Nuclear power is a rigged game that lets the federal government preempt state and local governments on most issues, according to Karl Grossman, professor at the State University of New York and author of a book on the subject, Power Crazy: Is LILCO Turning Shoreham Into America’s Chernobyl.

But he thinks that there is a way around the problem: using the power of eminent domain, a legal principle that allows states to condemn property if the owner refuses to sell. In the area of nuclear power, the approach was pioneered in New York during the 1980s to stop the completed Shoreham nuclear plant from opening. At the time advocates of nuclear power were hoping to create a “nuclear park” with seven to 11 plants.

The Long Island Power Act was passed by New York in 1985, creating a Long Island Power Authority (LIPA) with the power to seize the assets and stock of the utility behind the plan, the Long Island Lighting Company (LILCO), writes Grossman on Counterpunch, a website edited by Alexander Cockburn and Jeffrey St. Clair.

The federal government wanted Shoreham and the NRC had approved start-up operations. However, Grossman notes that by enacting the Long Island Power Act, which applied the power of eminent domain, New York was saying that if Long Island Lighting persisted the state would step in.

The NRC has never denied a construction or operating license for a nuclear plant in the United States. No new U.S. plants were ordered after the 1970s, but since then federal regulators have approved 20-year license “renewals” to more than half of the 104 US nuclear plants. It is currently considering the possibility of expanding that extension period to 80 years.

The Long Island Power Act “set forth a mechanism for getting rid of the utility by giving the public authority which it created the power to condemn the utility’s assets and stock,” explains Irving Like, a co-author of the law.

“With this we had the ability to tell LILCO: either you shut down the Shoreham plant or we will condemn you,” he said. Grossman believes a similar strategy could be used by Vermont.

Steve Liss, another co-author who served as counsel to the state legislature’s Environmental Conservation Committee, says eminent domain gives a state the power to act “in the public interest for a lawful purpose.” However, it must pay “fair market value” for what it condemns.

After enacting a legal foundation similar to the Long Island Power Act, Vermont could move against the assets of Entergy in Vermont, Liss argued last week. Another possible but extremely costly and complex strategy he mentioned would be for the state to acquire the utilities that distribute electricity from Vermont Yankee and own the transmission lines through which it runs, then refuse the energy and prohibit its transmission.

In 1989, LILCO abandoned Shoreham largely because of New York’s innovative legislative strategy and sold it for one dollar. It was subsequently decommissioned.

A combination of legal and grassroots strategies played a part in the victory; among them were anti-nuclear demonstrations, legal action by Suffolk County under the Racketeer Influenced and Corrupt Organizations (RICO) Act, and refusal of Suffolk and New York State to adopt a federally-required evacuation plan for the plant. Local governments meanwhile determined that evacuation of Long Island was impossible if a major nuclear accident occurred.

At the time, U.S. Energy Secretary John Herrington warned that if Shoreham didn’t open “the signals will be the low point in this [nuclear] industry’s history.” The closing of Vermont Yankee would have an equally significant impact.

In his ruling, US District Court Judge J. Garvan Murtha said that Vermont’s demand that Yankee be shut down was “grounded in radiological concerns,” an issue on which the federal government has “pre-empted” state and local governments.

Despite this setback, Grossman says an “end-run can be made around the would-be mandate of federal nuclear officials.”

It's all really quite straightforward. There is very little you need to know. The starting point in studying climate, obviously, is to study the actual record of temperatures. Duh. When we look at that record, from a variety of sources such as ice-cores, we see strikingly regular wave patterns. Little waves within big waves. Waves that interfere with other waves, and waves that appear and disappear at intervals. An El Nino event would show up as a brief and minor fluctuation. The biggest regular wave is the one that keeps us down in an ice age most of the time, and every 100,000 years or so raises us up for about 10,000 years – an inter-glacial period.

These patterns have been going on for millions of years. They obviously reflect the influence of natural forces of various kinds, which are pushing temperatures up or down, as indicated by each force's wave pattern within the total pattern. The picture is blurred a bit by random fluctuations, but you can pick out many individual waves patterns, with a characteristic shape, that show up at semi-regular intervals, over a wide range of time scales. We could give these wave patterns names, like x, y, z, which are due to forces X, Y, Z.

The wave patterns – x, y, z – are facts, just like day and night are facts. The nature of the forces – X, Y, Z – is the domain of theory. Those theories evolve, just as our explanation for day and night evolved beyond, 'the Sun travels around the Earth'. And there is only one measure to determine whether theory X makes any scientific sense: how well does it match x?

