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"These facts do not provide much evidence for the thesis in Why Nations Fail that China’s leaders constitute a self-serving and venal “extractive” elite. Unfortunately, such indications seem far more apparent when we direct our gaze inward, toward the recent economic and social trajectory of our own country
Against the backdrop of remarkable Chinese progress, America mostly presents a very gloomy picture. Certainly America’s top engineers and entrepreneurs have created many of the world’s most important technologies, sometimes becoming enormously wealthy in the process. But these economic successes are not typical nor have their benefits been widely distributed. Over the last 40 years, a large majority of American workers have seen their real incomes stagnate or decline."
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However, although American micro-corruption is rare, we seem to suffer from appalling levels of macro-corruption, situations in which our various ruling elites squander or misappropriate tens or even hundreds of billions of dollars of our national wealth, sometimes doing so just barely on one side of technical legality and sometimes on the other.
Sweden is among the cleanest societies in Europe, while Sicily is perhaps the most corrupt. But suppose a large clan of ruthless Sicilian Mafiosi moved to Sweden and somehow managed to gain control of its government. On a day-to-day basis, little would change, with Swedish traffic policemen and building inspectors performing their duties with the same sort of incorruptible efficiency as before, and I suspect that Sweden’s Transparency International rankings would scarcely decline. But meanwhile, a large fraction of Sweden’s accumulated national wealth might gradually be stolen and transferred to secret Cayman Islands bank accounts, or invested in Latin American drug cartels, and eventually the entire plundered economy would collapse.
Ordinary Americans who work hard and seek to earn an honest living for themselves and their families appear to be suffering the ill effects of exactly this same sort of elite-driven economic pillage. The roots of our national decline will be found at the very top of our society, among the One Percent, or more likely the 0.1 percent.
"“Extractive elites” and “macro-corruption” encapsulate it pretty perfectly. It’s also essential reading for those like me who can’t seem to look away from the decades-long train wreck of contorted, self-contradictory conservative “thinking.”"
"Of course there was a place where ideas weren’t simply for sale, I thought: the professions. Ethical standards kept professionals independent of their clients’ gross pecuniary interests.
These days, though, I’m not so sure. Money has transformed every watchdog, every independent authority. Medical doctors are increasingly gulled by the lobbying of pharmaceutical salesmen. Accountants were no match for Enron. Corporate boards are rubber stamps. Hospitals break unions, and, with an eye toward future donations, electronically single out rich patients for more luxurious treatment.
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And as we serve money, we find that money wants the same thing from us: to push everyone it beguiles in the same direction. Money never seems to be interested in strengthening regulatory agencies, for example, but always in subverting them, in making them miss the danger signs in coal mines and in derivatives trading and in deep-sea oil wells. You can have a shot at being part of the 1 percent, money tells us, only if you are first committed to making the 1 percent stronger, to defending their piles in some new and imaginative way, to rationalizing and burnishing their glory, to exempting them from regulation or taxation, to bowing down as they pass, and to believing in your heart that their touch will heal scrofula.
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On the other hand, you would also have been listening to the greatest names of professional economics. And this, we know, is in keeping with President Obama’s deepest instincts: trust the experts.
But what happens when the experts are fools? What happens when their professions are corrupted, their jargon has become a shield against outside scrutiny, their process of peer review has been transformed into a device by which a professional faction can commandeer the discipline, excommunicate rivals, and give members of the “us” group endless pardons for their endless failures?
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"The Obama administration’s response to the crisis was visibly poor in real time. Klein shrugs off the error as though it were inevitable, predestined. It was not. The administration screwed up, and they screwed up in a deeply toxic way. They defined “politically possible” to mean acceptable to powerful incumbents, and then restricted their policy advocacy to the realm of that possible. The administration could have chosen to fight for policies that would have been effective and fair rather than placate groups whose interests were opposed to good policy. They might not have succeeded, but even so, as Mike Koncazal puts it, they would have lost well. We would be better off with good policy options untried but still on the table than where we are now, with policy itself — monetary, fiscal, whatever — discredited as both ineffective and faintly corrupt."
