Graft, corruption and Vladimir Putin’s ex-wife

Alexei Navalny, the brave Russian truth-teller, is in prison, but the work of his Anti-Corruption Foundation goes on.  Its videos are great examples of investigative journalism, both in their detailed research and in their clear and interesting presentation.  

 Vladimir Putin and his inner circle are repeatedly exposed and mocked; I can understand why they hate the videos.  I especially enjoy presentations by Maria Pevchikh, with her sarcastic smile and the way she rolls her eyes when she brings out one more example of extreme corruption and hypocrisy. 

This latest video is about how Putin milked the Russian public sphere to provide millions of rubles in income for his ex-wife, Ludmilla, and her new husband—possibly out of affection, possibly to buy silence.  It’s a bit long, but you can get a lot out of it just by watching the first 10 minutes and the last 10 minutes.  It’s in Russian but with English subtitles.

Navalny left Russia for medical treatment after an attempt on his life, but voluntarily returned in order to show he was not intimidated.  He was promptly arrested and sentenced to nine years in prison for allegedly embezzling money from his own foundation, and may get an additional 15 years for alleged extremism.  Pevchikh and other members of his foundation are presumably operating from outside Russia.  

LINKS

Alexei Navalny’s YouTube videos.

Alexei Navalny Fast Facts by CNN.

Alexei Navalny Wikipedia page.

Anti-Corruption Foundation Wikipedia page.

The fall of Andrew Cuomo

Gov. Cuomo

As with Donald Trump, Hillary Clinton and many another public figure, the things NY Gov. Andrew Cuomo was most attacked for were not the worst things that he did.

Cuomo probably deserved to be impeached for corruption.  I don’t know whether the sex scandal was grounds for impeachment.  Of course impeachment on charges of corruption might have led to disclosures that would have embarrassed a whole lot of people.

By resigning, he avoids impeachment and preserves the option of a political comeback.

LINKS

The Real Question Is Why Andrew Cuomo Took So Long to Fall by Zephyr Teachout for The Nation.

Andrew Cuomo’s Legacy: Normalizing Corruption and Lawlessness by David Sirota for Jacobin.

New York Governor Andrew Cuomo Resigns in Sex Scandal by David Walsh for the World Socialist Web Site.

Nine other scandals surrounding the New York governor by Robert Gavin for the Albany Times-Union.

The real Hunter Biden scandal

The least curious people in the country right now appear to be the credentialed news media, a situation normally unique to tinpot authoritarian societies.

With the Hunter Biden Expose, Suppression Is a Bigger Scandal Than the Actual Story on Reporting by Matt Taibbi.

The corruption case against Joe Biden

Zephyr Teachout, a supporter of Bernie Sanders, wrote an article accusing Joe Biden of corruption.  Sanders disavowed it and apologized. Biden accepted Sanders’ apology.

But I think Teachout was right. She pointed to three things—

Joe Biden

First, Biden’s support for finance over working-class Americans.  His career was bankrolled by the credit card industry. He delivered for it by spearheading a bankruptcy bill that made it harder for Americans to reduce their debts and helped cause the financial crisis.  He not only authored and voted for that bill, he split with Barack Obama and led the battle to vote down Democratic amendments.

His explanations for carrying water for the credit card industry have changed over time.  They have never rung true.

The simplest explanation is the most likely: he did it for his donors.  At a fundraiser last year, Biden promised his Wall Street donors that “nothing would fundamentally change” for them if he became president.  Now the financial world is raising huge money for his campaign.  It clearly thinks he’s going to be its friend if elected.  Most Americans, who get ripped off by the financial sector on a daily basis, aren’t looking for a candidate who has made their life harder.

Second, healthcare. On 25 April, the day he announced his campaign, Biden went straight to a fundraiser co-hosted by the chief executive of a major health insurance corporation.  He refuses to sign a pledge to reject money from insurance and pharma execs and continues to raise money from healthcare industry donors.  His campaign is being bankrolled by a super PAC run by healthcare lobbyists.

What did all these donors get?  A healthcare proposal that preserves the power of the insurance industry and leaves 10 million Americans uninsured.

Third, climate change. Biden signed a pledge not to take money from the fossil fuel industry, then broke his promise. Right after a CNN town hall on climate change, he held a fundraiser hosted by the founder of a fossil fuel conglomerate. He is pushing climate policy that has gotten dismal reviews from several leading environmental groups.

There are plenty of other examples that raise questions, like housing and social security. Big real estate moguls are playing a major role in Biden’s campaign. Unlike his rivals, he has no comprehensive housing plan. When he pushed for cuts to Social Security, was he serving donors or his constituents?

But then President Donald Trump is 100 times worse.  Trump’s whole administration is one giant conflict of interest.  Call this the “lesser evil” defense.

A Biden defender could point out that there’s no reason to think that Biden has broken any laws. And a defender could argue that there’s also no reason to think Biden is any more dependent on corporate interests than the average Senator.  Call this the “average evil” defense.

It’s an ill hurricane that blows nobody good

The Puerto Rico Electric Power Authority (PREPA) has canceled its outrageous no-bid $300 million contract with Whitefish Energy Holdings, which, among other things, forbid federal and Puerto Rican authorities to audit its labor costs and profit and had no penalties for failure to meet project deadlines.

But questions remain: Why was the contract granted in the first place?  And what is PREPA going to do next to restore power?

The whole thing reminds me of the contracts for reconstruction of Iraq.   After the invasion, American and other foreign companies were given lucrative, no-bid contracts to rebuild Iraq’s electrical systems, other public utilities and physical infrastructure.   Well-qualified Iraqi companies and workers were cut out of the process.