My role, as a climate investigator, is not to take sides in the XYZ theory debates; I simply acknowledge that there are XYZs of some kind out there somewhere. What I do, is refer theories back to the testing department, and see how well they match the data. The number of credible scientists who 'swear X is true' is just so much academic dysfunction, if X does not match x.

In addition to the xyz climate waves, due to temperature-driving forces, we have weather and ocean-current 'waves', that move heat (carried in water or water vapor) around the oceans and atmosphere in complex dynamic patterns. These 'waves' are symbolized by the swirling patterns you see in the clouds, when you see a photo of Earth from space. Weather and currents act as a complex regulatory system, the parameters of which we only understand in patches. One simple example of a regulatory mechanism is a hurricane. It only kicks in when there is excess surface heat, and then it transfers a significant percentage of that heat into the upper atmosphere, where it dissipates and radiates away. A hurricane is nature fanning one of the Earth's hot spots.

There is more complexity in the weather-current system nearer the equator, and less complexity nearer the poles. Ice core samples give the clearest picture of the underlying xyz climate-driving patterns, just as telescopes give the clearest view of space when they are high in the mountain, where terrestrial interference is minimized. The Greenland and Antarctic ice core records are the 'Hubbles' for seeing climate patterns most clearly for each hemisphere – and the hemispheres are quite different. To use some kind of global average as a 'climate record' is like trying to observe space from Times Square: "I see it now, the universe is a huge out-of-focus neon sign!"

The 'climate science' community has been telling us that Co2 is one of those climate-driving forces, and they say it's a very significant one. Their only real evidence for this claim is certain correlations that exist between temperature and Co2 levels, over certain periods of time. They then point to the dramatic rise in Co2 levels that have accompanied industrialization, and warn us of alarming temperature rises. Who needs a computer model to draw that conclusion, once you assume significant causation? Duh. Cut their budget and give them graph paper and pencils.

Let's take this Co2 theory back to the testing department. If Co2 is a significant climate-driving force, and if Co2 levels are dramatically rising, then we would expect to see an upward perturbation in the long-term pattern, a perturbation that steadily rises during the era of industrialization. However, if we take our Northern Hubble, look at the Greenland ice cores, and if we simply extrapolate the pattern as it is trending since 1900, when ice-core data stops, we get exactly the actual temperature levels. There is no perceptible perturbation from unusual recent forces of any kind.

From a physics perspective one can make the case that Co2 must have an upward perturbation effect as its concentration increases. This is indeed possible, perhaps even quite true, and if so only one conclusion can be drawn: the upward perturbation, whatever it might be, is lost in the noise of the weather-current regulation mechanisms. No sign of it can be found. Co2 is a non-issue, as far as climate is concerned. 

Who would possibly want to make a movie about a rogue journalist-turned-murder investigator and a bad-ass goth chick/computer hacker/rape victim who extracts revenge on her assailant by carving epithets into his chest?

If the movie was to be based on Stieg Larsson's wildly popular global smash novel "The Girl With The Dragon Tattoo," then the answer is "Hollywood," of course. And interestingly, director David Fincher's version of "Dragon Tattoo" is (already) version #2 of Larsson's story to appear on the silver screen (a capable Swedish rendition of the entire trilogy having already been completed in Norse country and released globally on dvd).

Fincher kicks off the film with a bang, featuring an opening credit sequence that plays like James Bond-meets-David Cronenberg, with an inspired interpretation of Led Zeppelin's "Immigrant Song" (is that really Trent Reznor helming the soundtrack?) as sonic backdrop. In short order, we meet beleaguered "Millennium" magazine news man Mikael Blomkvist (a twitchy Daniel Craig) and black-clad hacker Lisbeth Salander (Rooney Mara, who is mesmerizing), whose paths cross after a wealthy retired Swedish industrialist named Vanger (Christopher Plummer) hires Blomkvist to come camp out on his family island compound - in weather that is most foul, frigid, blustery, raw, and white - and investigate a missing family member whose forty year trail has gone cold. Salander, meanwhile, must contend with a Swedish state wardservant-cum-sexual predator who uses his control over her finances to extract perverse sexual favors. How Blomkvist and Salander's story plays out, I won't spoil for you here - no surprises, if you'd read the book.

Larsson tackles big themes in his story: privacy, family secrets, abusive corporate power (fascism, even), patriarchal society's violence against women (and an anti-heroine's revenge), the corruption of the state. Fincher's Hollywood script geekily garners heaps more product placement (Apple, Google, Wikipedia) and hews more closely to Larsson's novel than the Swedish film version, weaving skillfully between Blomkvist and Salander's unfolding stories. While the film doesn't probe into the thoughts and motivations of its characters, it does deliver a compelling story - readers of "Dragon Tattoo" will no doubt be presently surprised.

