Paul Krugman Reveals the Culprit Behind the GOP's Rabid Anti-Environment Stance

  Economy  

AlterNet / By Janet Allon

Paul Krugman Reveals the Culprit Behind the GOP's Rabid Anti-Environment Stance

 

Breathing used to be a non-partisan issue. Here's what changed.

 

Photo Credit: via YouTube

November 28, 2014  |

Since when did breathing clean air become so politicized? It predates President Obama's recent attempts to install regulations to curb ozone emissions, but not by that much. Paul Krugman takes up the truly bizarre Republican opposition to even the most tepid attempts to protect the environment in Friday's column and digs deeper to find the root cause. Of course, polluters will defend their right to pollute, he points out, but why can they always depend on Republican support?

Some background from Krugman: 

It wasn’t always thus. The Clean Air Act of 1970,  the legal basis for the Obama administration’s environmental actions, passed the Senate on a bipartisan vote of 73 to 0, and was signed into law by Richard Nixon. (I’ve heard veterans of the E.P.A. describe the Nixon years as a golden age.) A major amendment of the law, which among other things made possible the cap-and-trade system that limits acid rain, was signed in 1990 by former President George H.W. Bush.

But that was then. Today’s Republican Party is putting a conspiracy theorist who views climate science as a “gigantic hoax” in charge of the Senate’s environment committee. And this isn’t an isolated case. Pollution has become a deeply divisive partisan issue.

The Republicans have moved to the right of Nixon and Bush. That's part of it, but, again, why? 

Money in politics is part of the answer, no doubt. Mega polluters like the Koch brothers pour mega doses of cash into politics, and while it used to flow to both parties, it goes "overwhelmingly in one direction" today. What changed? Rabid anti-government, pro-market ideology is part of the answer. Krugman peels the onion further to conclude that this pernicious ideology is just "a symptom of the underlying cause of the divide:  rising inequality."

The basic story of political polarization over the past few decades is that, as a wealthy minority has pulled away economically from the rest of the country, it has pulled one major party along with it. True, Democrats often cater to the interests of the 1 percent, but Republicans always do. Any policy that benefits lower- and middle-income Americans at the expense of the elite — like health reform, which guarantees insurance to all and pays for that guarantee in part with taxes on higher incomes — will face bitter Republican opposition.

Protecting the environment has become a class issue, in part. Everyone breathes, but only the super-wealthy own huge amount of stock in coal companies. Krugman concludes: 

In the case of the new ozone plan,  the E.P.A.’s analysis suggests that, for the average American, the benefits would be more than twice the costs. But that doesn’t necessarily matter to the nonaverage American driving one party’s prior

Working for Walmart Is Even Worse Than You Think

  Activism  

AlterNet / By Alyssa Figueroa

Working for Walmart Is Even Worse Than You Think

Victoria Alvarez explains why she and other Walmart workers nationwide are striking today, despite Walmart's attempts at silencing them. 

Victoria Alvarez (R) at a sit-in strike in a Los Angeles Walmart store on Nov. 13, 2014.


Photo Credit: Claudia Koerner/BuzzFeed

November 26, 2014  |  

When I met Victoria Alvarez, 50, at a café after her shift at Walmart, I didn’t notice her knee brace. Instead I noticed her dark eyes and glittery nail polish, which in some ways is a great metaphor for Alvarez. She’s hurting, but her bold personality still dominates.

Within seconds of meeting her, you can tell she’s the type of person who's fun to be around; she talks with her hands, speaks her mind and doesn’t take anyone’s shit. Alvarez was born and raised in Mexico and immigrated to the United States more than 20 years ago. Her heavily accented voice is confident and captivating, and she had a lot to say.

She applied to work at Walmart during the 2009 recession. After a few months of work in Arizona, she transferred to a store in Fremont, CA, an hour from San Jose, where she lives with her husband in their mobile home. Alvarez works full-time and started at $9 an hour. After five years, she makes $11.  

“In the beginning, I almost lost my mobile home because I struggled,” Alvarez said. “My husband was sick and out of work. I had to borrow from friends, from family for a very long time.”

But there was more to the burden of working at Walmart than just low wages. Alvarez said as soon as she started working in Fremont, she noticed things weren't right. 

“A lot of people were punished for things they weren’t suppose to be, like not finishing their work on time,” she explained. “A lot of people were doing the work of three to four people. That’s what happened to me.”

Alvarez and her supervisor ran Walmart’s Tire & Lube Express department. She was servicing customers, making keys, dealing with tires, and carrying heavy merchandise.

“I was forced to skip meals,” she said, adding that many of her co-workers have to skip meals, too. Then the workers manipulate the punch-out clock to make it look like they took a break.

“They say, ‘If we find out you do it we’ll fire you,’” Alvarez said. “But then they show you how to do it.”

Eventually, Alvarez got carpal tunnel syndrome and showed managers a doctor’s note explaining that she needed modified work. But they wouldn’t recognize it. Alvarez had to call on California’s Labor Department, which finally wrote a letter to her Walmart store. Her managers then moved her to greeting customers and pushing carts.

“I had to push carts with the leg I have, with my bad knee,” she said.

When I asked Alvarez if she has healthcare, her face reddened.

“This is what happened with healthcare,” she began to explain, tears welling up. She pays $80 a month for Walmart’s lowest option for health insurance. This is all she can afford. While workers' compensation took care of her carpal tunnel surgery, an emergency room visit for appendicitis left her with a $22,000 bill.

“I said, ‘How am I going to pay this?’”

Alvarez applied for government financial aid, which fortunately took care of the bill. It’s estimated that Walmart benefits from $6.2 billion in taxpayer subsidies for healthcare, food stamps and subsidized housing.

“I’ve been through all this,” she said, closing her eyes. 

I asked Alvarez why she joined OUR Walmart—the Organization United for Respect at Walmart—and she smiled. She recalled the day she saw her co-worker walk into the store wearing a bunch of OUR Walmart bracelets two years ago. “I joked with him and said, ‘Oh I like your bracelets, can I have one?’” Alvarez said, laughing. He told her that the group was a communitiy of former and current workers fighting for better working conditions.

“He explained it to me, and I said, ‘Oh my god, this is what I need!’” she recounted. “I really wanted to join because I had a lot to say.”  

Alvarez has since participated in many actions, including strikes and rallies in front of Rob Walton’s house. I asked Alvarez what she wanted to see change at Walmart. She answered before I'd finished the question. 

“Retaliation is the most important thing I want to end,” she said. “That if you speak out about getting $15, about getting full-time, getting predictable scheduling, about the OUR Walmart organization or better health insurance, or workers comp or if you tell your manager, ‘Hey, I need people here to help me because the load that you’re giving me is for three people and I’m not going to be able to finish,’ they retaliate on you. And I want that to end.”

Alvarez began rattling off instances she felt she had been retaliated against. Once, she was called into the office and told she was disrespecting the dress code by wearing jeans. She was told either to go home or buy a pair of pants at Walmart. But Alvarez wasn’t wearing jeans. She was wearing black pants and fortunately saw a co-worker wearing the same pants in khaki. She pointed this out to her managers and told them, “If you’re sending me home, you have to apply the same rules to everyone.” They told her to forget the whole thing.

Another time, she was working apparel and needed to go to the restroom, so she called for backup. After waiting nearly an hour and calling for backup three times, she just went. When she got back, she was written up for her “irresponsible” act and for being “disrespectful” to management. Alvarez admits she was aggressive.   

“Of course, you’re going to get mad when someone comes and tells you that you’re irresponsible,” she said. “I held it for almost an hour. I was waiting for someone to come. I didn’t see anybody. When I came back somebody was already there—it was like they were waiting for me to come back.”

Most recently she faced retaliation after coming back from a strike in Los Angeles, where OUR Walmart members held their first store sit-in.

“When I came back from the strike, they sent me to work by myself at the men’s department for two days,” she said. “And then the managers called everyone in and said the schedules for the holiday week were ready and were designed based on people’s talents. And I was on for one day only. That was the first time in five years I was scheduled to work only one day. And I said to my manager, ‘Is this retaliation because I went on strike or am I not talented?’”

