Wheat from the Chaff

How Wall Street Lobbied Itself Into A Crisis

In today's Globe and Mail (Dec. 31, 2009: B5), economics reporter Kevin Carmichael discusses a recent report from the IMF that draws a direct connection between Wall Street, political lobbying, and the current financial crisis. The IMF report has apparently caused quite a stir in the blogosphere and among the American political class. Here is the opening portion of Carmichael's article:

The case against Wall Street is getting stronger.

Since the financial crisis plunged the world economy into recession in the autumn of 2008, there has been a swirl of reports suggesting that financial firms used their clout in Washington to avoid tighter regulations in the years leading up to the meltdown. Most of those reports, however, have been anecdotal.

Now, in a landmark analysis, three economists at the International Monetary Fund have pulled together the public lobbying records of U.S. mortgage lenders and have drawn an empirical link between the money spent influencing politicians and firms' tendencies to engage in high-risk lending.

Their report, published this week as a "working paper" and therefore without the official stamp of the IMF, supports previous accounts in The Wall Street Journal and other publications that lenders such as Ameriquest Mortgage Co. and Countrywide Financial Corp. spent millions in the years ahead of the financial crisis to defeat legislation that would have curbed their ability to issue home loans to riskier borrowers.

Aside from documenting the persuasive power of Wall Street, the paper also highlights another challenge facing U.S. President Barack Obama and the various legislators leading the effort to diminish the risks facing the financial system. The findings suggest that some financial firms sought to profit by shaping the regulatory system to fit their business strategies or to position for a government bailout. To reduce that risk in the future, policy makers may need to weaken the financial industry's political influence - but it's not clear how that can be done. (The authors of the report declined to give specific solutions.)

"[O]ur analysis suggests that the political influence of the financial industry can be a source of systemic risk," Deniz Igan, Prachi Mishra and Thierry Tressel wrote in their conclusion....

According to the report, the most intensive lobbying came from the firms that ended up with the highest rate of financial "delinquencies".

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A few things come to mind after reading the newspaper article and the International Monetary Fund report.

My first thought is, "Is this actually news?" It appears that only economists and business reporters are surprised by the report's conclusions. Left-wing critics have been making similar critiques of the current financial crisis for many years. [For example, check out virtually every edition of The New York Review of Books for the last 4 years, or the critiques of David Harvey.] Indeed, the relationship between capitalism and the state has been an essential part of the socialist analysis of capitalism for 150 years. Nevertheless, it is interesting that such a direct rebuke of Wall Street and America's capitalist system has come from an organization that is emblematic of the American (and global) financial system. And, as the writers of the report add, "To the best of our knowledge, this is the first study to examine empirically the relationship between lobbying by financial institutions and mortgage lending in the run-up to the financial crisis."

A second point is that the current Wall Street example illustrates how corporate capitalism exists in large part because the government has provided a regulatory environment where short-term profits override responsible, long-term decision making. Government is, in this example, integral to capitalism. It is not the enemy of the market society. It is not minor player or a neutral night watchmen. It makes and implements policy which is absolutely essential for capitalism to pursue its interests, however short-sighted they turn out to be.

This example also sheds light on the Ralph Miliband-Nicos Poulantzas debate about the nature of the state in a capitalist society. Poulantzas, for whom I have great respect, argues that the state is the "unifying element" in capitalism. In this, he follows people like Karl Polanyi, who believes that the historical development of the modern market economy and the modern state were tightly and inevitably linked. But Poulantzas goes beyond this analysis, and explores the idea (building on Gramsci and Althusser) that while the state and capitalism are intertwined, the state nevertheless does (and must) have a certain degree of autonomy. The state must have this "relative autonomy" because, according to Poulantzas, the capitalist class is a fractious group that is dominated by short-term interests, and often pursues policies that are inimical to itself. If capitalism is to survive, it requires a state to save capitalism from itself.