The result was that a lot of government contractors made a lot of money and very little reconstruction took place.   I can see the same thing happening with Puerto Rico—maybe a little less brazenly than in this case.

Donald Trump, a walking conflict of interest

I doubt if Donald Trump could get through a single day, certainly not a single week, without being involved in a conflict of interest.

The Atlantic magazine has drawn up a list of 39 issues (and counting) in which decisions by President Trump will affect the profitability of the Trump Organization.

Maybe the biggest one is the federal investigation of the Deutsche Bank, which holds $300 million in IOUs from the Trump Organization.

U.S. banks wouldn’t give Trump credit after he defaulted on debt when his Atlantic City casinos declared bankruptcy, so he turned to the Deutsche Bank, which is under investigation by the U.S. Department of Justice on charges of  laundering money for Russian mobsters.  Attorney-General Jeff Sessions said he will continue this investigation impartially.  We’ll see,

The Department of Labor and Internal Revenue Service have been conducting investigations as to whether the Trump Organization violated labor law and tax law.   Will these investigations continue?  We’ll see.

The Trump Organization’s lease agreement with the General Services Administration for the Trump International Hotel property contains a provision that no elected official will be part of the lease.  But the GSA has ruled this doesn’t apply to Trump because he’s no longer officially head of the business.  An impartial decision?  Maybe.

Trump’s business is involved in business deals with politicians and close relatives of politicians in India, Indonesia, the Philippines, Turkey, Dubai and Argentina.  Will Trump, if necessary, make decisions that threaten those relationships?  We’ll see.

And then there are daughter Ivanka’s women’s fashion business and son-in-law Jared Kushner’s family real estate businesses.

Never even mind the penny-ante stuff—Donald Trump charging the Secret Service for use of Trump facilities while they guard him and his families.

Any of these conflict would be highly controversial as a stand-alone issue.  The problem is that there are so many issues it is impossible to remember any one of them.

The problem is that there is hardly any decision that Trump or his appointees can make—whether in foreign policy, tax policy, labor policy, environmental policy or consumer protection—that will not in some way affect the profitability of the Trump businesses.

Donald Trump’s real Russian connections

If you were looking for links between Donald Trump and Russia, you’d be more likely to find them by investigating Trump’s sleazy business dealings than his 2016 election campaign.

His connections with racketeers in the construction business in New York City and in casino gambling in Atlantic City, N.J., were well-known before the election, so it wouldn’t be surprising that he would have dealings with Russian racketeers and oligarchs as well.

I don’t claim—and none of the writers of the linked articles below claim—that there is proof that Donald Trump broke any specific law.   The significance of his associations and business deals are as evidence by which the public can judge his character.  Of course we voters had plenty of evidence about his character before the 2016 election.

I think it’s possible that Trump’s views about Russia prior to the election were influenced by his Russian cronies.   I favor an impartial investigation into whether Trump had any improper ties with Russia.

But I also think this investigation would be pretty much a footnote to what is going on now.  We don’t have to speculate about what Trump’s policy toward Russia will be.  We see it in action.  Trump caved in to the anti-Russia war hawks.  Regardless of what Trump’s motives may or may not be, this is a bad thing, not a good thing.

LINKS

The Curious World of Donald Trump’s Private Russian Connections by James S. Henry for The American Interest.

Did Russian Oligarch Rybolovlev Bailout Trump in 2008? an interview of James S. Henry for the Real News Network.   (Hat tip to O)

The Florida mansion that Donald Trump sold to a Russian billionaire now torn down by Glen Garvin for McClatchy newspapers.

Donald Trump’s Worst Deal by Adam Davidson for The New Yorker.

How Did an Alleged Russian Mobster End Up on Trump’s Red Carpet? by David Corn and Hannah Levintova for Mother Jones.

When the United States rigged Russia’s election

Twenty years ago, the U.S. government intervened in Russia’s election to put Boris Yeltsin in power.

Mark Ames, editor of the English-language eXile magazine in Moscow in the 1990s, explained all this in an interview with Abby Martin for The Empire Files.

He told how the Clinton administration managed his election campaign, and the International Monetary Fund pumped money into Russia to keep the Russian government going.

With the guidance of economists from Harvard University, Yeltsin sold off Russia’s national assets to foreign corporations and Russian individuals who became the oligarchs who dominate Russia today.   With U.S. approval, he shut down the Russian parliament and concentrated power in his own hands.   Independent journalists were murdered.   Oligarchs took over the independent press.

The Russian people were reduced to a state of misery not seen since Stalin’s rule in the 1930s.  The death rate soared and the birth rate fell.  Eventually even the Russian stock market crashed.

Source: The Diplomat

Vladimir Putin was Yeltsin’s right-hand man.   The U.S. government accepted him as a reliable successor to Yeltsin.  But when Putin refused to support the U.S. invasion of Iraq in 2003, the U.S. turned against him.

I wrote in a previous post that Vladimir Putin is a killer.  But every abuse of power by Putin was made possible by Yeltsin.

Boris Yeltsin in fact was more of a killer than Putin, but the American government didn’t care because he was willing to subordinate Russia’s national interests to the interests of American and other foreign corporations.

What to think of the Trump dossier?

When I first heard the news of the Watergate break-in back in 1972, I thought it absurd to think that the President of the United States would be personally involved in the burglary of the Democratic National Committee.

It didn’t make sense to me that President Nixon would take such a big risk for something so small.