The manager ultimately gave Alvarez 40 hours. But she won’t be working all of it. She will be participating in OUR Walmart’s Black Friday strikes, expected to be the organization's largest ever, with actions happening at 1,600 stores. She also will be striking the day before on Thanksgiving, when Walmart’s Black Friday sale begins at 6pm. She told me that instead of her Walmart store giving employees bonuses for working on the holidays like they used to, they now only get a 25-percent-off coupon.

“How are we going to shop when we don’t have money to spend? It’s so ridiculous,” she said. “I really believe that by striking this Black Friday, we can change how things work. We really need to participate to change things. If we don’t participate, it will remain the same. We have come so far to not participate. We have started something that is very brave for everybody.”

I ask Alvarez if she ever feared standing up to Walmart.

“No, no, no, not at all,” she said. “Whatever sacrifice it takes to change things, I will do it. And I’m not doing it only for me; I’m also doing it for my co-workers. For all those who don’t have the courage. For all of those who are scared to speak out.”

After interviewing Alvarez for an hour and 40 minutes, I apologized for taking so much of her time and thanked her for meeting with me.

“You don’t have any more questions?” she asked, surprised.

I told her to tell me anything else she wanted, and she perked back up.

She told me that several of her co-workers get injured on the job but they're too scared to file for worker's compensation. One of her managers recently got fired for slapping a worker. A few of her co-workers are homeless and live on the couches of family, friends or co-workers.

“One of my co-workers, he’s older, he lives in his car,” she said. “He has the car parking there. He eats there, he sleeps there, he takes showers I don’t know where, but he’s always there.”

She told me that the way Walmart does evaluations is unfair because they are often done by random managers, who don’t really know the workers they assess so they only give a standard satisfactory mark. That lands you a 20-40 cent raise for the year. An excellent mark gets you a 60-cent raise, the highest Walmart gives.

“You’ll never excel,” she said. “It doesn’t matter how hard you work, how much work you do, how faithful you are to Walmart, get there on time every day, when they call you to come in. You never excel.”

She told me that seeing how some of her co-workers struggle breaks her heart. Another way she sees their struggle is when she’s working the register and rings up her co-workers’ lunches.

“One woman eats the same 59-cent can of soup every day,” she said. “It’s all she can afford.”

She told me she wishes more of her co-workers would stand up for themselves, and sometimes it’s very hard for her to understand why they don’t. She has tried many times to speak to that managers on behalf of workers who are too scared, but they won't let her. But it's not like she doesn't have her own concerns. 

“Well, I am in fear. Really I am in fear,” Alvarez said. “But if Walmart fires me I’m sure something better for me is waiting for me out there—that’s how I want to think. But the only thing that I would regret is not being there for my co-workers. And it doesn’t matter if they fire me, I’m going to continue fighting until the end by supporting my co-workers with my presence in every strike. When I start something, I like to finish.”

To find a OUR Walmart Black Friday protest near you visit blackfridayprotests.org.

Alyssa Figueroa is an associate editor at AlterNet.

Trans-Pacific Partnership, the trade deal Obama and the GOP both love, explained

Trans-Pacific Partnership, the trade deal Obama and the GOP both love, explained

Updated by Danielle Kurtzleben on November 14, 2014, 2:30 p.m. ET @titonka danielle@vox.com

These protesters in Japan aren't happy with the massive proposed trade deal. Getty Images

You're about to hear a lot about one major trade proposal the Obama administration has been negotiating for years. The Trans-Pacific Partnership has suddenly become one of the hottest topics in Washington, as it appears to be one of the few topics on which President Barack Obama and congressional Republicans might be able to reach any sort of agreement.

Of course, what you're going to read about as a "trade deal" has to do with so much more than trade — like most modern trade agreements, it's really a broad, sweeping economic agreement that deals in everything from patents to labor rights to geopolitics. Supporters say free trade will boost the economy and curb Chinese dominance. But critics say it's a massive corporate giveaway that caters to the interests of huge multinationals while killing US jobs.

The administration has hinted that a deal is close. Before that happens, read our guide to what it's all about.

1) What is the Trans-Pacific Partnership?

 

The Trans-Pacific Partnership is a proposed free trade agreement between the US and 11 other countries in Asia and on the Pacific. The point of it is to open up trade between the US and these countries by getting rid of tariffs and other trade barriers. It's often compared to NAFTA, the 20-year-old massive free-trade agreement. (See a list of the US's stated objectives in the TPP.)

what you're going to read about as a "trade deal" is about so much more than trade

But sending goods from point A to B (and vice versa) is only one of a vast array of areas it deals in, many of which aren't directly related to the exchange of goods, like labor standards, international investment, telecommunications, and environmental issues. In fact, many of the 29 potential chapters as listed in this Congressional Research Service report deal in issues that are only peripherally trade-related.

And it's big — the US does nearly $2 trillion in trade with these countries each year, according to the US Trade Representative's office, accounting for nearly 40 percent of the US's trade. The 12 countries together also account for around 40 percent of global GDP. It's also a free trade agreement between two of the world's biggest economies, the US and Japan, which is itself a major milestone.

2) So wait. TPP isn't really about trade?

 

It is about trade, at least in part, but it's really about all sorts of different agendas being worked into one big agreement that's centered around trade agreements. There are chapters on labor rights and environmental practices, as well as financial regulation and government procurement.

So the new agreement could benefit US businesses even before any goods change hands. Leaked chapters on intellectual property have seemed to favor patent and copyright holders like pharmaceutical companies and Hollywood movie studios, as Tim Lee has written.

tpp is also about china, despite the fact that china isn't even involved in it
And this isn't just a feature of the TPP. The Transatlantic Trade and Investment Partnership (TTIP), a trade deal being negotiated with European countries, likewise covers broad swaths of economic policy.

The reason for some of these broad-ranging agendas, according to US Trade Representative Michael Froman, is that there are non-tariff barriers that need to be broken down.

"Through successive rounds of trade negotiations, both bilateral and multilateral tariffs have come down a great deal over the last 50 years," he says. "but over the same period of time other obstacles to trade have emerged," like subsidies and regulations designed to keep out other exports.

TPP is also about China, which isn't even a party to the deal. China is growing in power and economic importance, with a huge and fast-growing consumer base. As it becomes a bigger force to be reckoned with in Asia, the US is in a race to make sure it has a good foothold in the region, according to one expert.

"They would like to lock up the rules on IT and investment before China becomes a bigger economic force. Hence the TPP excludes China, but it will be welcome to join in the future if it adheres to the roles set forth by others," writes Barry Bosworth, senior fellow at the Brookings Institution, in an email. "Naturally, China is not very happy."

In part, TPP may be a way to try to pressure China into adopting more market-based economic policies, as Time's Michael Schuman wrote this week — in addition, of course, to being a way to open up non-Chinese markets in Asia to American companies.

3) Who's involved?

 

The countries in the TPP include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam. The below map from the Congressional Research Service shows trade flows between the 12 countries involved.

Source: Federation of American Scientists

Of course, one huge Asian economy (China) is not involved. The US has said it's open to China's involvement, and China has said it was open to it as well.

But many people see TPP as a way to check Chinese influence in the region, as well as a way to try to get China to change its economic policies. Indeed, when the US has in the past pushed TPP, it has in the same breath criticized China, telling it to "play by the rules."

China, meanwhile, has its own free trade pact it's working on — the Free Trade Area of Asia and the Pacific. This agreement is seen as a rival to the TPP, with both countries fighting to be the major trading partner to countries in this region. At this week's APEC forum, China succeeded in pushing a study of the FTAAP.

Officially both countries are downplaying talk of a rivalry. US Trade Representative Michael Froman even went so far as to say that China's proposed free trade area is not, in fact, a new free trade area, but instead a "long-term aspiration." At the same time, it's clear the US government fears that if TPP doesn't get off the ground, Asian countries will be more likely to make commitments to China instead.

4) How did the midterms make this into a big deal?

 

Because trade appears to be one of the few areas on which the White House and a newly Republican-controlled Congress might agree in the coming legislative session.