Under Clinton and Bush, the corporate class almost succeeded in convincing the American government that short term profit was in everybody's interest. If the state was potentially autonomous, it did not utilize its potential. It will be interesting to see if the Obama administration wants to take a longer-term perspective and repair American capitalism, and, assuming it does, if it even can.

Is it the "Surge" that's worked?

While many conservative supporters of the Iraq War have quietly disappeared - Dick Cheney notwithstanding - many have taken comfort in the apparent success of George Bush's "troop surge" of 2007.

Nevertheless, a great number of commentators have pointed to other factors in the decline of Iraqi violence. The New York Review of Books has published a number of articles [here and here, for example] that point to the salutary effects of the cease-fire declared by the powerful Shia leader, Moqtada al-Sadr, and the revolt by dozens of Sunni tribes and community groups against the violence of al-Qaeda "foreigners".

Michaels Massing's recent review of Thomas Ricks' latest book on General Patraeus nicely summarizes these factors, even though Ricks himself prefers to focus on the tactical changes brought upon by the leadership of General Patraeus and his staff. Massing notes that Ricks barely mentions al-Sadr, but Ricks is at least

... more expansive on the Sunni Awakening, recounting in detail how the tribes in Anbar province, enraged by al-Qaeda's growing brutality, began in September 2006 to turn against the group, and how the Americans quickly took advantage. "Whenever a tribe flipped and joined the Awakening," says a colonel who helped oversee the initial turnaround, "all the attacks on coalition forces in that area would stop, and all the caches of ammunition would come up out of the ground."

What's really interesting is that a major player in the troop surge, David Kilcullen, doesn't believe that the surge is the major reason for the decline in Iraqi violence. Massing goes on to explain that

The regularity of this pattern has led some observers—including many US officers—to conclude that the Sunni revolt was the main cause of the improvement in Iraq. They include David Kilcullen, Petraeus's counterinsurgency adviser. In his new book, The Accidental Guerrilla, Kilcullen writes that "the tribal revolt was arguably the most significant change in the Iraqi operating environment in several years."* Its impact, he argues, ran counter to what had been anticipated under the surge: instead of security improving as a result of changes imposed from the top down by US commanders, it occurred from the bottom up, with the US scrambling to respond.

My Review of Neil Bissoondath’s Selling Illusions

Neil Bissoondath’s book, Selling Illusions, offers an unusual argument for a Canadian book, particularly since a non-white immigrant writes it. Selling Illusions opposes Canada’s official, sacred cow policy of multiculturalism. Generally speaking, Bissoondath’s book is a well-written treatise that discusses a potentially dry subject in clear, jargon-free prose. Nevertheless, his arguments suffer from some surprising weaknesses, borne largely from his inability to empathize with the very people he, ironically, accuses of ignorance and lack of empathy.

I found his analysis and critique of multiculturalism effective. Briefly stated, Bissoondath believes we need to focus more on what makes us the same rather than what makes us different. He argues that the federal government’s policy of multiculturalism is one of the main reasons for our current focus on difference rather than unity. Pierre Trudeau’s 1971 Multiculturalism Act, for example, is devoid of what Canadian society actually is. In fact, it also discourages the articulation of a common discourse: “Multiculturalism has made us fearful of defining acceptable boundaries” (p. 143). It fails to deliver on one of its most important goals, that of going beyond tolerance and into what Michael Ignatieff calls “recognition”. Multiculturalism has “preached tolerance rather than encouraging acceptance; and it is leading is into a divisiveness so entrenched that we face a future of multiple solitudes with no central notion to bind us” (p. 192). The implication of his argument is clear. It is important for a country, even a country like Canada, to emphasize what its citizens hold in common. It is important for Canadians to ask themselves what those values actually are. And it must be acceptable to draw lines in the proverbial sand, beyond which tolerance becomes self-defeating.