Since then I have learned not to say that someone wouldn’t have done something because it wouldn’t make sense.  People do things that don’t make sense all the time.

Sadly, in the case of the secret dossier on Donald Trump’s alleged dealings with Russia, I can’t say that it doesn’t make sense.   It does make sense.   But there’s no independent evidence that the report is true, and good reason to question it.

I can well imagine Trump borrowing money from Russian financiers, and I can imagine people on Trump’s campaign team exchanging information with Russians.   Secret intelligence agents have a way of forming relationships with people they target, and getting people to exchange favors in a way that seems harmless at first until the targets find themselves in too deep to get out.

Also, Trump doesn’t care about norms of human behavior that restrain most people.

A wall of secrecy hides graft and waste

In his new book, PAY ANY PRICE: Greed, Power and Endless War, which I finished reading last week, James Risen revealed the mass of corruption, waste, incompetence and failure hidden behind the wall of secrecy around the CIA and the rest of the Homeland Security state.

The CIA and other secret agencies after 9/11 acquired enormous new powers of surveillance and control of ordinary American citizens.  But this only worked in one direction.  Ordinary American citizens had no knowledge of how their money was being wasted nor any way to hold culprits accountable.

The basic problem was that, after 9/11, the security agencies were literally given more power and more money than they knew what to do with.

The decision-makers did not have a plan in place to wage a “war on terror,” but they plunged ahead anyway.

The imperatives of government bureaucracy are such that if you have money and resources, you had better use them, usefully or not, or else some other government bureaucracy will claim them.  Much of policy was shaped by the struggle for power and prestige.

One reason the CIA embraced torture was to expand its role in the war on terror.  One reason the American Psychological Association changed its ethics code to allow cooperation with CIA interrogators was to improve the standing of psychologists at the expense of psychiatrists.

Two psychologists, James Mitchell and Bruce Jessen, who had been trainers for the Air Force on how to withstand torture if taken prisoner, received millions of dollars in grants to reverse engineer the program for CIA interrogators.

The problem, as is now well known, is that the training program was based on Communists techniques intended to elicit false confessions.  It generated false statements about Saddam Hussein to justify the Iraq invasion, but, as the Senate torture report confirmed, it never produced useful information.   I find it hard to believe that torture never produced any useful information, but multiple sources, not just Risen, say this is so.

James Risen

While the CIA attempted to duplicate the mission of Special Operations troops, the Pentagon set up an intelligence operation to compete with the CIA.  The Pentagon set up dummy corporations which became entangled with money launderers and arms smugglers in the Middle East.

The program was terminated, and Special Operations spokesman denied knowledge of the dummy corporations. An FBI investigation was begun and then called off.  Risen uncovered many suspicious associations but no proof of wrongdoing.  Probably nobody except those directly involved will know for sure.

Kellogg Brown Root, originally a Halliburton subsidiary, is a prime example of profiteering in Iraq.  KBR was given a no-bid contract to supply troops in Iraq, a job which otherwise would have to be done by troops.  This helped make it possible for the USA to go to war without a draft.  But there was no oversight, either of quality or waste of money.  Some 18 American troops died of electrocution blamed by faulty wiring installed by KBR.

Calling attention to problems through regular channels didn’t help.  Risen told of loyal employees within the government who reported lawbreaking, graft and waste to higher authority, all going through proper channels, and were sidetracked and reprimanded for their pains.

There are individuals who have much to answer for, but the corruption that Risen described is systemic.  It is the predictable result of what happens if you give people enormous authority and funding to use in secret, without meaningful accountability from above and without being subject to the law and Constitution.

The only people suffering legal consequences are the truth-tellers.  Risen himself is being prosecuted by the government for refusing to reveal his sources of information for his previous book, State of War.  His response, he wrote, is to go on writing.

∞∞∞

The Government War Against Reporter James Risen by Norman Solomon and Marcy Wheeler for The Nation.  [Added 12/30/14]

U.S. Mideast policy: Links & comments 12/5/14

Malarkey on the Potomac: Five bedrock Washington assumptions that are hot air by Andrew J. Bacevich for TomDispatch (via the Unz Review).

The five false assumptions are:

• The presence of U.S. forces in the Islamic world contributes to regional stability and enhances American influence.
• The Persian Gulf constitutes a vital U.S. national security interest.
• Egypt and Saudi Arabia are valued and valuable American allies.
• The interests of the United States and Israel align.
• Terrorism poses an existential threat that the United States must defeat.

I strongly recommend reading Bacevich’s whole article.

41 men targeted for U.S. drone strikes, but 1,147 killed by Spencer Ackerman for The Guardian.

A sixth false assumption is that flying killer drones are a safe, precise and effective way to wage war.  In fact, the U.S. government is making enemies at a faster rate than it is killing them off.

Iraq’s 50,000 ‘Ghost Soldiers’ by Patrick Cockburn for The Independent (via the Unz Review)

A seventh false assumption is that the U.S. government can use foreign fighters as proxies for American troops.  Either the foreign fighters have their own aims, which may not be identical with U.S. interests, or they are more interested in collecting pay than fighting.  In Iraq, certain military officers and contractors collect pay for troops that don’t even exist.

U.S. to Use Psych Tests to Vet Syrian Rebels for Moderateness by Peter Van Buren.

This may seem like satire, but it isn’t.

 

The billions nobody bothered to keep track of

Between $1.2 billion and $1.6 billion in shrink-wrapped $100 bills, earmarked for Iraq reconstruction, reportedly turned up in a bunker in Lebanon, along with $200 million in Iraqi gold.