After the midterm elections Senate Minority Leader Mitch McConnell (now in line to be the majority leader in the next Congress) emphasized trade agreements as one area on which he thought a new majority-Republican Congress and Obama could agree.

"I've got a lot of members who believe that international trade agreements are a winner for America," McConnell said. "And the president and I discussed that right before I came over here, and I think he's interested in moving forward. I said, 'Send us trade agreements. We're anxious to take a look at them.'"
"republicans in Congress ... must vote to voluntarily give [Obama] large swaths of power"

That matters because Congress can give the president something called Trade Promotion Authority, which is often simply called fast-tracking. To help a president to more easily negotiate trade deals, Congress has to periodically grant this authority, which last expired in 2007.

The idea of fast track is that a president needs to be able to negotiate a treaty without the fear that Congress will amend it after he and a whole bunch of other countries come to agreement on a deal. When the president has TPA, he consults with Congress, but once a deal is reached, Congress can only vote it up or down — no amendments. Without that authority, it's not really feasible to reach a credible deal with foreign leaders.

The fact that Republicans seem favorable toward trade deals like the TPP creates something of a dilemma for them, as Public Citizen's Lori Wallach told Al Jazeera. "What would be required is for Republicans in Congress, who have attacked Obama as power-hungry, must vote to voluntarily give him large swaths of power," she said. "This is an interesting problem for them and their own political base."

5) So what exactly in the deal?

 

That's a great question. And the answer is that not a lot of people know the specifics.

This has upset a lot of people, including many congressional Democrats. This puts them in alignment with some Tea Party Republicans who say they won't grant Obama TPA because they haven't been consulted closely enough on what they call a "secret" deal covering such broad-ranging themes.

"as soon as you reveal your position ... then it's much more difficult to modify it and be flexible later."

TPP critic Elizabeth Warren said, "I actually have had supporters of the deal say to me, ‘They have to be secret, because if the American people knew what was actually in them, they would be opposed.'"

It's not that members of Congress have been kept entirely in the dark. Froman says he has had more than 1,500 meetings with members of Congress. The USTR office also provides Congress members with copies of the working text, though while they have input, members cannot directly change the deal.

While it's true that the average American (or Japanese or Vietnamese person) has no access to the talks, the secrecy surrounding TPP has a purpose. 
Negotiations would be far, far more difficult if undertaken in full public view.
"As soon as you reveal your position and put it in print, then it's much more difficult to modify it and be flexible later," explains Gary Hufbauer, senior fellow at the Peterson Institute for International Economics. "It's a negotiation, and everyone has to compromise to some extent."

Though the deals have been behind closed doors, some bits of the deal have come to light, thanks to WikiLeaks, which has obtained and published draft chapters from the deal on intellectual property and the environment. The Citizens' Trade Commission, which is also opposed to the TPP, has also published a leaked chapter on investment.

Those leaked chapters have upset some advocacy groups. The Electronic Frontier Foundation and ACLU have fought against some of the IP proposals, like longer copyright protections and making internet service providers liable for copyright infringement. Likewise, the Sierra Club objects to weaker language about countries' commitments to environmental agreements. As Mother Jones pointed out, the environmental stipulations in the leaked chapter are voluntary, not binding.

That said, Froman has insisted that there will be tough environmental rules in the deal: "Environmental stewardship is a core American value, and we will insist on a robust, fully enforceable environment chapter in the TPP or we will not come to agreement," he wrote in a January blog post.

6) Will TPP benefit the US economy?

 

Opening up new free-trade markets could really benefit the US economy. The TPP could particularly benefit American companies by giving US products, like cars and food, more customers — particularly in Japan. The Peterson Institute in 2012 estimated that it could add $78 billion to income for American companies, which is a lot of money, but not a game-changer in a $17 trillion economy.

That said, income for US companies doesn't necessarily mean new income for US workers, says Barry Bosworth, senior fellow at the Brookings Institution.
"There often is a conflict between the objectives of 'American' companies and workers," he writes. "For example, business groups are very interested in the expansion and enforcement of intellectual property and liberalization of access to foreign financial markets, but these create very few US jobs, even though they may create income through their effect on profits and stock values."
One expert says the tpp will lead to higher incomes for US companies but "probably a net loss of jobs"

In other words, a lot of those provisions that have little to do with goods trade could create lots of value for American companies without creating lots of jobs. Altogether, Bosworth says, he expects higher incomes for US companies but "probably a net loss of jobs."

The TPP could also become a political football again, come 2016 — as The Fix's Jaime Fuller noted earlier this year, a win on the TPP would be a belated win for former Secretary of State Hillary Clinton, meaning she'd probably tout it in debates and campaign stops if she ran for the presidency.

Obama and his fellow world leaders prepare for a long discussion about tariffs. (Getty Images)

7) Why has the TPP taken so long?

The US joined TPP negotiations in 2008, and the first TPP deadline was in 2012. That and others have sailed by since then. And that's because of lots and lots of sticking points. Maybe the biggest one recently is between the US and Japan, regarding Japanese subsidies for its agricultural and auto sectors.

However, agreement is looking closer all the time — in a November 10 statement, the leaders of the 12 countries reported "significant progress in recent months ... that sets the stage to bring these landmark Trans-Pacific Partnership (TPP) negotiations to conclusion."

Yes, statements after TPP talks have claimed "significant progress" before. But this time, the leaders sound unusually optimistic. New Zealand's trade minister proclaimed that "the finish line is in sight" after this week's APEC meeting, and said it could be "a few months" before that line is crossed.

Updated. This post was updated to include comment from the USTR on the US's environmental goals in TPP.

Ideological Foundations of Mainstream Neoclassical Economics: Class Interests as “Economic Theory”

GLOBAL RESEARCH

Ideological Foundations of Mainstream Neoclassical Economics: Class Interests as “Economic Theory”

By Prof. Ismael Hossein-Zadeh

Global Research, November 14, 2014

Theme: Global Economy

There is now a widespread consensus that mainstream/neoclassical economists failed miserably to either predict the coming of the 2008 financial implosion, or provide a reasonable explanation when it actually arrived. Not surprisingly, many critics have argued that neoclassical economics has created more confusion than clarification, more obfuscation than elucidation. Economic “science” has, indeed, become “an ideological construct which serves to camouflage and justify the New World Order” [1].


Also not surprisingly, an increasing number of students who take classes and/or major in economics are complaining about the abstract and irrelevant nature of the discipline. For example, a group of French graduate students in economics recently wrote an open letter, akin to a manifesto, critical of their academic education in economics as “autistic” and “pathologically distant from the problems of real markets and real people”:

“We wish to escape from imaginary worlds! Most of us have chosen to study economics so as to acquire a deep understanding of the economic phenomena with which the citizens of today are confronted. But the teaching that is offered . . . does not generally answer this expectation. . . . This gap in the teaching, this disregard for concrete realities, poses an enormous problem for those who would like to render themselves useful to economic and social actors” [2].

The word “autistic” may be offensive and politically incorrect, but it certainly provides an apt description of mainstream economics.

Interestingly, most economists do not deny the abstract and irrelevance feature or property of their discipline; but argue that the internal consistency of a theory—in the sense that the findings or conclusions of the theory follow logically from its premises or assumptions—is more important than its relevance (or irrelevance) to the real world. Nobel Laureate economist William Vickery, for example, maintains:

“Economic theory proper, indeed, is nothing more than a system of logical relations between certain sets of assumptions and the conclusions derived from them. . . . The validity of a theory proper does not depend on the correspondence or lack of it between the assumptions of the theory or its conclusions and observations in the real world. . . . In any pure theory, all propositions are essentially tautological, in the sense that the results are implicit in the assumptions made” [3].

Paul Samuelson, another Nobel Laureate in Economics, likewise writes, “In pointing out the consequences of a set of abstract assumptions, one need not be committed unduly as to the relation between reality and these assumptions.”
How or why did economics as a crucially important subject of inquiry into an understanding of social structures evolve in this fashion, that is, as an apparently rigorous and technically elaborate discipline without much usefulness in the way of understanding or solving economic problems?

Perhaps a logical way to answer this question is to look into the origins of the neoclassical economics, and how it supplanted the classical economics that prevailed from the early stages of capitalism until the second half of the 19th century—supplanted not as an extension or elaboration of that earlier school of economic thought but as a deviation from, or antithesis, to it.