Ethnicity, however, is not the basis for a common national narrative. Bissoondath is an unbridled cosmopolitan. He believes that ethnicity is – or should be - relatively unimportant. Racial definitions of homogeneity are old-fashioned and will not work in Canada; he believes that we need a new definition of social cohesion based on shared social norms, not skin colour: "Culture, in its essentials, is about human values, and human values are exclusive to no race” (p. 71). He feels no deeply bound allegiance to his own ethnic heritage, and prefers to affiliate with those who share his social and intellectual values. “I feel greater affinity for the work of Timothy Mo – a British novelist born of an English mother and a Chinese father- than I do for that of Salman Rushdie, with whom I share an ethnicity… Ethnically, Mo and I share nothing, but imaginatively we share much” (p. 105). If Canada is to flourish, it must find ways of identifying the values that Bissoondath holds, a non-ethnic set of principles and beliefs that allow Canadians to develop a unifying “civic nationalism”.

My major problems with Bissoondath’s argument are that his cosmopolitanism is, I believe, overly optimistic, and that he accepts such significant exceptions that he degrades the force of his own logic. I personally agree that History must not be an anchor on the present, but I think he’s wrong to conclude that “shared ethnicity guarantees neither fellowship of feeling nor congruity of interest” (p. 132). Are we willing to give up our ethnic identities so easily? I don't believe so. My reading of history simply doesn’t reflect Bissoondath's argument. In times of strife, ethnicity is usually the single major shorthand that’s used to determine common values and loyalty. And in the absence of other, more deeply felt sentiments, I don’t think we can logically argue ethnicity out of our value system. Indeed, cosmopolitanism is historically one of the first victims of the breakdown in social order; its very existence assumes that ethnic differences have been overcome or minimized. So if strife and chaos leads us back to ethnicity, cosmopolitanism is more a tenuous historical circumstance than a unifying force. Bissoondath goes on to say that all his professional success “has come, in great part, through the refusal to brood over the loss of one language and its cultural baggage and a willingness to fully embrace another” (p. 81). This kind of cosmopolitanism seems unrelenting and uncompromising. And when he argues that “ethnicity’s true value [is] as one of the many elements that inform the way the individual views the world” (p. 212), I think he’s simply naïve. Ethnicity is very real. Even those of us who are skeptical of ethnicity can’t will it away. The second major problem I have with the book is Bissoondath’s rather uneven application of his own argument. Bissoondath tries to avoid insulting “Old Canada” and those who wish to keep Christian and European values at the core of our national vision. But eventually he can’t help himself. Those who support the old Reform Party are “ignorant”. For anybody blocking his cosmopolitan vision of the future, Bissoondath has neither tolerance nor recognition. On the other hand, Quebec’s attempt to preserve its own culture is lauded: “It is obvious to anyone with a nodding acquaintance of Quebec that it is different. It has obligations… and if you have special obligations, then you need special powers to fulfill those obligations” (p. 198). Yet those who are opposed to giving group rights to Quebec, because it damages national unity, suffer from a “colonial mentality”.

Bissoondath therefore prefers some forms of unity, but clearly not others. I wonder if most Canadians share his particular definition of the “middle way”.

Michael Ignatieff`s The Rights Revolution: A Review

Here's the first of a series of revamped book reviews that I've published in the past on Chapters.ca and Amazon. They're not meant to be exhaustive, but they have helped me to focus my understanding of the books and my memory of their key ideas. Eventually I will publish most of my older reviews and then add new ones... if I have time to read.

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The Rights Revolution

By Michael Ignatieff

The Rights Revolution is a thought-provoking book, and a praiseworthy attempt to confront the issues of national unity, individual identity and multiculturalism. Nevertheless, it is so riven with contradictions and concessions that it’s sometimes hard to pin down what Michael Ignatieff actually believes.