“Bricks” of cash in Baghdad

Stuart Bowen, a special inspector general appointed by President Bush to keep track of waste and corruption in Iraq, reported that he has been unable to persuade anybody in either the U.S. or Iraqi governments to check it out.  The U.S. embassy in Beirut denied him permission to go to Lebanon to look for himself.

The stacks of money are part of $12 billion to $14 billion in shrink-wrapped “bricks” of currency, provided by the Federal Reserve Bank.  The money was flown to Iraq on wooden pallets, to be handed out as needed. An additional $5 billion was sent via electronic transfer.

Bowen said most of the money was probably spent for legitimate purposes, but $6.6 billion is unaccounted for.  This is a staggering amount.

Notice the $2 billion margin for error in the estimate of what was sent.  That, too, is a staggering amount.

Why the lack of interest in what become of the money?

One possible explanation is that the U.S. government and the Iraqi government have a very good idea of who got the money, and don’t want it made known to the public.

Another is that they don’t know, and don’t want the public to be reminded that they don’t know.

 LINKS

Billions set aside for post-Saddam Iraq turned up in Lebanese bunker by Rory Carroll for The Guardian.

$1.6 billion in Iraqi cash seized in Lebanon by Ahmed Hussein for Iraqi News.  A good article with an inaccurate headline. The money was never seized and nobody knows whether it is still there.

Special Report: The Pentagon’s doctored ledgers conceal epic waste by Scot J. Paltrow for Reuters.  The bigger picture is that it’s simpler for the Defense Department to order new stuff than keep track of what they’ve got.  Hat tip for this link to Peter Van Buren.  He also had a post on the Lebanon bunker, but for some reason I can’t link to the post.  I’ll add the link when and if I can.

Previous post

“The biggest theft of funds in national history”

Does the Constitution protect corruption?

The Supreme Court ruled in the Citizens United case that campaign contributions are a form of free speech protected by the First Amendment.   On April 2, the Supreme Court ruled, in McCutcheon vs. Federal Election Commission, that Congress does have the right to legislate against corruption in campaign financing, but, as Jill Lepore pointed out in an article in The New Yorker, only against certain forms of corruption.

Chief Justice John Roberts wrote the opinion for the five-to-four majority. “The right to participate in democracy through political contributions is protected by the First Amendment, but that right is not absolute,” he began. 

Congress may not “regulate contributions simply to reduce the amount of money in politics, or to restrict the political participation of some in order to enhance the relative influence of others.”  But there is “one legitimate governmental interest for restricting campaign finances,” he explained: “preventing corruption or the appearance of corruption.”

That said, the Court’s understanding of corruption is very narrow, Roberts explained, echoing a view expressed by Justice Anthony Kennedy in McConnell v. F.E.C., in 2003: “Congress may target only a specific type of corruption—‘quid pro quo’ corruption.”

Quid pro quo is when an elected official does something like accepting fifteen thousand dollars in cash in exchange for supporting another politician’s bid to run for mayor of New York.  The only kind of corruption that federal law is allowed to prohibit is out-and-out bribery.  The kind of political prostitution that the Moreland Commission was in the middle of attempting to document—elected officials representing the interests not of their constituents but of their largest contributors—does not constitute, in the view of the Supreme Court, either corruption or the appearance of corruption.

via Zephyr Teachout’s Anti-Corruption Campaign.

The Moreland Commission to Investigate Public Corruption was appointed by Gov. Andrew Cuomo in April, 2013, to investigate corruption in New York state.

The commission was given 18 months to do its work, but in March of this year, Gov. Cuomo shut it down.  He said it was supposed to investigate the legislative branch, not the executive branch.

In the meantime, the commission made a series of preliminary recommendations, including closing loopholes regarding limited liability laws, mandating disclosure of outside spending, instituting public finance and creating an independent election-law enforcement agency.

As Lepore noted, these recommendations, except maybe for public campaign financing, would have had little effect in the light of Citizens United and McCutcheon.

 Zephyr Teachout, who opposes Gov. Cuomo in the coming Democratic primary, is a law professor who says the Supreme Court’s decision is contrary to the intention of the authors of the Constitution.  Even if she’s right, this doesn’t change anything.

Maybe it is necessary to amend the Constitution, as was done after the Supreme Court ruled that slavery was protected by the Constitution and later when the Supreme Court ruled that a federal income tax was unconstitutional.

Banks poison West’s relations with Ukraine

The Maidan protests were an expression of disgust with the ongoing corruption of the Ukraine government, a corruption which has left the country mired in poverty and backwardness.

But as was pointed out in an important article in The American Interest last week, corruption could not have flourished as it did without the cooperation of banks in western Europe and the USA.

American political and business leaders tell the eastern Europeans that capitalism and democracy are the same thing.  Given the type of capitalism that our government has tried to export, it is not surprising that Russians, Ukrainians and others are dubious about our type of democracy.

Imagine you spent the past decade fighting Ukrainian corruption. The model of good governance you looked up to was Britain or Germany. You applied for European Union funds. You were trained by Western foundations and EU funded think-tanks to follow the money stolen by your state.

But then you discovered something horrible: the money was flowing right back to the West. Those models of good governance you looked up to turned out to be providing money-laundering services to the very people and institutions stealing your country’s future.

This is what happened to Daria Kaleniuk at Kiev’s Anti-Corruption Action Centre. The director of one Ukraine’s most important NGOs battling corruption spent years investigating how corruption actually works. But the more she learned, the more she viewed both America and the European Union as hypocrites.