Well-known classical economists like Adam Smith, David Ricardo, John Stuart Mill and Karl Marx sought to understand capitalism in fundamental ways: they studied the substance of wages and prices beyond supply and demand; they also examined the foundations of economic growth and accumulation—that is, the sources of the “wealth of nations,” as Smith put it, or “the laws of motion of capitalist production,” as Marx put it. They further sought to understand the basis or logic of the distribution of economic surplus, that is, the origins of the various types of income: wages/salaries, interest income, rental income, and profits.

To this end, they distinguished two major types of work or economic activity: productive and unproductive, that is, productive labor and productive enterprise (manufacturing) versus unproductive labor and unproductive enterprises (buying and selling, or speculation). Accordingly, they saw the capitalist social structure as consisting of different classes of conflicting or antagonistic interests: capitalists, workers, landlords, tenants/renters, and the poor.

These classical economists wrote in an era that could still be considered a time of transition: transition from feudalism to capitalism. Although feudalism was in decline, the powerful interests vested in that older mode of production and social structure still fiercely resisted the rising new mode of production, the modern industrial capitalism, and its champions, called the “bourgeoisie.”

In the second half of the 18th and first half of 19th centuries, the conflicting interests of these two rival factions of the ruling elites served as powerful economic grounds for a fierce political/ideological struggle between the partisans of the two sides. Whereas the elites of the old system viewed the rising bourgeoisie as undermining their traditional rights and privileges, the modern capitalist elites viewed the old establishment as hindering rapid industrialization, “proletarianization” and urbanization.

In the ensuing ideological battle between the champions of the old and new orders, the writings of classical economists such as Smith, Ricardo and Mill proved quite helpful to the proponents or partisans of the new order. As influential intellectuals who were concerned that the hindering influences and extractive businesses of the old establishment may hamper a clean break from pre-capitalist modes of economic activity, they wrote passionately about what created real values and/or “wealth of nations,” and what was wasteful and a drain on economic resources. To this end, their writings included lengthy discussions of the labor theory of value—the theory that human labor constitutes the essence of value—and related notions of productive and unproductive activities.

Accordingly, they characterized the propertied classes that reaped income by virtue of controlling the assets (that the economy needed in order to function) as the “rentier,” “unproductive” or “parasitic” classes. Rentier classes collect their unearned proceeds from ownership “without working, risking, or economizing”, wrote John Stuart Mill of the landlords and money-lenders of his day, arguing that “they grow richer, as it were in their sleep” [4].

Unsurprisingly, during the early stages of industrial revolution, when the old establishment still posed serious challenges to the relatively new and evolving capitalist mode of production, the view of human labor as the source of real values, expounded by Karl Marx and other classical economists, provided a strong theoretical case for industrial expansion and/or capitalist development. “In its earliest formulations, the labor theory of value reflected the perspective of, and was serviceable in the fulfillment of the objective needs of, the industrial capitalist class” [5].

Although the rising capitalist class found the labor theory of value (and its logical implications for class conflicts) potentially “disconcerting,” that concern was temporarily pushed to the backburner, as the main threat at this stage of capitalist development came from the landowning/rentier classes, not the working class. Indeed, history shows that in nearly all the so-called “bourgeois-democratic” revolutions, signifying the historical transition from pre-capitalist to capitalist formations, the burgeoning working class, the newly proletarianized peasants, sided with the bourgeoisie against its pre-capitalist nemesis.

By the mid-19th century, however, this pattern of social structure and/or class alliances was drastically changed. Concentration of capital and the rise of corporation had by the last third of the 19th century gradually overshadowed the role of individual manufacturers as the drivers of the industrial development. In place of owners/managers, more and more “corporate managers were hired to direct and oversee industrial enterprises and to channel profits automatically as part of a perpetual accumulation process. . . . Increasingly, profits and interest came to be the result of passive ownership,” similar to absentee landownership of the feudal days [6].

Along with agricultural production on an increasingly capitalistic basis, these developments meant a radical reconfiguration of social and/or class alliances: the industrial bourgeoisie and the landowners were no longer adversaries, as they were all now capitalists and allies; and the working class, which had earlier supported the bourgeoisie against the landed aristocracy, was their class enemy. What added to the fears of the capitalist class of the growing and relatively militant working class was the spread of Marx’s theory of “labor as the essence of value and economic surplus,” which was by the mid- to late-19th century frequently discussed among the leading circles of industrial workers.

These changes in the actual social and economic developments, in turn, prompted changes in the ruling class’s preferences regarding theories of capitalist production and/or market mechanism. Industrial capitalists who had earlier used the labor theory of value to their advantage in their struggle against the old, pre-capitalist establishment were now quite fearful of and hostile to that theory. Instead, “the theoretical and ideological needs of the owners of industrial capital became identical with those of the landlords and merchant capitalists. They all needed a theory that sanctioned their ownership” [7]; a theory that obfuscated, instead of clarifying, the origins of real values and the sources of wealth and/or income—hence, the shift from classical to neoclassical economics.

The formal theoretical shift from classicism to neoclassicism was pioneered (in the last three decades of the 19th century) by three economists: William Stanley Jevons, Carl Menger and Leon Walras. A detailed discussion of these pioneers of neoclassical economics is beyond the purview of this essay. Suffice it to say that all three categorically shunned the labor theory of value in favor of utility theory of value, that is, “value depends entirely upon utility,” as Jevons put it.

At the heart of the theoretical/philosophical shift was, therefore, the move from labor to utility as the source of value: a commodity’s value no longer came from its labor content, as classical economists had argued, but from its utility to consumers. The new paradigm thus shifted the focus of economic inquiry from the factory and production to the market and circulation, or exchange.
By the same token as the new school of economic thought abandoned the classicals’ labor theory of value in favor of the utility theory of value, it also discarded the concept of value, which comes from human labor, in favor of price, which is formed (in the sphere of circulation or market) by supply and demand interactions. Henceforth, there was no difference between value and price; the two have since been used interchangeably or synonymously in the neoclassical economics.

Once the focus of inquiry was thus shifted from how commodities are produced to how they are bought and sold, the distinction between workers and capitalists, between producers and appropriators, became invisible. In the marketplace all people appear as essentially identical: they are all households, consumers or “economic agents” who derive utility from consuming commodities, and who pay for those commodities “according to the amount of the utility/pleasure they derive from their consumption.” They are also identical in the neoclassical sense that they are all “rational,” “calculating,” and utility “maximizing” market players.

An obvious implication (and a major advantage to the capitalist class) of this new perspective was that in the marketplace social harmony and “brotherhood,” not class conflict, was the prevailing mode of social structure. “The supposed conflict of labor with capital is a delusion,” Jevons asserted, arguing that

“We ought not look at such subjects from a class point of view,” because “in economics at any rate [we] should regard all men as brothers” [8].

It should be pointed out (in passing) that the utility theory of value did not start with Jevons. The theory had already been spelled out in the late 18th and early 19th centuries by earlier economists such as Jeremy Bentham, Jean-Baptiste Say, Thomas Malthus and Claude Frédéric Bastiat. However, Jevons and his utilitarian contemporaries of the second half of the 19th century added a new concept to the received theory: the concept of marginal utility or, more specifically, diminishing marginal utility. According to this concept, the utility derived from the use or consumption of a commodity diminishes with every additional unit consumed.

Despite the fact that Jevons’ addition of the concept of marginal utility to the received utility theory of value was conceptually very simple (indeed, the whole concept of utility and the so-called “law of diminishing marginal utility” are altogether banalities or truisms), it nonetheless proved to be instrumentally a very important notion in the neoclassical economics. For, the term “marginal” was soon extended to other economic categories such as marginal cost, marginal revenue, marginal propensity to consume, and the like; thereby paving the way for the application of differential calculus to economics. “By introducing the notion of marginalism into utilitarian economics, Jevons had found a way in which the utilitarian view of human beings as rational, calculating maximizers could be put into mathematical terms” [9].