Ignatieff’s book is an effort to define a conception of civic nationalism based on a theory of human rights. As such, it builds on past books like Blood and Belonging. Ignatieff discusses rights in a particularly Canadian context: his theory of human rights attempts to strike a multicultural balance between group rights and individual rights. Nevertheless, Ignatieff is philosophically a liberal, and in a conflict between the two types of rights, “we should allow individual rights to prevail” (19). Thus, if rights are sought in order to protect the identity of a minority group (e.g. Muslims and Aboriginals), these group rights must not infringe on the rights of its individual members. A “rights culture” accomplishes many things for Ignatieff: rights help articulate and moderate conflict; rights create trust (assuming that both sides respect the rights of the other); rights demand permanent self-questioning; rights help define common meta-values that allow differences to co-exist; right provide a counterbalance to a democratic majority; rights create reciprocities between mutual rights-bearing people; and they defend individual autonomy. Ignatieff therefore places a great deal onto the political centrality of rights, and the discussion of mutual entitlements that they will generate.

One of Ignatieff’s central arguments is that we must go beyond mere tolerance and move towards what he calls “recognition”, which is an “act of enlargement” (136). In such an act, differences should be “acknowledged and welcomed” (87). As long as the majority is also respected, Ignatieff believes that the long term prospect for minority individual rights in Canada is usually towards recognition. For example, in terms of gay rights, he believes their rights will soon be recognized [and were, not long after the publication of this book in 2000]. “Rights equality changes moral culture because groups demand recognition. As they do so, they force sexual majorities toward acceptance and approval… The process will take time and properly should do. But again, it seems hard to imagine that this respect will not follow eventually” (88-89).

There are many frustrating parts in the book. Ignatieff avoids one of the most important questions about rights: where do they come from? From at least Edmund Burke onward, the clash between “inalienable” and “communally derived” rights has been a central debate. But Ignatieff ignores their fundamental distinctions and simply answers that rights come from both sources: “We already possess our rights in two senses: either because our ancestors secured them or because they are inherent in the very idea of being human” (28). And that`s it. He never pursues the essential differences between the two, though he seems to favour “inherent” individual rights. Had he explored the other perspective in greater detail, he might have answered his own question of why liberal “rights talk” ignores social inequality, a collective problem not easily solved by an aggregation of rights-bearing individuals. And had he explored the communitarian view that rights are earned by reciprocation, and ought to be retracted when not advanced equitably, then perhaps he would have seen how individual rights may not be sufficient to create a foundation for a successful polity. By addressing what we are obligated to do for others, in order to help ourselves, Canadians might exhibit greater empathy for others and not simply demand respect for one`s own entitlements. This would certainly broaden the concept of citizenship, and command a greater respect for our country.

Ignatieff contradicts and equivocates to the point of distraction. He starts with the central Canadian perspective that the “essential distinctiveness of Canada itself lies in the fact that we are a tri-national community” (124-125). Then he concedes that “Canadians from [non tri-national] communities refuse to accept the very concept of Canada as a pact between founding races… This concept seems to accord no place to them.” But then concludes, very optimistically, “Most of them can accept that original inhabitants may have claims to territory and language that are withheld from newcomers” (130). The potential for multi-tiered citizenship is never acknowledged or explored. He also believes that the “criticism most often advanced against a civic nationalist vision of national community is that it is too thin. It bases national solidarity on rights equality, but neither rights nor equality make sufficiently deep claims on the loyalties and affections of people to bond them together over time…Clearly, rights are not enough” (126-127). But then he concludes, because of our lack of ethnic unity, “This is essentially why Canada has no choice but to gamble on rights, to found unity on civic nationalist principles” (129). Finally, he argues that the “precondition for order in a liberal society is an act of the imagination: not a moral consensus or shared values”. Then he concedes that “Imagination only carries us only so far…” (138), but flips back and argues that the “entire legitimacy of our institutions depends on our being attentive to difference while treating all as equal. This is the gamble, the unique act of the imagination on which our society rests” (139). By the end, it is difficult to say where Ignatieff actually stands on many key issues. Ignatieff seems skilled at identifying and analyzing problems, but not so skilled (or perhaps willing) to defend a particular solution or point of view. If this is how he acts as a politician, then ``flip-flop``-itis seems to be a much more appropriate criticism by his opponents than his lack of residency.

So, Ignatieff’s book explores some significant issues, but it never provides the clarity and resolution that he thinks “rights talk” offers.