Kaleniuk explains:

What we found was that the money stolen in Ukraine was heading into British and European tax havens and hidden using shell companies inside the European Union. This was very uncomfortable to find out. What we felt is the Western elites were being hypocritical to us—preaching anti-corruption but allowing this offshore world to flourish.

Kaleniuk’s outrage is increasingly being felt across Ukraine—and not just in the think-tank world but increasingly in politics as well. Heavily involved in activism during the Maidan protest movement, Ukrainian MP Lesya Orobets is running for Mayor of Kiev on a platform that flirts with nationalist outrage. She is enraged by Western complicity with the offshore black hole into which Ukraine’s national wealth has long disappeared:

What you need to understand is that Western tax havens have resulted in Ukrainian deaths. Take for example the theft of Ukraine’s HIV budget. The national budget for fighting HIV was stolen and hidden in tax havens and in Great Britain. But this has consequences—we are now approaching a 2 percent HIV infection rate in Ukraine, which is near the no-return point of pandemic. This corruption will kill British men too. I hear they come to Ukraine. But they also return home. What will happen if the British do not close down their tax havens? I will be deeply, negatively, impressed.

Talk to any Ukrainian revolutionary and you soon realize that offshore finance is rapidly undermining Western soft power. Take activist blogger and journalist Mustafa Nayem, one of the most charismatic protest leaders in the early stages of the Maidan who first called out the protestors onto the streets. He is exasperated with Western offshore hypocrisy.

Why do they only now investigate the hidden fortunes that were stolen and hidden in Austria and in Switzerland? We told the Europeans and we told their embassies a hundred times this money as stolen and hidden in their countries. And nothing happened. Now that the regime has fallen, they suddenly—in a matter of days—can reveal the stolen money. But why did they not do this before? They are guilty—guilty of leaving us alone with these thieves. They are guilty of allowing them to plunder us.

Behind the scenes, many in the new government feel the same way. But because they are financially dependent on the West when it comes to staving off economic collapse, few American and European diplomats have picked up on what’s really going on.

Talking to revolutionary minister Dmytro Bulatov, it comes up quickly enough: “Ukrainian money was stolen and taken to Austria and Switzerland and British tax havens. But we want that money back.”

via The American Interest.

Allowing European Union and American foreign policy to be held hostage by banking interests is not in the interests of the American people nor any of U.S. allies.  The banks don’t have allegiance to any particular country, including our own.

It wouldn’t take a Marshall Plan to win the friendship of the Ukrainian people.  Just provide some relief from the crushing debt burden piled up by the former regime, and help the Ukrainian government track down the money that has been taken out of Ukraine all these years.

‘I regard the moral environment as pathological’

Jeffrey Sachs is a well-regarded American economist, who is director of the Earth Institute at Columbia University.  Last week he took part in a conference sponsored by the Drexel University at the Federal Reserve Bank of Philadelphia on how to fix the banking system.  This is part of what he had to say.

Jeffrey Sachs

I regard the moral environment as pathological.  And I’m talking about the human interactions that I have.  I’ve not seen anything like this, not felt it so palpably.  These people are out to make billions of dollars and nothing should stop them from that.  They have no responsibility to pay taxes.  They have no responsibility to their clients.  They have no responsibility to people, counterparties in transactions.  They are tough, greedy, aggressive, and feel absolutely out of control, you know, in a quite literal sense.  And they have gamed the system to a remarkable extent, and they have a docile president, a docile White House, and a docile regulatory system that absolutely can’t find its voice.  It’s terrified of these companies.

If you look at the campaign contributions … … the financial markets are the number one campaign contributors in the U.S. system now.  We have a corrupt politics to the core, I’m afraid to say, and no party is—I mean there’s—if not both parties are up to their necks in this.  This has nothing to do with Democrats or Republicans.  It really doesn’t have anything to do with right wing or left wing, by the way.  The corruption is, as far as I can see, everywhere.  But what it’s led to is this sense of impunity that is really stunning, and you feel it on the individual level right now, and it’s very, very unhealthy.

I have waited for four years, five years now, to see one figure on Wall Street speak in a moral language, and I’ve not seen it once.  And that is shocking to me.  And if they won’t, I’ve waited for a judge,  for our president,  for somebody, and it hasn’t happened.  And by the way it’s not going to happen anytime soon it seems.

The significance is not so much the content of what he is saying, which has been obvious for some time, as that he as a member of the American economics establishment is saying it.

Markets, manipulators and the LIBOR scandal

The great thing about a free market economy is that the market is impersonal.  The rise and fall of supply and demand coordinate the activities of many people without being under the control of any one person or any group of people.  Individuals are impelled by self-interest to compete to provide goods and services of high quality or low price.

That’s how a free market economy is supposed to work, and very often it does work that way.  But when economic power is highly concentrated, what we’re told is the result of free market competition is actually the decision of specific individuals—people with names, addresses and telephone numbers.

The London Interbank Overnight Offered Rate, known at LIBOR, is the average interest rate big banks on London charge each other for overnight loans.  London is as important a financial center as New York City, maybe more important, and lenders all over the world use LIBOR as a base for setting variable interest rates.  Credit card interest rates and variable mortgage interest rates in the United States are usually set at so many percentage points above LIBOR.