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Once you understand that the problem is a fairness issue rather than a dollars-and-cents issue, the policy space grows wider. Holding constant the level of expenditure, one can make bail-outs more or less fair by the degree to which you demand sacrifice from the people you are bailing out. TARP was deeply stupid not because it meant socializing risks and costs created by bankers. TARP was terrible public policy because it socialized risks and costs while demanding almost no sacrifice at all from the people most responsible for those risks. The alternative to TARP was never “let the banks fail, and see how the bankruptcy system deals with it.” The alternative would have been to inject public capital (socialize risks and costs!) while also haircutting creditors, writing-off equityholders, firing management, and aggressively investigating past behavior. It was not the money that made TARP unpopular. It was the unfairness. And the unfairness was not at all necessary to resolve the financial problem.
in list: Economic Crisis
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According to Bebchuk and Fried, the basic dynamic at work is that directors like being on boards (it’s a lot of money for not much work, and it’s prestigious), CEOs control who is on the board of directors, CEOs control the information that goes to boards, and board members have weak incentives to act on behalf of the shareholders (they generally don’t own much stock). The only real checks on CEO pay are public outrage (hence the usage of hard-to-understand things like deferred compensation and pension benefits) and large and powerful shareholders.
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But a similar problem applies to all Wall Street compensation. Just like CEO compensation depends on the myth that there is a small group of people with the ability to be CEOs, Wall Street compensation depends on the myth that there is a small group of people with the ability to work on Wall Street. (A myth that is pretty well belied by the fact that every year a flood of college and business-school graduates whose only common trait is that they all want to make money comes to Wall Street, and during the boom they all made lots of money.) That compensation is set by top executives and approved by the board, all of whom are bought into the myth of their own uniqueness; the shareholder, be he a teacher on Main Street or a mutual fund manager in Greenwich, doesn’t have a seat at that table. Put another way, compensation should theoretically be determined by the owner of the company - the person who gets the profits after salaries and bonuses are paid - but that person has been cut out of the negotiation by the weakness of our corpoorate governance practices.
why have banks paid [giant bonuses] for so long?
The popular answer is that banks need to attract the best talent. Yeah, right..... Traders must be bribed not to plunder the firm. If you don’t pay them millions, they’ll sell the banks’ assets cheaply to rival firms for which they then go and work. They are paid fortunes not because they have skill, but because they have power.
in list: Economic Crisis
Despite the dry title, what is noteworthy is that Buiter discusses in some detail how corruption, both in the government and society, limits policy choices. Put simply, diseased leadership has trouble pulling a country out of a debt crisis because no one trusts that they will do the right thing (and frankly, why should they?).
in list: Economic Crisis
I made the decision to write “Dillon, Read & Co. Inc. and the Aristocracy of Stock Profits” in the middle of a vegetable garden in Montana during the summer of 2005. I had come to Montana to develop a venture capital model to support a healthier, fresher local food supply. If we want clean water, fresh food, sustainable infrastructure, and healthy communities, we are going to have to finance and govern these resources ourselves. We cannot invest in the stocks and bonds of large corporations, banks and governments that are harming our food, water, environment and all living things and then expect these resources to be available when we need them
Bush administration officials, in their last weeks in office, are pushing to rewrite a wide array of federal rules with changes or additions that could block product-safety lawsuits by consumers and states.
What we don't have, and what I set out to supply in The Wrecking Crew, is a corruption theory about the conservative state. That it is corrupt is obvious; it is patent; it is not really even denied by the Republican Party's own champions anymore. From Baghdad to New Orleans and from K Street to Wall Street, the passage of the conservative era has been marked by epic waste and fraud; by deregulation, privatization, and profit at the public's expense.
That’s an epic fail on the Sesame Street “one of these things is not like the other” exercise. That’s how we got into much of the mess we’re in right this very moment, on so many levels. This is the consequence of this sense that all government is equally and indifferently corrupt and non-functional, that none of what states do for good or ill turns on the competency or morality of any particular political leadership but is instead a generic and invariant result of the nature of bureaucratic states. That a report of corruption or administrative incompetence is like a report of the weather or the tides, an expected and everyday event with its own cycles.
It seems to me that well into Year II of the Panic, the business press is in the process of making the same mistake it made in the run-up to the debacle: focusing on esoteric Wall Street concerns and ignoring the simplest, most basic, but most important one—the breathtaking corruption that overran the U.S. lending industry, including and especially the brand names, and the extent to which Wall Street drove that corruption. Let’s just call it a case of over-sophistication. Its persistence, however, will only impede journalists’ ability to cover this thing going forward.
in list: Economic Crisis
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