Whereas the utilitarian views of the earlier economists had been firmly discredited in the late 18th and early 19th centuries by proponents of the labor theory of value as truisms that did not explain much of the real world economic developments, the math-coded utilitarianism of Jevons (and his fellow neoclassicals since then) has been shielded from such criticisms by a protective cover of mathematical veneer. Despite the fact that, aside from the mathematical mask, the new notion of utility represented no conceptual or theoretical advances over the earlier version, it was celebrated as a “revolution” in economic thought, the so-called “neoclassical revolution.” Presenting a body of largely axiomatic principles, or religious-like normative guidelines (such as how “rational” consumers should behave), by means of elaborate and mesmerizing mathematics is like covering weeds with Astroturf.

Despite its irrelevance and uselessness, neoclassical economics is neither uninteresting nor illogical. Within its own premises and presuppositions it is both logical and mathematically rigorous, which explains why it is packaged as a scientific discipline. But, again, it falls pitifully short of explaining how real world markets or economies work, or how economic crises, as inherent occurrences to a capitalist economy, take place; or what to do to counter such crises that would help not only the capitalist/financial elites but the society at large. Although most mainstream economists proudly characterize their discipline as scientific, adornment of the discipline by a façade of mathematics does not really make it scientific. In reality, the math superstructure simply masks the flawed or unreliable theoretical foundation of the discipline.

It follows from the discussion presented in this essay that a driving force behind the evolution of economics as a dismal and obscuring discipline is the role of influential vested interests and/or the dominant ruling ideology. In a critique of mainstream/neoclassical economists’ blatant disregard for actual developments in the real world, economics Professor Michael Hudson writes:

“Such disdain for empirical verification is not found in the physical sciences. Its popularity in the social sciences is sponsored by vested interests. There is always self-interest behind methodological madness. That is because [professional] success requires heavy subsidies from special interests who benefit from an erroneous, misleading or deceptive economic logic. Why promote unrealistic abstractions, after all, if not to distract attention from reforms aimed at creating rules that oblige people actually to earn their income rather than simply extracting it from the rest of the economy?” [10].

Why or how is it that most economists are either unaware or pretend to be unaware of the specious theoretical foundations of their discipline?
A charitable answer is that perhaps the majority of economists who teach their discipline or otherwise work as economic professionals are not necessarily guilty of obfuscation, or deliberately promoting a faulty paradigm. Many economists sincerely believe in the integrity of their discipline as they carry out highly specialized research or produce scholarly publications. Economists’ confidence or faith in their discipline, however, does not make it any less flawed. They simply teach or carry out elaborate scholarly research work within a faulty paradigm without questioning, or even detecting, some of the submerged defects that makes the discipline not only irrelevant and useless but indeed harmful, as it tends to create more confusion than illumination or understanding.

It can also be argued that since most economists are deeply wedded to their profession, and are dependent on it as the source of both intellectual and financial survival, they would most likely be in denial, and would continue working within the only academic tradition or professional path they know how to navigate, even if they suspected or realized the esoteric and irrelevant nature of their discipline.



Ismael Hossein-zadeh is Professor Emeritus of Economics (Drake University). He is the author of Beyond Mainstream Explanations of the Financial Crisis (Routledge 2014), The Political Economy of U.S. Militarism (Palgrave–Macmillan 2007), and the Soviet Non-capitalist Development: The Case of Nasser’s Egypt (Praeger Publishers 1989). He is also a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press 2012).

Notes

[1] Michel Chossudovsky and Marshall, G.A. (eds.) The Great Global Economic Crisis, Montreal, Quebec, Canada: Center for Research on Globalization (2010, p. xviii).

[2] As quoted in Gordon Bigelow, “Let There Be Markets: The Evangelical Roots of Economics,” Harper’s, May issue: http://harpers.org/archive/2005/05/let-there-be-markets/.

[3] William Vickery, Microeconomics, New York: Harcourt, Brace, and World, 1964, p. 5.

[4] As quoted in Michael Hudson and Dirk Bezemer, “Incorporating the Rentier Sectors into a Financial Model,” World Economic Review, http://wer.worldeconomicsassociation.org/article/view/36.

[5] E. K. Hunt, History of Economic Thought: A Critical Perspective, New York and London, M.E. Sharpe 2002, p. 282.

[6] Ibid., p. 283.

[7] Ibid.

[8] As quoted in ibid., p. 254.

[9] Ibid., p. 252.

[10] Michael Hudson, “Krugman’s Attack on my Review of Samuelson,” http://michael-hudson.com/2009/12/krugmans-attack-on-my-review-of-samuelson/.

CELA VOICE

PROMOTING FAIRNESS AND EQUALITY IN THE WORKPLACE

Low wages & unpredictable schedules: A toxic combination for part time employees

By Charlotte Fishman


In a society that blurs the lines between corporations and people, perhaps it was inevitable that some employers would blur the lines between people and inanimate objects.  Even so, it is shocking to learn that in a growing number of low wage industries, employers  treat part time employees as fungible, disposable assets, instead of human beings worthy of  respect.

Part time workers who toil in retail, food service, and janitorial jobs often find that their time is treated like just another production cost to be sacrificed on the altar of “maximizing profitability.”  They may be kept “on-call” with no compensation, assigned shifts with short notice, or burdened with unpredictable, fluctuating hours.  Even if scheduled to work, they may be told “we don’t need you today,” and sent home empty-handed.

When the labor needs of a business increase, a part time employee’s request for increased hours or  full time work is often denied.  Why? It is more “cost effective” to hire an additional part time worker than to pay a current employee the statutorily mandated benefits that come with increased hours.  Job security is illusory.  Nothing stops an employer from firing a part time employee who refuses to come in on short notice, even if the cause is a sick child or inability to rearrange an established childcare schedule at the last moment.

In addition to being inhumane, these insecurity-inducing employment practices take a huge toll on the  nation’s economic and social health. Without a predictable schedule, how can a low skilled worker improve his or her employability through education? How can a working mother arrange for stable childcare? How can a low wage worker take on additional part time employment to raise the family income above poverty level?

Scheduling abuse of low wage part time workers is a serious social issue that is finally getting the attention it deserves.   On July 22, California Representative George Miller and Connecticut Representative Rosa DeLauro introduced  H.S. 5159, “The Schedules that Work Act” in the House of Representatives.   A companion bill sponsored by Senators Elizabeth Warren and Tom Harkin will be taken up by the Senate.

“The Schedules that Work Act” is characterized by its proponents as a conversation starter about the devastating effect of unreasonable scheduling demands – a practice that has become commonplace in industries as diverse as Big Box stores, fast food chains and multi-national banks.  If enacted, it would prevent retaliation against employees who ask for schedule adjustments;  create an interactive process for employees to obtain accommodation for caregiving responsibilities, classes, second jobs, and other needs;  require employers to provide at least two weeks advance notice of work schedules; and provide at least some compensation for last minute schedule changes, split shifts and early dismissals.

Unfortunately, the bill’s provisions, modest as they are, may be too controversial to pass the gridlock in Congress.  While employer-side representatives loudly proclaim the benefit of flexible part time schedules for both employers and employees, the Bureau of Labor Statistics reports  that roughly 7.5 million employees are working part time only because their hours were cut or they were unable to find full time work.

This is not to say that flexible part time scheduling can never be beneficial for employees.  A predictable flexible schedule — one that enables part time employees to take a second job, to enroll in a training course or to provide care for family members – would be highly desirable to many.

There are hopeful signs of change to come at the local level.  In San Francisco,  Supervisor Eric Mar is poised to introduce the aptly named “Retail Workers Bill of Rights” to the Board of Supervisors at its July 29 meeting.   The proposed ordinance targets “formula retail” businesses,  a designation that includes chain stores, fast food restaurants, and multi-national banks.   Among the rights granted to employees are the right to  four hours pay for “on call” time or shift cancellation on short notice and the right to be offered additional hours before  any new part time workers are hired. The bill is supported by Jobs with Justice, a broad coalition of labor, community and small business groups.

The families of part time low wage workers need and deserve help creating a path out of their current predicament.  The toxic combination of low wage employment and unpredictable schedules is a form of involuntary servitude that should have no place in 21^st century America.