It turns out that the LIBOR interest rate has been rigged for at least five years.  One big bank, Barclays, has admitted reporting rates to LIBOR that were lower than what was actually paid, and the outgoing CEO of Barclays says this was done at the request of the Bank of England, which is equivalent to the U.S. Federal Reserve.  It appears that other banks were in on it.  At least 20 banks have been named in investigations and lawsuits.  So the LIBOR rate wasn’t a market rate at all.  It was what certain individuals wanted the world to think the market rate would be.

Why would you rig the LIBOR rate?  The higher the overnight rate a bank pays, the riskier the bank’s perceived prospects.  The higher the LIBOR rate, the riskier the banks’ perception of the economy.  The purpose of falsely reporting a lower rate than the actual rate is to make the public think things are better than they are.

I’m not sure who suffered economic hardship because of the false LIBOR rate.  If credit card interest and variable mortgage interest were lower than they otherwise would have been, that would be good news for borrowers.  It would have hurt municipal and county governments with funds they were parking in short term securities—for example, money they’d raised on a bond issue for a new school or sewerage plant they hadn’t gotten around to spending yet.

If the banks had reported a falsely high LIBOR rate, that would have jacked up the returns on variable rate investments.  Who profited and who lost would have depended on who was borrowing and who was lending at any given time.

What’s at stake is the principle of the thing.  You can’t make good economic decisions based on lies.

If this scandal had happened in the United States, we would expect that (1) the financial institutions would pay fines of lesser amounts than their profits from the rigging and (2) nobody would go to jail.  It will be interesting to see if things work differently in the United Kingdom.

Click on Q&A: Barclays and bank rates for a basic summary of the LIBOR scandal by BBC News.

Click on The LIBOR scandal: The rotten heart of finance for a more detailed summary of the LIBOR scandal by The Economist, which says the LIBOR rate has been manipulated for decades.

Click on JP Morgan, Barclay’s, Other Banksters Investigated for Manipulating Electricity Markets for a report on a completely different financial scandal from Firedoglake.

Click on Why Is Nobody Freaking Out Over the LIBOR Banking Scandal? and LIBOR Banking Scandal Deepens for more about the LIBOR scandal from Matt Taibbi of Rolling Stone.

Click on Massive Furor in UK Over LIBOR Manipulation: Where’s the Outrage Here? and The Real Action in the LIBOR Scandal Was in the Derivatives Trading for more about the LIBOR scandal from Naked Capitalism.

Click on Let’s end this rotten culture that only rewards rogues for an editorial on the LIBOR scandal by The Observer in London.

Our corrupt politics: Is money the problem?

The Washington Post’s Ezra Klein says the influence of big money in politics is exaggerated.  He wrote an article in the current New York Review of Books arguing that powerful lobbyists may shape legislation, but it is populist partisan politics that determines whether the legislation is enacted.  People whose main concern is money and profit are generally more reasonable and open to compromise than grass-roots zealots, he wrote; grass-roots partisan extremism is a much more serious problem.

In 2011, the Chamber of Commerce and the AFL-CIO joined together to call for a major reinvestment in American infrastructure.  None passed.  In 2010, most of the health care industry was either supportive or neutral on the Affordable Care Act, and if any one of them could have swung the votes of even a few Republican senators or congressmen, the desperate Democrats would have let them write almost anything they wanted into the bill.  But not one Republican budged.  In 2009, the Chamber of Commerce endorsed the stimulus bill as a necessary boost to the economy.  Not one House Republican voted for it. Almost every major business group has been calling for tax reform and a big, Simpson-Bowles-like deficit reduction package for years now. But Congress remains deadlocked.

Ezra Klein

Indeed, the more likely Americans are to have actually heard of the bill, the less likely money is to be the decisive factor in its fate.  That’s not to say that lobbyists and interest groups don’t have a hand in the construction of these laws—before they came to a vote—and don’t have a say in the component parts.  They do.  The health care industry, for instance, was able to cut a slew of early deals with the Obama administration; and the industry’s power helped put out of consideration certain provisions, like a public option that would have partnered with Medicare to bargain down prices.  The financial industry, disgraced as it was, managed to win a lot of battles in the Dodd-Frank financial regulation bill.

But in the end, it didn’t decide which votes ended up in the “nay” column and which ended up in the “aye” column.  The leadership of the two parties did.  Which is to say that while moneyed interests are decisive in passing laws and influencing provisions that few Americans care about, they’re much weaker on the issues where Americans are actually watching.  But those issues are the ones that have convinced America that Washington is broken.  Which suggests that as big a problem as money is in politics—and make no mistake, it is a big problem, as the rise of the Super PACs shows all too clearly—it is not the only one, and it is probably not even the worst one.

via The New York Review of Books.

When President Obama sought to enact health care reform, he first promised the drug companies that nothing would be done to lower drug prices, and the health insurance companies that they would not be crowded out of the market by a public option, but that instead they would get a new captive clientele.  Klein is right that the drug and health insurance companies did not determine the outcome; they only determined that, no matter what the outcome, their vital interests would not be threatened.  The same is true of Wall Street and the Dodd-Frank bill.

The monied interests do not determine the outcome of the game; they determine something much more important, the stakes of the game.

The hot-button issues that stir up the public—such as whether it is okay to call an attractive young single woman who uses contraception a “slut” or a “prostitute”—are almost never issues that affect the structure of economic and political power.

What we are drifting toward is a politics in which the right is defined by the Koch brothers, Richard Scaife and Adolph Coors, the “left” by George Soros and rich Hollywood movie stars, firms like Goldman Sachs have a foot in both camps and people like Bill Gates and Warren Buffett represent the vital center.  We need a politics that offers more options than those.