Inequality Makes Us Ill

Inequality makes us ill. And depressed. And violent

Across all the Western democracies, there is a consistent pattern in which outcomes worsen as inequality increases

BY WILL KYMLICKA

A Review of The Spirit Level: Why More Equal Societies Almost Always Do Better, by Richard Wilkinson and Kate Pickett, Allen Lane, 331 pages

http://www.theglobeandmail.com/servlet/story/RTGAM.20090515.wbkspirit16/BNStory/globebooks/home

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Will Kymlicka, a noted Canadian scholar on politics and multiculturalism, has provided a well-written and thought-provoking review of a book by Richard Wilkinson and Kate Pickett. Their book addresses a topic - inequality - which remains on the fringes of economic and political discussion, even though I believe it's at the center of our current economic malaise.

Kymlicka discusses Wilkinson and Pickett's point that inequality is not just a moral issue. It has real human costs and tangible impacts.

... Once a country reaches a per capita income of around $25,000, there is simply no correlation between levels of national wealth or health spending and levels of health and human development....

...So what explains why some countries do better than others? A growing consensus points to the quality of people's social relationships, whether in the home, the neighbourhood or at work. In some societies, these relationships are toxic, putting health-damaging stresses on individuals. In other societies, these relationships are supportive, helping individuals deal with life's challenges.

However, Wilkinson and Pickett argue that these different factors are all symptoms of a deeper issue — namely, inequality. Among wealthy countries, Norway and Japan do better than the United States or Switzerland because the gap between rich and poor is smaller. Among less affluent countries, Spain and Greece do better than Portugal because they have less inequality.

This is true of rates of infant mortality, illiteracy, obesity, mental illness, incarceration, homicide, drug use and teenage pregnancy (although not, interestingly, of suicide). Similarly, as inequality rises, social trust and social mobility decline while violence increases. This is true not only between Western countries, but also within them. For example, if we compare the 50 states of the United States, these indicators are worse in states with greater inequality....

...The result is an impressive body of evidence, presented in an easily digestible form, which is highly relevant for debates here in Canada. Polls show that most people believe that inequalities have grown too large in recent years, and this book will surely reinforce that sentiment. Many of us feel that the growing level of inequality is unfair, and harmful to a sense of shared citizenship and community cohesion. But as Wilkinson and Pickett show, it is also harmful to our health....

Kymlicka responds that there are many issues that help determine social stability and community health:

[I]t's not just income inequality that matters, but also the nature of the labour market, the stability of people's jobs and housing, the strength of community organizations and so on.

Moreover, there are many sources of status anxieties in modern societies — such as racism or homophobia (or attitudes toward beauty) — that are only indirectly related to income inequalities. So, income inequality seems a very crude measure for the almost infinitely complex array of status hierarchies in our society, and the link between the two is something of a black box in the book.

Kymlicka then concedes that many of these problems, though not a necessary outcome of inequality, usually do arise in unequal societies if other mitigating factors do not appear.

The authors would probably respond that, whatever these complexities, the data show a clear tendency for income inequality to generate worse health outcomes. So for practical policy purposes, we should just focus on inequality.

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So here we have another argument in favour of tackling inequality. It has real and debilitating effects. We are not made stronger by inequality; as a tendency, it retards and constricts, and is a real threat to our belief in the equality of opportunity. Moreover, equality in this sense is a relative concept that bespeaks of our social nature. Unlike the Fraser Institute, which argues that equality should be measured in absolute terms, Richard Wilkinson and Kate Pickett show that social interaction defines equality in relative terms. It's cold comfort, and largely irrelevant, that a poor person in Chilliwack is surviving on the same caloric intake of a person in Haiti. Social trust, social mobility and violence are realities that make sense only in social terms, with the people who live in our own community or nation.

The Red Cross Torture Report

Mark Danner is well known journalist and professor of journalism at Berkeley. He has written dozens of articles for the New York Review of Books, and has, in my mind, provided the definitive reportage on the Serbian massacre of Muslims at Srebrenica.