 

About Charlotte Fishman

Charlotte Fishman is a San Francisco attorney with over 30 years of experience handling employment discrimination cases on the plaintiff side. In 2005 she launched Pick Up the Pace, dedicated to overcoming barriers to women’s advancement in the workplace through legal advocacy and public education. She has authored amicus curiae briefs in major cases before the United States and California Supreme Court and writes and speaks to a wide audience on cutting edge employment issues affecting women.

Surrealistic rule in the Silicon Valley

Jim Hightower

Surrealistic rule in the Silicon Valley

Monday, November 10, 2014   |   Posted by Jim Hightower

Listen to this Commentary

 

Silicon Valley, located somewhere between sensational and silly, has long been led by entrepreneurial billionaires with a surreal relationship to people in the normal workaday world.

Thus, the tech "geniuses" who rule the rarefied Silicon stratosphere not only hold some of the most insensitive and stupid beliefs – but occasionally utter them aloud. For example, Satya Nadella, CEO of Microsoft, recently gave an astonishing bit of advice to women working for high-tech firms. It's not "good karma" for women to ask for pay raises, he lectured. Instead, just trust corporate bosses to do the right thing, "knowing and having faith that the system will actually give you the right raises as you go along."

Bizarrely, Nadella chose to cough up this completely clueless comment at a conference of women celebrating their role in the technology industry! Scorched immediately by media and public outrage, he tried to quell the firestorm by apologizing, then announcing that all Microsoft workers would henceforth receive "expanded training on how to foster an inclusive culture" in the workplace. Earth to Satya: It's not your employees who need expanded training – it's you.

Group therapy aside, improving Microsoft's culture requires opening up a closed system, providing real steps to rectify the imbalances women face in an industry that's notoriously unfriendly to them. For starters, note that at present only 29 percent of Microsoft's employees are female and that women hold only 17 percent of its high-paying engineering and executive positions.

By the way, how did CEO Nadella get his $84 million-a-year pay package? I'm guessing he demanded it, "good karma" be damned. For more information on Silicon Valley's embarrassing "female problem," connect with the workplace advocacy group, UltraViolet: www.WeareUltraViolet.org.


"Microsoft CEO launches training after pay gaffe," Austin American Statesman, October 18, 2014.

"Furor rages over CEO's comments on women's pay," Austin American Statesman, October 11, 2014.
"Karma and the cloud at Microsoft," USA Today, October 20, 2014.
"More Episodes of Clueless in Silicon Valley:  What does the reaction say about us?," www.celavoice.org, October 28, 2014.

How JPMorgan Chase Helped Wreck the Economy and Avoid Prosecution

Democracy Now! / By Amy Goodman, Juan González

Matt Taibbi and Bank Whistleblower on How JPMorgan Chase Helped Wreck the Economy and Avoid Prosecution

A whistleblower reveals how JPMorgan Chase got away with cratering the economy.

November 7, 2014  |  

The following is a transcript of a Democracy Now! segment. 


JUAN GONZÁLEZ: A year ago this month, the Justice Department announced the banking giant JPMorgan Chase would avoid criminal charges by agreeing to pay $13 billion to settle claims that it had routinely overstated the quality of mortgages it was selling to investors. When the toxic mortgage securities started turning bad, investors lost faith in the banking system, and a housing crisis turned into the 2008 financial crisis that led to millions of home foreclosures. New York Attorney General Eric Schneiderman unveiled the settlement last November.

ATTORNEY GENERAL ERIC SCHNEIDERMAN:Not only will Chase have to pay the largest settlement ever levied against a financial institution, but it has admitted in our statement of facts that its own employees, employees of Bear Stearns and employees of Washington Mutual made material misrepresentations to the investing public about a large number of residential mortgage-backed securities that they issued prior to the crash in 2008. This settlement is a major victory in the fight to hold accountable those who were responsible for that crash.

AMY GOODMAN: Soon after the JPMorgan Chase deal was reached, U.S. Attorney General Eric Holder discussed the bank’s misdeeds during an interview with NBC News’ Pete Williams.

ATTORNEY GENERAL ERIC HOLDER: It packaged loans that it knew did not pass its own stated due diligence test. We have a whistleblower who indicated that she expressed concerns about what the strength of these mortgage-backed securities were, and they put them out there to the market and said that they were perfectly fine, when in fact they were not.

PETE WILLIAMS: So, to be clear, you’re saying that JPMorgan’s conduct here contributed to the housing collapse?

ATTORNEY GENERAL ERIC HOLDER: Not only the conduct of JPMorgan, it was the conduct of other banks doing similar kinds of things that led directly to the collapse of our economy in 2008 and in 2009.

JUAN GONZÁLEZ: During that interview, Attorney General Eric Holder mentioned the role of an unnamed whistleblower from JPMorgan Chase who aided the Justice Department’s case against the bank. Well, until this week, that whistleblower, Alayne Fleischmann, a securities lawyer who worked for JPMorgan, had never spoken publicly about what she witnessed inside the bank. That changed yesterday when Rolling Stone magazine published a major new piece by Matt Taibbi headlined "The $9 Billion Witness: Meet the woman JPMorgan Chase paid one of the largest fines in American history to keep from talking."

AMY GOODMAN: In the article, Alayne Fleischmann criticizes not only JPMorgan’s banking practices, but how government regulators at the Holder Justice Department responded to the bank’s lawbreaking. Today, in her first televised interview, Alayne Fleischmann joins us here on Democracy Now!, along with Matt Taibbi, who has closely covered the financial crisis for years. His latest book, Divide: American Injustice in the Age of the Wealth Gap, has just come out in paperback.

And we welcome you both to Democracy Now! for the hour.

MATT TAIBBI: Thanks for having us on.

AMY GOODMAN: So, Alayne Fleischmann, start at the beginning. Why did you decide to come forward? And how did you end up at Chase?

ALAYNE FLEISCHMANN: Sure. For a long time, I was expecting it to come out. I’ve been talking to the government for two-and-a-half years now. And first it went through the SEC. Then it went through the Civil Division of the DOJ. And at some stage after watching all of these major banks have deals that actually the facts get wiped away, I started to feel that if I don’t come forward, there’s a real chance of that happening here, too.

In terms of JPMorgan Chase, I started there in March 2006 at sort of the height of the boom. When I started, everything seemed normal. I didn’t really realize some of the things that were happening in the background. And then things started to change in about May, a couple months after I had been there.

JUAN GONZÁLEZ: Well, what—when you went to work there, what specifically was your job? And if you could walk us through how you began to realize the huge problem that the bank was a part of?

ALAYNE FLEISCHMANN: Sure. I started as what they call a deal manager. Basically, we coordinate between all these different groups when we’re bringing in these loans, that are then going to be sold to investors. I first noticed that there was a problem when they brought in a new person to do our diligence, which is just the review of the loans themselves to make sure they’re of good quality. As soon as he came in, we suddenly—this wall sort of came down between myself and the group that was doing this review, and you couldn’t get information that you would normally get. On top of that, there was immediately a sort of a no-email policy. He wouldn’t send emails, and we weren’t allowed to send him emails. He would actually come out and yell at you if you sent him an email.

AMY GOODMAN: What was the reason?

ALAYNE FLEISCHMANN: It was never given, which was extremely worrisome, because normally the reason why you have a compliance and diligence department is to actually have written policies about what you’re doing, to be able to explain to people how you’re making your decisions. So it’s exactly the opposite of what you would normally expect.

JUAN GONZÁLEZ: And when you say to review the quality of the loans, if you could—

ALAYNE FLEISCHMANN: Sure, yes.

JUAN GONZÁLEZ: —for people who are not aware—you were, in essence, certifying that these individual loans could be packaged into a group of securities to then be sold to investors in a huge package, right? But you had to go through every individual loan? Was that—

ALAYNE FLEISCHMANN: Yeah, that’s pretty much what happens. It’s really that you’re taking the actual loan files, that was done between the lender and the borrower, and looking at them to make sure everything looks right. Does this person have enough money to pay off their loan? Do they have the sort of history where we think that they’re going to pay this loan? And if we find that they don’t, then we’re actually not supposed to purchase the loans, and certainly shouldn’t be selling them to other investors without at least telling them there’s something wrong with them.