Newt Gingrich, gridlock and “pay to play”

Newt Gingrich created the “pay to play” system by which House of Representatives committee assignments and leadership positions hinge on their ability to raise money for the party.  And he also is as responsible as anyone for the partisan divisions that keep the legislative process in gridlock.

Political scientist Tom Ferguson tells the story.

In the mid-1980s, a group of insurgent Republicans broke with the long established norms governing how the U.S. House of Representatives transacted business.  Led by Newt Gingrich, it derided older Republican House leaders as timid, unimaginative, and too inclined to compromise with Democrats.  Self-styled “revolutionaries” launched vigorous public attacks on Democrats as they trumpeted their own agenda of deregulation, budget cuts, lower taxes, and a baker’s dozen of social issues, from abortion to opposition to all forms of gun control.

Result?  The House boiled over.  Statistical measures of Congressional behavior show that party line votes jumped sharply.

Gingrich and his allies were painfully aware that transforming the GOP’s gains at the presidential level into a true “critical realignment” of the political system as a whole required breaking the Democratic lock on Congress.  So they shattered all records for Congressional fundraising in their drive to get control of the House.  Their success in this and their parallel campaign to rally major parts of the media to their standard are what polarized the system.  The GOP insurgents emphasized fundraising, not just through the usual publicly reported vehicles like the national party committees, but also GOPAC, a political action committee that Gingrich had controlled since 1986, which operated mostly in secret.

In 1992, in the midst of a recession, the Republicans lost the White House. But their dreams of a sweeping political realignment did not die.  In fact, by clearing centrist Republicans out of their perches in the White House, the loss probably helped Gingrich and his allies.

Completely undaunted, Gingrich, Republican National Chair Haley Barbour, and National Republican Senatorial Committee Chair Phil Gramm orchestrated a vast national campaign to recapture Congress for the Republicans in the 1994 elections.  With the economy stuck in a “jobless recovery” and Democratic fundraising sputtering, the Republicans won control of both houses of Congress.

The tidal wave of political money they conjured allowed Gingrich, Gramm, Barbour and Co., to brush aside older, less combative center-right Republican leaders and persist in their efforts to roll back the New Deal and remake American society in the image of free market fundamentalism.  Once in power, the Republicans institutionalized sweeping rules changes in the House and the Republican caucus that vastly increased the leadership’s influence over House legislation.  They also implemented a formal “pay to play” system that had both inside and outside components.

On the outside, DeLay and other GOP leaders, including Grover Norquist, who headed Americans for Tax Reform, mounted a vast campaign (the so-called “K Street Project”) to defund the Democrats directly by pressuring businesses to cut off donations and avoid retaining Democrats as lobbyists. Inside the House, Gingrich made fundraising for the party a requirement for choice committee assignments. Senate Republicans, led by Phil Gramm and other apostles of deregulation, emulated the House.

And so, alas, did the Democrats.

Click on Standstill Nation as the New Abnormal for Tom Ferguson’s full article for the Roosevelt Institute.

Click on Our Polarized and Money-Driven Congress: Created Over 25 Years by Republicans (And Quickly Imitated by Democrats) for more on Gingrich’s legacy on the Naked Capitalism web log.

Click on Newt Gingrich and Our Dysfunctional Congress for an article on Gingrich’s legacy by Lou Dubose of The Washington Spectator.

Click on Newt Gingrich Is a Saul Alinsky Republican for an analysis of Newt Gingrich’s political tactics from the Washington Examiner.

Click on Language: a Key Mechanism of Control for Newt Gingrich’s 1996 GOPAC Memo on political rhetoric.

Thomas Edsall on reinventing political morality

Lately I’ve been reading about the Progressive era and the struggle against corruption in politics during the turn of the previous century.  This struggle has been never-ending.  After each reform, some new way has been found to use money to manipulate the political and legislative process.

The whole reform effort started to unwind about 30 years ago, and it seems to me that we Americans are back where we were in the Gilded Age of the late 19th century.  Thomas B. Edsall had a good column in the New York Times yesterday tracing some of the steps by which this came about.

• Robert Perkins, a Republican national committee staff member, noticed that a provision of the 1979 campaign finance law, which exempted grass-roots political activity from federal regulation, could be used to raise unlimited contributions from corporations and other sources for state and local political parties.  The Reagan campaign raised $15 million in “soft money” in 1980, which was considered a large amount at the time.  Twenty years later, the two parties raised more than $240 million in soft money each.
• Three of Ronald Reagan’s campaign managers — Charlie Black, Paul Montfort and Roger Stone — broke a hitherto unwritten rule and in 1981 formed Black, Montfort and Stone, a firm that combined lobbying with campaign consulting.  They managed Republican political campaigns, and then as lobbyists offered access to the successful candidates they helped elect.
• Anthony Coelho, chair of the Democratic Congressional Campaign Committee, in 1981 created a hierarchy of clubs — the Speaker’s Club, the Chairman’s Club and so on — whose members had access to Democratic House leaders and committee chairs.  The higher the dues you paid, the better the access.
• Former House Speaker Tom DeLay in 1994 started the K-Street Project, which had three components: (1) Lobbyists who contributed to Democratic candidates were denied access to Republican congressional leaders.  (2) Favored lobbyists were invited to draft legislation and to help pressure congressional representatives to vote for controversial bills.  (3)  DeLay and other Republican House leaders directly intervened to insert provisions in legislation favorable to soft money contributors, without committee review.
• During the 1980s, Presidential candidates of both parties accepted the limits on spending required for public financing of their campaigns.  But George W. Bush, John Kerry and Barack Obama raised such huge amounts from corporate sources that they did without public financing.