His latest article is a thorough yet blistering summary of the "ICRC Report on the Treatment of Fourteen 'High Value Detainees' in CIA Custody", otherwise known as the "Red Cross Torture Report". We may be tired of the issue, as it's been a focal point for criticism of the Bush administration since 2001. However, Danner may have written the definitive summary again, and I think the question of torture will continue to haunt American politics for many years to come. The current debate over the release of the Bush torture memos, a possible South African-style truth and reconciliation commission, and possible war crime charges against Bush-era politicians, will ensure the past continues to inform (and deform) the present. Plus, the descriptions of torture, especially the waterboarding and beatings against plywood sheets, is too gripping to ignore. After reading Danner's article, it's almost impossible to believe that America hasn't crossed some irreversible, unrepairable moral divide. The rank hypocrisy of American foreign policy has never been more exposed.

Here are some excerpts from his review:

... An awareness of this history makes reading the International Committee of the Red Cross report a strange exercise in climbing back through the looking glass. For in interviewing the fourteen "high-value detainees," who had been imprisoned secretly in the "black sites" anywhere from "16 months to almost four and a half years," the Red Cross experts were listening to descriptions of techniques applied to them that had been originally designed to be illegal "under the rules listed in the 1949 Geneva Conventions." And then the Red Cross investigators, as members of the body designated by the Geneva Conventions to supervise treatment of prisoners of war and to judge that treatment's legality, were called on to pronounce whether or not the techniques conformed to the conventions in the first place. In this judgment, they are, not surprisingly, unequivocal:

The allegations of ill-treatment of the detainees indicate that, in many cases, the ill-treatment to which they were subjected while held in the CIA program, either singly or in combination, constituted torture. In addition, many other elements of the ill-treatment, either singly or in combination, constituted cruel and inhuman or degrading treatment....

... One fact, seemingly incontrovertible, after the descriptions contained and the judgments made in the ICRC report, is that officials of the United States, in interrogating prisoners in the "War on Terror," have tortured and done so systematically. From many other sources, including the former president himself, we know that the decision to do so was taken at the highest level of the American government and carried out with the full knowledge and support of its most senior officials....

...Mr. Abu Zubaydah commented that when the collar was first used on him in his third place of detention, he was slammed directly against a hard concrete wall. He was then placed in a tall box for several hours (see Section 1.3.5, Confinement in boxes). After he was taken out of the box he noticed that a sheet of plywood had been placed against the wall. The collar was then used to slam him against the plywood sheet. He thought that the plywood was in order to absorb some of the impact so as to avoid the risk of physical injury....

... Torture has undermined the United States' reputation for respecting and following the law and thus has crippled its political influence. By torturing, the United States has wounded itself and helped its enemies in what is in the end an inherently political war—a war, that is, in which the critical target to be conquered is the allegiances and attitudes of young Muslims. And by torturing prisoners, many of whom were implicated in committing great crimes against Americans, the United States has made it impossible to render justice on those criminals [because torture=inadmissable evidence], instead sentencing them—and the country itself—to an endless limbo of injustice. That limbo stands as a kind of worldwide advertisement for the costs of the US reversion to torture, whose power President Obama has tried to reduce by announcing that he will close Guantánamo....

... The only way to defuse the political volatility of torture and to remove it from the center of the "politics of fear" is to replace its lingering mystique, owed mostly to secrecy, with authoritative and convincing information about how it was really used and what it really achieved. That this has not yet happened is the reason why, despite the innumerable reports and studies and revelations that have given us a rich and vivid picture of the Bush administration's policies of torture, we as a society have barely advanced along this path. We have not so far managed, despite all the investigations, to produce a bipartisan, broadly credible, and politically decisive effort, and pronounce authoritatively on whether or not these activities accomplished anything at all in their stated and still asserted purpose: to protect the security interests of the country....

The full article can be found at http://www.nybooks.com/articles/22614. Here is a video of Mark Danner talking with Bill Moyers: