Today the more moderate forces of progressives and the far Left are obsessed with one thing: the corporation. “Get corporate money out of politics,” they say. “We’re not against capitalism,” they explain, “We’re against corporatism.” “Corporations have taken over,” they argue, “We need to take back democracy from the corporations and their creations like NAFTA.” That last point is an interesting one because, even for the oldest among them, saying that the corporations have taken over during their life time implies that this supposed shift happened sometime in the 20th century.
Title is quote from Crazy Horse, as documented in Bury My Heart At Wounded Knee (1970).
Housing As A Modern Rallying Point
How do we organize in late stage capitalism? This question is often debated among Leftists of the US in reference to the precarity of modern existence. The destruction of unions has made at-will employment the norm. Confronting the police’s racism is dealt with harshly. Capitalism’s reach seems inescapable, infecting even the social programs which would seem to mitigate its cruelties. In such a world, people feel alienated from their employment and from their participation in political life: how can they speak up at work when they can get fired without any recourse? Why participate in political life when their options are limited to two brazenly corrupt capitalist parties?
Organizers in Austin, Jackson, New York, and many other regions have turned to housing. While the modern condition of housing typifies the aforementioned precarity, it is an issue that is nearly impossible to be alienated from. For the alienated working class person, the home is one of the few realms where they can exercise dominion and seek refuge (obviously to varying degrees – the police rob many people from the safety of the home).
The man pictured above nervously staring down the truth that Karl Marx wrote more than 121 years ago is Lloyd Blankfein. Mr. Blankfein is the Chairman and CEO (a duality typical of modern finance) of Goldman Sachs. Despite his grim look in this picture, Mr. Blankfein has a sunny disposition nowadays despite having had “600 hours of chemo” to eradicate the cancer growing out of his lymph nodes. Supposedly he’s been cured, which I’m sure was a big relief to Democratic presidential nominee Hillary Clinton. Clinton is close to Blankfein, and to Goldman Sachs in general. While mainstream media likes to frame Gary Gensler as a “Wall Street cop,” the campaign of Bernie Sanders responded to his hiring as Chief Financial Officer of Clinton’s campaign by saying that they “won’t be taking advice on how to regulate Wall Street from a former Goldman Sachs partner [at the age of 30] and a former Treasury Department official who helped Wall Street rig the system.”
Dr. Charles Murray, identified correctly by the Southern Poverty Law Center as a white nationalist, published an article on right wing propaganda machine The Wall Street Journal making the Social Darwinian argument for what he calls a guaranteed income. He follows in the footstep of similarly dystopian libertarian “thinker” Milton Friedman in this respect and some progressive and liberal supporters of universal income believe this support shows that it could be achieved by a bipartisan effort. It is a similar neoliberal agenda as the bipartisan prison reform movement which Truthout did an excellent job exposing. Bipartisanship in general shows the utter haplessness of the Democratic Party, resigned or even enthusiastic about always making rightward shifts in order to placate their bigoted misanthropic Republican counterparts. Knowing however that well-meaning progressives and even some Leftists have been swept up in the temptation of a false pragmatism, I want to briefly outline the differences between the conservative version (which I’ll refer to as guaranteed income) versus the Leftist version (which I’ll refer to as universal income) to demonstrate that there is not even a pittance of some meeting of the minds necessary to form a coalition. Rather, in order to benefit the working class rather than harm it, universal income must be promoted singularly as a progressive goal rather than a conservative one. Apologia for the conservative aim to slaughter public investment in the working class should be classified as exactly what it is: Austrian school mythology with no purpose other than maintaining the socio-economic hierarchy.
The third part of this series on the Dodd-Frank Act is the most unusual because, at first, it seems to have nothing to do with finance at all. Instead it comes down to a trial about the First Amendment in 2015. Let’s give some background:
Coltan is short for Columbite-tantalite – a black tar-like mineral found in major quantities in the Congo. The Congo possesses 64 percent of the world’s coltan. When coltan is refined it becomes a heat resistant powder that can hold a high electric charge. The properties of refined coltan is a vital element in creating devices that store energy or capacitors, which are used in everything from the smart phone you may be using to read this to the laptop I am using to write it.
People hate that I love Senator Elizabeth Warren. Which at first glance may seem surprising: after all, Warren is beloved by a large portion of the Left and even some people outside of it. But it isn’t her that’s the problem: it’s me. My liberal friends hate that I share her videos yet constantly chide and push them to be far more radical than the views she expresses. My radical friends hate that I defend her decision to not endorse Bernie Sanders, her decision to not run for president, and even her decision to be a Senator. Her sharp style of argumentation and rational, no-nonsense demeanor makes her an ideal populist candidate for a country fed up with big finance. But her and I both know that, at least at this point, she does more good as a Senator.
“A blind domination founded on slavery is not economically speaking worthwhile for the bourgeoisie of the mother country. The monopolistic group within this bourgeoisie does not support a government whose policy is solely that of the sword. What the factoryowners and finance magnates of the mother country expect from their government is not that it should decimate the colonial peoples, but that it should safeguard with the help of economic conventions their own “legitimate interests.”” – Frantz Fanon, The Wretched of the Earth
“I did a lot of infrastructure development in my life. To fund them with foreign currency is madness. OK? Madness.” – Tidjane Thiam, CEO of Credit Suisse
Jürgen Mossack has had a good run. While Mossack and the firm he co-founded, Mossack Fonseca, will deny the illegality of their actions until the bitter end, it really does not matter. Their purpose, their utility to some of the most powerful and wealthy people of the world, was to keep their information and the information of their clients in the shadows. To not just protect capital from the oversight and taxes of the various applicable governments, but to protect these safe havens from scrutiny. While many of these accounts or the funds within them were illegal, what really matters here is that the capital has been exposed, and with that exposure it will be expected to re-enter various cycles of accumulation and consumption. The jig is up.
A recent event has led me to make a major change to the series, replacing the section on alternatives to incarceration with a discussion on broken windows. That event is the decision by Manhattan District Attorney Cyrus Vance declaring that his office would no longer prosecute so-called “quality of life” crimes. His office is downplaying how this does or does not fit into the standing NYPD policy of the past two decades (begun by Bill Bratton during his first tenure as Chief). But Ed Mullins, president of the Sergeants’ Benevolent Association, is a bit more upfront: “They are now sending a message that minor offenses are no longer important to address as quality of life issues in New York City. This must be the new version of Bratton 2.0. This totally contradicts everything he has preached, philosophized and lectured about across the nation. Now, these offenses are no different than parking tickets.” Bratton himself remains fairly silent and minimally supportive on the issue. Now to be clear, as noted by Mullins, these offenses are not going away completely, but are merely being reduced to violations where you get a ticket.
The Volcker Rule, also know as United States Code Section 1851, was the consolation prize for the Glass-Steagall Act failing to get reinstated. It prohibits banking entities from engaging in proprietary trading or acquiring “any equity, partnership, or other ownership interest in or sponsor a hedge fund or a private equity fund.” For Glass-Steagall Act supporters, it was viewed as too little. For those who support continuing the abolition of Glass-Steagall, such as presidential candidate Hillary Clinton, the Volcker Rule is viewed as a go-around. They want to get rid of it because the very same banking connection to proprietary trading, hedge funds, and private equity funds helped bail out these institutions during the recession. And then they, in turn, were bailed out by the federal government and other banks.
The Volcker Rule was made explicitly in recognition of this dynamic: the constituents said no more bailouts, so Congress made it impossible for bailouts to ever happen again, at least in the way they did with Bear Sterns and others. One criticism raised quite fairly is that the Volcker Rule may not actually prevent bailouts. But often it is under the delusional rationale of free-market dogmatism, rather than recognizing that a porous, watered down version of Glass-Steagall will never be a substitute, even in the short term, for the reinstatement of Glass-Steagall. Not to mention that it was only this year that the rule actually took effect, and it won’t be until next summer that we see audits to check for compliance. Until then, the effects of the rule are at best conjecture. But we do not have time: the last minute sellings of prop desks and CLO’s at least demonstrate continued interests by the banks to engage in activities prohibited by the Volcker Rule.
The most succinct but comprehensive capitalist argument against the Volcker Rule I have found was provided George W. Madison, Gary J. Cohen, William A. Shirley in the Banking and Financial Services Policy Report, entitled “Reconsidering Three Dodd-Frank Initiatives: The Volcker Rule, Limitations On Federal Reserve Section 13(3) Lending Powers, AND SIFI Threshholds” (34 No. 6 Banking & Fin. Services Pol’y Rep. 1). They divide criticisms of the Volcker Rule into four types: Risk, Liquidity, Complexity, and Competition. While they do not address Competition directly because they claim their criticisms are not concerned with it, their underlying ideology, both express and implicit, centers on competition as regulatory and I will criticize that in turn. However, because I see the questions of liquidity and complexity as being subsumed within the question of risk itself, I will in the interest of time focus solely on the arguments made about risk.
The structure of “Reconsidering…” introduces each criticism with Chairman Volcker’s rejection of similar criticisms. While I doubt the truncated summaries are not necessarily accurate representations, I do agree that Volcker’s justifications often fall short or are simply wrong. In other words, this is not me countering Madison et al’s arguments to defend Volcker’s as much as to assert options outside such a constricted binary.
The financial industry is rather torn about how to handle the criticisms of risk. Risk is far too important to their industry for them to accept changes that significantly lower risks. Let’s give a brief illustration of what risk means to finance. Before the United States’ credit rating was downgraded to AA+, U.S. Treasury bonds in a one year period were practically a risk-free investment: there should be no difference between your expected return and actual return. That looks like this:
Where is the variance curve? There is none: the actual results will always line up with expected results. Now let’s look at hedge funds, as conveniently set next to the more secure mutual funds:
And the risk of hedge funds, despite providing unconscionable high returns during the housing bubble and the recession, has steadily been increasing.
And since banks started making these sorts of investments post-Glass-Steagall, their standard deviations have on average increased. A simple, non-causal relation I’m sure.
And that is precisely what is criticized in “Reconsidering…”: “a correlation between the proprietary trading activity and the losses certainly existed, but not a significant causal relationship” (34 No. 6 Banking & Fin. Services Pol’y Rep. 1, 3). Madison et al. instead say that the problem is in “supersenior” collaterized debt obligations (CLO’s). Blaming CLO’s is convenient for industry shills: “supersenior” CLO’s are not stratified into risk tranches, under the mistaken belief that properly construct CLO’s could not completely default. The problem with that belief: (1) quite a few CLO’s were not properly constructed (2) there was risk, and the banks hid it in undercapitalized bond insurers. In both these instances, you have causes of the collapse that are easy to atomize into the fraud or mistakes of a few “bad apples.” So if CLO’s are the main problem, what is Madison et al.’s solution? Capital requirements. In 2004, the S.E.C. allowed the largest broker-dealers to apply for exemptions. Because that exemption is still in place, it gives the more conservative critics of the recession a solid campaign target to obfuscate their agenda to chip away at Dodd-Frank piece by piece. The Financial Crisis Inquiry Commission Report (FCIC) does talk about how thin capital was an important factor:
In the years leading up to the crisis, too many financial institutions, as well as too many households, borrowed to the hilt, leaving them vulnerable to financial distress or ruin if the value of their investments declined even modestly. For example, as of 2007, the five major investment banks—Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley—were operating with extraordinarily thin capital. –FCIC Report pg. xix
But here are the problems: first, the bad apple theory finds no correlation between the indisputable direct actors of the crisis and actors subverting capital requirements through the 2004 exemptions. Not only was Bear Stearns, public “bad apple” enemy number one, within the current capital requirements, they also happened to be within the pre-2004 capital requirements as well. It turns out that leverage held by the investment banks was not the fault of the 2004 exemptions at all:
Leverage at the investment banks increased from 2004 to 2007, growth that some critics have blamed on the SEC’s change in the net capital rules…In fact, leverage had been higher at the five investment banks in the late 1990s, then dropped before increasing over the life of the CSE program—a history that suggests that the program was not solely responsible for the changes. –FCIC Report pg. 153-154
The FCIC Report is being generous in saying “not solely responsible.” The capital requirement exemptions were not in anyway a major factor in the recession. They are merely a convenient scapegoat for the ill-informed and the zealots of free-market ideology. Such scapegoating is possible when the inability to see the forest from the trees pervades U.S. understanding of economics, or rather the inability to see the inherent contradictions of capital from the specific manifestations of it in various financial factors and instruments. As David Harvey points out, these contradictions are never actually solved, but rather moved around. His focus, as a geographer, is how this is done geographically, noting the examples of the U.S. to Brazil and the West to Greece. But geography is only one facet of place – financial investments, I would argue, are another. And this is the fundamental nature of capital; Karl Marx in Grundrisse states that-
…[capital] already appears as a moment of production itself. Hence, just as capital has the tendency on one side to create ever more surplus labour, so it has the complementary tendency to create more points of exchange…The tendency to create the world market is directly given in the concept of capital itself. Every limit appears as a barrier to be overcome. –Grundrisse pg. 334
And as finance experiences growth, it creates more points of exchange, which means more trades, in shorter time, with far more risk. Thus, the futility in “solving” the problems which caused the recession by imposing a single regulation that merely attempts to limit, not even growth itself, but the speed of growth. Madison et al.’s claim that short-term exchanges are not at issue is farcical. Bear Stearns demonstrates, about as clearly as one can get, that the singular function of lax capital requirements is not needed to engage in risky growth and, as Marx states in Grundrisse, such haphazard search for more points of exchange is intrinsic to capital itself.
But the Volcker Rule is hardly exempt from this criticism either, though built on slightly stronger foundation. As a Marxist myself I do not believe that there could ever be a set of regulations capable of preventing the uncontrollable swarming of capital. But while “every limit appears as a barrier to be overcome,” some barriers are far easier to overcome than others. The Volcker Rule certainly sets stronger, though not impermeable, limits to the reproduction of the conditions that created the recession than any single capital requirement ever could.
An apt analogy would be three “average people” in a race against one another. One runner is given a track that is simply a one mile line, and not given any restrictions. The second runner is given an identical track, but told “You can only run at 7 mph at any given time. But we will only check your speed once in the race, and will give you 30 seconds to slow down if you’re over the limit.” The last runner is given a labyrinth where the correct path is one-mile long, but allowed to run as quickly as they want. The first runner and second runner will likely have identical times: the average one mile time of a person is 8:18, or about 7.22 mph. That additional 0.22 mph could easily be made up while the referees are not watching. The last runner will likely have the worst time. Unlike the second runner, the last runner has actual limitations to how they can run.
But the Volcker Rule itself contains a number of loopholes, most notably the convoluted (d)(1)(G) exception to certain activities around hedge funds and private equities or the provisions governing activities outside the United States in (d)(1)(H) and (d)(1)(I). The confidence of the banks themselves in the face of the impending implementation of restrictions this coming summer may indicate that they have found, or expect to find, a means of subverting the Volcker Rule. Regardless, the specific naming of proprietary trading, private equity, and hedge funds allows future financial instruments that can be defined outside of these while serving similar functions to be engaged with by banking entities. In other words, the Volcker Rule may not be a labyrinth as much as a fork, one path with a dead end and the other leading to the finish line. How effective it will be is far too dependent on a large number of circumstances for Leftists to be comfortable with it even in the short term, and that is not even counting the 13 proposed pieces of proposed legislation (a political analysis of their viability would take far too long to go into here, but worth noting nonetheless).
Another piece of proposed legislation could alter the Volcker Rule if enacted, and that’s Elizabeth Warren and John McCain’s 21st Century Glass-Steagall Act. While hardly the means of putting an end to any triggering of mass dispossession by recession, the strict separation of banking activities significantly reduces the effect of risky financial actors on commercial banks, as well as ending poor assessments of risk that give undue power to diversification of investments regardless of the kind of investment. Further, for those of us interested in pushing for worker cooperative banking, nationalized banking, public banking, etc., a Glass-Steagall reinstatement would decrease the short-term competitive edge commercial banks have by investments too risky for small, community or municipal public banks to take on. While it only has six co-sponsors and the bill’s prospects are rather grim, the idea has enough popularity to stay in the media, albeit with a far less Leftist lens than I give it.
But we can all act on this issue immediately in two simple ways. The first is to refuse the resignation to commercial banks being above the law and regulation. To refute the rewriting of history to claim that the recession was not caused by a lack of regulation. To state plainly that the banks got bailed out and we got sold out, and that we cannot accept that as business as usual. And the second is to divest. Divest from predatory financial institutions. Divest from the big commercial banks that have profited from investing in those institutions. Stop making investments with the sole goal of profit, and start taking conscious measures to avoid the schemes that hurt people of color, women, and the working class. To do so completely is impossible: there is no ethical consumerism when capital only exists from the surplus value extracted from labor. But to change that larger problem requires rebuilding society in a way that will be made far more difficult if our communities are torn apart by increasingly brief gaps between recessions.
Read Part 2 on Orderly Liquidation Authority here.
Most Leftist groups face a fairly unwieldy task of challenging a whole range of complicated issues with far less funding and time than their conservative counterparts. That is compounded by an overall focus on trying to prevent individual people from suffering which, while a noble endeavor, does not change the conditions that created that suffering.
So I want to start producing more technical legal but no less radical analysis, especially for the purposes of crafting both policy for the near future and setting our sights on some more distant visions of a socialist world. These are obviously the conjectures of a 1L student with a rather transparent agenda, so take that for what it is worth: if anything, this exercise is more to build up my own experience. I welcome any criticisms that readers may have.
I have three series planned so far, on issues with a rather abysmal lack of Leftist insight, at least in the legal realm. The latter two, because I do have many colleagues in friends in the respective field, will be released much later, and those will be on Prison Abolition and Constitutional Crisis. The first, which I will start immediately, is on the Dodd-Frank Act. With a Republican-controlled Congress enacting revisions to the financial regulations, revisions crafted by the lawyers of the banking and finance groups, it seems like a timely subject in need of an injection of truth. Because these lawyers are attempting to rewrite history, somehow re-constructing the recession as the fault of regulation and restriction. Here is what I am planning to cover:
Part 1 – Thus Spoke Volcker: The Volcker Rule, U.S.C. 1851, is essentially the consolation prize for advocates who failed to reinstate the Glass-Steagall Act. It prohibits banking entities from (1) engaging in proprietary trading and (2) having any pecuniary interest in a hedge fund or a private equity fund. The challenges to it are eloquently summed up in Madison, Cohen, and Shirley’s “Reconsidering Three Dodd-Frank Initiatives”: Risk, Liquidity, Complexity, and Competition. I’m going to pick apart how circular the logic of these challenges are, how their claims of wanting to reduce risk ring hollow, and how segregation between the banking industry and such risky financial institutions and instruments is crucial to preventing a virtual replication of the recent recession in a matter of a few years. In fact, that will happen because the Volcker Rule just is not the Glass-Steagall Act. With the recent repudiations of some of the very people who formerly championed the end of the act, the time for its reinstatement could be at hand.
Part 2 – But Who Will Save OLA?: The Orderly Liquid Authority was put in place to allow the government to intervene in financial corporations where normal bankruptcy is not possible. The collapse of Lehman Brothers was, in large part, unstoppable due to the inability of such intervention. The OLA is being challenged on a number of constitutional grounds, namely the First Amendment, the Due Process Clause, and the Takings Clause. I will refute that the OLA is unconstitutional, and further assert that its authority should be extended beyond the current scope of agencies. While it would be delusional to think that such Keynesian measures will stop another crisis of capital from ever occurring, the regulations need to be extended to at least temporarily prevent any further dispossession of wealth from the working class, and especially the Black working class, communities.
Part 3 – The Chilling Effect of Capitalism on Stability in the Congo: Here I will talk about a portion of the Dodd-Frank Act which have been chipped away by stare decisis. The constitutional arguments largely lean on the recent move to extend First Amendment protections to corporations. This trend is dangerous, and may require legislative intervention to really prevent. That is unlikely to happen with the current composition of Congress, so I will explore alternatives to the arguments the S.E.C. and others have failed with.
Part 4 – Financing a Democratic Future: Why should a socialist care about regulating an industry which they find to be inherently oppressive? Here I will explore the pros and cons of fighting for reforms, raising consciousness among the working class about how capital functions, and what role the legal profession can play in pushing for public ownership of the banks and other means of financing cooperatively owned businesses.