simpson Bowles plan represents the political center, although it's far to the right of public opinion, even of Republican or Tea Party voters opinion on issues that range from job creation to increasing Social Security benefits. You can't fit millions of frustrated voters into a social group of 147 people.
When Teddy Roosevelt became President, J.P. Morgan (the person, not the bank) suggested he send your man to my man and they can fix it up. He was shocked that the new President chose instead to operate outside the Circle in order to create real change. And when Franklin D. Roosevelt became President he brought in new faces, new voices, new ideas. He broke the social circle that had paralyzed government and the economy. But the circle of right-wing Republicans and corporatist Clintonite Democrats is still intact. That means Barack Obama, Nancy Pelosi and other Democratic leaders will keep on promoting the right-wing agenda known as Simpson Bowles until their party loses all its political power at the polls. It also means that Republican extremism will still be reported with straight-faced gravity. Congressional committees will keep deregulating big banks, the Justice Department will avoid prosecuting them, and their Boards of Directors will keep rewarding their executives. They'll all keep doing exactly what they're doing until the economy blows up again, perhaps with far worse consequences than the last time. And when the next crisis comes, 147 people will react to it exactly the same way they reacted to the last one. You can almost hear them now, can't you? You can't blame us, they'll say. Nobody could've seen this coming. How do we know that? Because we asked everybody we know."