All these were considered morally questionable when they began.  Now they are part of the standard operating procedure of both parties, Edsall wrote.

Then there is the question of simple honesty.

“Inside Job” is an excellent movie

Last night I saw an Charles Ferguson’s “Inside Job,” a documentary movie on the Wall Street crisis.  It is excellent journalism and excellent cinema.   Most people who see this movie will leave it not just angry, but better-informed.  Ferguson both names the culprits behind the crisis, and clearly explains the deeper systemic problems.

Ferguson makes the point that there has been no criminal prosecution of financial manipulators, unlike in the lesser savings and loan crisis of an earlier era.  Maybe there is not only such a thing as “too big to fail,” but “too powerful to prosecute.”  The Charles Keatings of that era had much less clout than the Henry Paulsons of today.

Ferguson does not go easy on the Bush administration, but he shows origins of Wall Street’s capture of the government in the Reagan and Clinton administrations and its continuation in the Obama administration which, as in so much else, continues the Bush policies with many of the Bush appointees.

He shows the conflicts of interest among top economists, who receive big consulting and directors’ fees from the financial industry they supposedly are analyzing impartially.  Long ago there was a scandal when radio disc jockeys accepted payola from record companies to play certain records.  We ought to be equally scandalized about payola to academics.  But in fact, these economists are still treated with respect by officialdom and the press, while the economists whose warnings proved true are still regarded as marginal figures.

Who owns Congress?

This chart is from the September / October issue of Mother Jones magazine, and reflects donations that individual Senators and Representatives have received over their entire political careers.

What it shows is that more than half the Senate and a third of the House of Representatives are more beholden to Wall Street than to any other interest, and that while about a third of the House members are primarily beholden to organized labor, that is true only of 4 percent of the Senate.

Click on Congress’s Corporate Sponsors for details.

Click on BP’s Favorite Politicians for a list that may (or may not) be surprising.

Government misplaces $8.7 billion in Iraq

A U.S. Defense Department audit released about 10 days ago indicated that $8.7 billion dollars in Iraq reconstruction funds – 96 percent of the  $9.1 billion total – is unaccounted for.  This probably accounts for the fact that so little actual reconstruction has taken place.

Whatever the government’s priorities in the Bush-Cheney years, it sure wasn’t nation-building in Iraq.

I am shocked by the figure, but I am more shocked that so few people in Washington seem to care.  I would have thought that Congress would be demanding an investigation to find out who pocketed the money.  I would have been wrong.

Click on Defense Department can’t account for 96 percent of money administered in Iraq reconstruction fund for details.

Click on The failed reconstruction of Iraq for my earlier post on the same subject.

The failed reconstruction of Iraq

Shortly after the U.S. invasion of Iraq, a Iraqi woman in her 20s using the name Riverbend started a web log called Baghdad Burning.  She described the life of an educated, middle-class family in Baghdad – a perspective on Iraq you didn’t get from the American press.

Here is her 2003 comment on the reconstruction effort: –

One of my cousins works in a prominent engineering company in Baghdad- we’ll call the company H. This company is well-known for designing and building bridges all over Iraq. My cousin, a structural engineer, is a bridge freak. He spends hours talking about pillars and trusses and steel structures to anyone who’ll listen. As May was drawing to a close, his manager told him that someone from the CPA wanted the company to estimate the building costs of replacing the New Diyala Bridge on the South East end of Baghdad. He got his team together, they went out and assessed the damage, decided it wasn’t too extensive, but it would be costly. They did the necessary tests and analyses mumblings about soil composition and water depth, expansion joints and girders and came up with a number they tentatively put forward- $300,000. This included new plans and designs, raw materials quite cheap in Iraq, labor, contractors, travel expenses, etc.

Let’s pretend my cousin is a dolt. Let’s pretend he hasn’t been working with bridges for over 17 years. Let’s pretend he didn’t work on replacing at least 20 of the 133 bridges damaged during the first Gulf War. Let’s pretend he’s wrong and the cost of rebuilding this bridge is four times the number they estimated- let’s pretend it will actually cost $1,200,000. Let’s just use our imagination. A week later, the New Diyala Bridge contract was given to an American company. This particular company estimated the cost of rebuilding the bridge would be around- brace yourselves- $50,000,000 !!

via Baghdad Burning.

How has that worked out?  Here is the report this month from the New York Times.

FALLUJA, Iraq — After two devastating battles between American forces and Sunni insurgents in 2004, this city needed almost everything — new roads, clean water, electricity and health care included.

The American reconstruction authorities decided, however, that the first big rebuilding project to win hearts and minds would be a citywide sewage treatment system.

Now, after more than six years of work, $104 million spent, and without having connected a single house, American reconstruction officials have decided to leave the system unfinished, though they portray it as a success. It is just one element in a strategy to complete or abandon rebuilding projects before American troops leave in large numbers over the next year.

The push to complete reconstruction work as quickly as possible has been met with scorn by Iraqi officials, who say some of the projects are being finished with such haste that engineering standards have deteriorated to the point where workers are in danger and some of the work is at risk of collapse.

The Falluja sewage system, in particular, mirrors the extensive problems that have marked much of the American rebuilding effort: a grand plan to provide a modern facility that diverged from Iraq’s most pressing needs, and was further troubled by millions of wasted dollars, poor planning, construction flaws, ongoing violence and little attention to sustainability.

via The New York Times