AMY GOODMAN: And so, what was the smoking gun for you?

ALAYNE FLEISCHMANN: Everything about—what really started happening—in particular, it became apparent in October—was that sometimes we had deals coming in where even though I wasn’t even the person looking at the loans, you could tell from where I was that something was wrong with them. The GreenPoint deal, which is what Matt talks about in his article, even when the loans came in, they were very, very old, which usually you try to actually pull these loans and sell them within two to three months—these loans were going back to close to the beginning of the year. If you work in the industry, you know immediately what that means, is either they couldn’t sell them, because the buyers were telling them they weren’t any good, or, even worse, they’d been sold and then had missed a bunch of payments, so they had actually been sold back to the originator. Any of those loans you wouldn’t normally sell to investors as regular loans.

JUAN GONZÁLEZ: Now, Matt, you’ve referred in your article to these loans as basically selling old, beat-up used cars—

MATT TAIBBI: Right.

JUAN GONZÁLEZ: —as if they were new. Could you explain that?

MATT TAIBBI: Yeah, that’s exactly what Alayne is talking about. Essentially, what the bank was doing was they—you know, there are companies out there, these mortgage lenders, like a company that might be familiar to people is, like, Countrywide—in this case, it was an originator called GreenPoint—they would go out into neighborhoods, and during this boom period, they were giving mortgages to anybody and everybody with a pulse, essentially. They were especially low-income neighborhoods. They were offering these very advantageous loans to people, whether they could afford the houses or not. They were buying huge masses of these loans. And then they were—

JUAN GONZÁLEZ: They were called like "liar’s loans," or stated income where no one even checked whether the person had the income to actually pay it off.

MATT TAIBBI: That’s exactly right. That’s exactly right. That was the verbiage, "liar’s loans." The FBI warned that there was going to be an epidemic of these liar’s loans way back in 2004. The industry ignored these warnings. The government ignored these warnings. And there was this huge influx of these stated income loans, where people could just say that they made an enormous amount of money, and nobody would check.

So the bank buys all these loans, and then what they were doing is essentially throwing them into big pools, making hamburger out of them, and then selling that hamburger to pension funds, insurance companies, hedge funds, all kinds of investors. Typically ordinary people were the people on the other end buying this stuff. They were investing in these securities, and often they didn’t even know it.
What Alayne was involved with was making sure that these loans were of good quality, so that pension funds, when they bought these securities, weren’t buying something that was going to blow up on them a year later. And what she found was that they were buying loans that were of very dubious quality, that were extremely risky, and that should not have been made into that hamburger.

***
AMY GOODMAN:  Last November, Attorney General Eric Holder appeared on NBC News just after the JPMorgan Chase settlement was reached. He was questioned by NBC’s Pete Williams.

PETE WILLIAMS: What about those who say, "Well, the message here is, if you do wrong, you just pay for it and move along"?

ATTORNEY GENERAL ERIC HOLDER: This was not simply something that JPMorgan simply signed a check and smilingly said, "This is a good deal for us." This inflicts pain on that institution.

PETE WILLIAMS: But is this, in essence, a sort of template? We can expect to see other settlements now?

ATTORNEY GENERAL ERIC HOLDER: I certainly think that the way in which this case has been settled is a template of what we can expect, both in terms of getting maximum amounts of money and then using that money so that we get it to people who suffer the greatest amount—that is, either investors or homeowners.

AMY GOODMAN: That’s Attorney General Eric Holder. Alayne Fleischmann, let’s take it back a step. When you started to alert your colleagues and your supervisors at JPMorgan Chase, what did they say?

ALAYNE FLEISCHMANN: Well, what happened was the transaction, at one point, just stopped. It turned out that 40 percent of the loans in this deal had problems with them. When we tried raising this issue with our superiors, what actually happened is they just started yelling at the diligence managers who were clearing the loans, sort of yelling, berating them, making them do reports over and over again. And it became clear that, although they wouldn’t say it, it was going to be like that until they would clear the loans. So what actually happened is these loans started being cleared, but basically just by sort of the brute force of what was going on there.

I raised it first with a managing director and an executive director, and couldn’t get any response. After that, I decided the best possibility would be to write a letter to another managing director that actually laid out everything I was seeing. I used the GreenPoint deal as an example, which is why the letter specifically says exactly who was doing what all over this deal. But it also lays out general problems in our diligence that the salespeople were being involved, which isn’t normal, and that there seemed to be a lot of pressure on diligence managers to clear loans that shouldn’t have been purchased or sold.

JUAN GONZÁLEZ: And the importance of putting it down in a—

ALAYNE FLEISCHMANN: Yeah.

JUAN GONZÁLEZ: —putting all the facts down in a letter, what that meant inside the company?

ALAYNE FLEISCHMANN: Yeah. Well, what it used to be is that the way that you could stop these things from happening was, if you write a memo that lays out what’s happening, the management won’t go forward, because they realize that if they do, there’s going to be this evidence of what happened.

JUAN GONZÁLEZ: There’s going to be a paper trail of the—mm-hmm.

ALAYNE FLEISCHMANN: Yeah. The big worry with these settlements and the way they’re being done—and I’m not the only whistleblower in these cases—is that you have these emails and these memos, but nothing happens. A fine gets paid, and then all of the facts and who did what gets washed away. So, as a whistleblower, you’re thinking, "I did all of this, and the DOJ has all of this, but for some reason they’re not going forward on it."

AMY GOODMAN: So, what happened when you went outside the company? How did you go outside?

ALAYNE FLEISCHMANN: Well, one issue I had is that although I warned not to securitize the loans, there was no way—I was blocked off, especially after I had raised complaints, from being able to see any of the data or the diligence process, which right there shows that something was wrong. So, after I left JPMorgan, I actually had no idea, for a full four years, that the loans had been securitized. On one hand, I was worried they would, but I really thought no one would ever actually securitize those loans.

MATT TAIBBI: This is an important distinction—

ALAYNE FLEISCHMANN: Yeah.

MATT TAIBBI: —because Alayne had no idea that a crime had been committed until she had concrete knowledge that the loans had actually been resold to somebody else. They’re certainly allowed to buy as many bad loans and as many risky mortgages as they want. It’s not until they go to some investor and represent to them that these are, you know, AAA-rated securities or whatever, or highly rated securities, that they’re actually committing fraud. And so, she had no way of knowing that. Even after she was laid off from the company, she had no knowledge of what actually happened. So she couldn’t actually report the crime yet, because she only saw one half of the deal.

JUAN GONZÁLEZ: And you were laid off in—at the beginning of 2008, right?

ALAYNE FLEISCHMANN: Eight, yeah.


JUAN GONZÁLEZ: Yeah, actually before the crash. Already there was turmoil—

ALAYNE FLEISCHMANN: Yeah.

JUAN GONZÁLEZ: —in the home loan market, but there was not—the crash had not happened.

ALAYNE FLEISCHMANN: Right.

JUAN GONZÁLEZ: And so that the bank, when Jamie Dimon and other leaders later said that they had no realization that the market was tanking as fast as it could, at least your memos were certainly indicating to them that there were major problems in their portfolios.

MATT TAIBBI: Well, what’s funny is they actually said two completely opposite things. There was an article in Fortune magazine later in 2008 in which they report that Jamie Dimon, the CEO of the company, knew as early as October of 2006 that the industry was rife with underwriting problems, all the things that Alayne is talking about. The company was aware of this, and there are quotes in which the CEO is telling his subordinates, "We’ve got to get out of these investments, because this whole thing can go up in smoke." And then, meanwhile, so Chase is selling its own investments in these kinds of mortgages, but they’re taking these same mortgages and selling them to investors and not telling them that they have these concerns. Later, when they testify in front of the Financial Crisis Inquiry Commission in 2010, Dimon said exactly the opposite. He said, essentially, "Well, we had no idea that these things were happening. We got caught up in the fact that housing prices were just going continually upward."

AMY GOODMAN: So, talk about the settlement. What happened next?

MATT TAIBBI: Well, so, the settlement happened in—I guess, a year ago about this month. And what’s interesting about it is, Alayne, by that point, had already talked to civil investigators in the U.S. Attorney’s Office in Sacramento, and she talked to some very talented lawyers there who seemed very anxious to press this case. And they were about to release a very detailed civil complaint against Chase in September of last year, and just hours before that press conference, when they were going to announce that, reportedly, Jamie Dimon, again, the CEO of Chase, called up the assistant attorney general, asked to renegotiate, and they canceled the press conference, and they went back into negotiations. And a few months later, they had a settlement in which they paid a lot of money, but none of the facts came out in that.

AMY GOODMAN: Just like if you were in trouble, you could make that call.
MATT TAIBBI: Yeah, I could call up—yeah, I could call up the mayor or the president and have a court case go away. I mean, that’s exactly what happened in this case, is they basically put in a phone call to the very top of the criminal justice system.

JUAN GONZÁLEZ: And what happened to your contacts with the Justice Department, if you could talk about that, that process? How detailed did they want to get into the information that you had?

ALAYNE FLEISCHMANN: Well, my first contact, it was actually after four years. I was working in Calgary, and I got a call from the SEC.

AMY GOODMAN: Because you come from Canada.

ALAYNE FLEISCHMANN: Yeah. He introduced himself as an investigator from the Enforcement Division. And as I sort of paused for a minute, jokingly, he then said, "You weren’t expecting to hear from me, were you?" And after that, they set up my first interview with the SEC, which was very short. It was only maybe an hour, hour and a half. They were only interested in one deal. And even though I kept bringing up GreenPoint and they had the letter that I had written, they weren’t actually interested in that. And the SEC settlement was based on that other deal.

And then, it wasn’t until later, about December 2012, that I first met with the DOJ investigators. And it was very clear that this was going to be very different. As soon as they walked in, you could tell they knew these securities up and down, and they were really anxious to go forward with it and felt very comfortable going forward with the case. So, in that meeting, it was a very detailed meeting, sort of hours of going through how the process works and what happened. And then I had an actual deposition in about May of 2013, where they nailed down a lot more of that.

And you could see at that stage—first, I got to find out for the first time ever how many of these loans had actually gone into—had been sold to investors in sort of one pool, and it was hundreds of millions of dollars’ worth of them, with nothing actually disclosed about the problems with the loan. And then, second, I got to really see what their case was, and they clearly realized they had an incredible case there.

AMY GOODMAN: Testifying before the Senate Judiciary Committee in 2013, Attorney General Eric Holder suggested some banks are "too big to jail."

ATTORNEY GENERAL ERIC HOLDER: I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large. Again, I’m not talking about HSBC; this is just a more general comment. I think it has an inhibiting influence—impact on our ability to bring resolutions that I think would be more appropriate.

AMY GOODMAN: Matt Taibbi, respond to what Attorney General Eric Holder has testified.

MATT TAIBBI: Well, again, I mean, it’s a crazy thing when the leading law enforcement official in the nation comes out and says, "Well, some companies are just so big that we can’t prosecute them no matter what they do." In that case, he was speaking—he was testifying in the wake of a settlement the government had entered into with HSBC, which is the biggest bank in Europe and the biggest bank in Great Britain, which had admitted to laundering over $800 million for a pair of Central and South American drug cartels. And if you can’t send someone to jail for laundering $800 million of drug money, you know, because the company is too big, clearly something is very seriously wrong. But yet, this became sort of the unofficial official policy of the Justice Department. And this greatly affected the way they dealt with companies like JPMorgan Chase, like Citigroup, like Bank of America. They tried to find a way to effect some kind of resolution that didn’t involve criminal charges, didn’t involve penalties to individuals, and also didn’t put the facts of any of what they had actually done out into the public.

JUAN GONZÁLEZ: And in that vein, this is—you know, it’s the old Monopoly board game all over again, get out of jail free. Instead of paying $200 to get out of jail, you pay $2 billion to get out of jail. But the amounts of money that these governments are getting as a result of this—I mean, I just checked with the New York state comptroller. New York state alone, this year, is getting out of its bank settlements with Wall Street a windfall of $5 billion. That’s just New York state. Other states are getting their share, and of course the federal government is getting huge infusions. And so, they suddenly have all this cash. And then they also had this other stuff that you’ve talked about, which is consumer relief—

MATT TAIBBI: Right.

JUAN GONZÁLEZ: —apportions. So, the governments actually get cash settlements, but then they supposedly negotiate additional money for the citizens, a consumer relief. Could you talk about that?

MATT TAIBBI: Well, OK, there’s a couple of things here. First of all, these settlements, they always come up with a big number, but the number is always actually—when you actually look at the accounting, it turns out to be smaller than they announce. In the case of the Chase settlement, the number they announced was $13 billion. But there’s a couple of really important factors here. One is that $7 billion of that—it’s $7 billion, right?—was tax-deductible, which means that all of us, American citizens, anybody who pays taxes, actually picked up the check for about $2.4 billion worth of the settlement. So we paid part of that settlement, which is crazy. I mean, the ordinary person, if we get a speeding ticket, we can’t deduct that when we go to pay our taxes. But these people cratered the world economy, and they get to write a tax deduction for it.

Four billion dollars of the settlement was what they call consumer relief. And what this really boils down to, I mean, there’s some loan forgiveness, where they’re allowing people to pay less principal towards their home loans, but mostly it comes down to letting people have a little extra time to pay off their payments. And it’s not always the bank that is actually doing that; it’s often the investors in those loans who are actually giving the relief. So, it’s not really the bank paying $4 billion. It’s just a number.

AMY GOODMAN: I want to turn to President Obama speaking in September, when Attorney General Eric Holder announced that he would resign.

PRESIDENT BARACK OBAMA: He’s helped safeguard our markets from manipulation and consumers from financial fraud. Since 2009, the Justice Department has brought more than 60 cases against financial institutions and won some of the largest settlements in history for practices related to the financial crisis, recovering $85 billion, much of it returned to ordinary Americans who were badly hurt.

AMY GOODMAN: Matt Taibbi, your response?

MATT TAIBBI: Well, I mean, the first thing I would say is, OK, they brought a bunch of settlements and they collected a bunch of money, but there isn’t a single individual, in this entire tableau, who is actually individually paying any kind of penalty for any of these misdeeds. All of that money came out of the pockets of shareholders. No executives had to pay a fine. No executives had to do a single day in jail. There were not even charges filed against any individuals. And—
AMY GOODMAN: What was the actual crime you feel Jamie Dimon committed that you feel he should be in jail for?

MATT TAIBBI: Well, I can’t stand here and tell you that Jamie Dimon committed a crime. But certainly there are people in these companies, and in cases like Alayne’s case, who would be targets of criminal fraud prosecutions, and probably at a lower level than Jamie Dimon. I think it would be hard to prove, although who knows? Because they didn’t try. In a normal drug case, what you would do is you would take everybody who was guilty, and you would try to roll them up the chain and see how far you could go. And that’s exactly what they did not do in this case. They didn’t aggressively go after everybody. They didn’t follow every lead. Instead, they just sort of went into a back room, decided on a number and made the whole thing go away. And yes, that is a kind of justice, it’s a kind of resolution, but I think it’s insufficient.

JUAN GONZÁLEZ: In fact, as you note in your article, after the settlement agreement with JPMorgan Chase, the stock of the company went up dramatically, the stock price of the company went up dramatically, and Jamie Dimon ended up getting a huge raise from his board of directors.

MATT TAIBBI: Yeah, yeah, in the first weeks after the settlement was announced, the market capitalization of JPMorgan Chase went up 6 percent, which translated into about $12 billion worth of value. So that’s most of your settlement right there. Actually, it’s more than almost—more than the entire settlement, if you look at it as a $9 billion settlement. And yes, Jamie Dimon, just a few weeks after being dinged for the largest regulatory fine in the history of capitalism, got a 74 percent raise by the board of—by the Chase board.
AMY GOODMAN: And we’re going to break. When we come back, we’ll hear Senator Elizabeth Warren asking questions of Jamie Dimon about that raise. Stay with us.

Juan González is the co-host of the nationally syndicated radio news program, Democracy Now!.