The tidal wave of home foreclosures is still rolling across the United States, devastating families and entire communities. By most reports, there are over a half-million homes sitting vacant, and more on the way.

A blog site that could only have been written by an Obama administration flack laments this “bleak” situation, but gives America the “good news” of the future.

“The Obama administration and independent federal regulators are formulating plans to sell government-controlled foreclosed properties to investors who would bring them onto the rental market. The aim is to reduce the number of vacant homes which depress housing prices and burden the economy while meeting an increasing demand for rental homes.”

In other words, having dispossessed millions of Americans of their homes and futures, and having purchased these homes at above market values from the fraudulent banks that held the mortgages — in order to rescue the 1 percent — the Obama administration, Congress and “independent” regulators will now sell these same homes back to the 1 percent at below market rates, so that the 1 percent can in turn rent them back to the 99 percent who lost them.

Welcome to the Obama nation: government of the 1 percent, by the 1 percent and for the 1 percent, and the continued redistribution of wealth to the already wealthy.

For 60 years home ownership has been the hallmark of the American middle class, and has set America apart from almost every other nation in the world. That’s over. Now, America will be ever more like the feudal Europe our forefathers kissed off — a nation of renters, their paychecks devoured in rents paid to the 1 percent.

It wasn’t enough that African Americans and other minorities were reduced to handouts on the federal plantation. Now, in the Obama nation, the entire middle class can be reduced to the status of serfs on the Wall Street manor.

It gets better.

As I reported months ago in this column, the administration is preparing legislation to provide rental assistance to those who need housing.

In other words, those who still have jobs and a home will be taxed to support “home rentership,” to make sure that the 1 percent get paid for the homes they effectively stole and will now rent back to the 99 percent.

Who will, of course, have little left in their paychecks or unemployment checks to maintain those homes rented from suburban slumlords.

Kiss your neighborhood goodbye, Morrisville and Lower Makefield. The Ozarks are moving in. Is there an alternative. Yes.

Cities and counties from California to Michigan, Ohio, western Pennsylvania, and even nearby Reading, are moving to use public funds — the common wealth — to form partnership banks that can not only get critically needed affordable credit flowing in local economies, but can also take vacant homes by eminent domain, and work with community banks, homebuilders, skilled trade workers, realtors and housing authorities to maintain these properties and put people back in them on affordable terms as owners, and rescue their communities from the pending Obama nation.

Every county in the Philadelphia metropolitan region has more than sufficient resources to capitalize a partnership bank capable of doing what the president and Congress will not. Now is the time to begin.

I love the Occupy Movement’s “1% vs. 99%” frame. It speaks clearly and directly to the major problem holding back social progress in a wide range of areas: the control of obscene wealth and political and economic power by a tiny minority at the expense of everyone else.

The truth is, though, that there’s little chance that the “99%” is going to be united anytime soon to stop that “1%” from the society-suicidal path they’ve got us on. However, it is possible that a big chunk of it, a majority or even 2/3rds or more, could come together in some way in the not too far off future. This can happen if we in the Occupy and progressive movements do our work well, and the economic/political/climate/social crisis continues or deepens (which is certain for the climate crisis and very likely otherwise).

Who are the social forces in society who must be united if we are to have the political power to enact change? I’ve put forward below what I see that could make up such a people’s alliance. I’ve done so using how President Barack Obama and the Democrats are perceived as the primary point of reference.

I see five groupings of people within the 70-75% of the U.S. population that, potentially, could come together in support of a broadly-based, independent, progressive popular movement. For a period of many years to come, I think we have little chance of winning over the other 25-30%, the 1% plus all those (overwhelmingly white people) from the upper-middle, middle and working classes who are ideological, or ideologically-influenced, right-wingers.

1) Least Likely: These are people who are “Obama and the Democrats” all the way. Some of this grouping are aware of the limitations of the Democratic Party but have little hope for anything better emerging that would become capable of winning political power. Some in this grouping benefit economically from their ties to the Democratic Party, on local, state or national levels, including a portion who are part of the 1%. Many are very afraid of the hard-right Republicans. Many have little direct, on-going exposure to organizations which put forward a consistently progressive point of view, a reflection of the weakness of the political Left (and something which is also true in general for all five groupings).

2) Critical Pro-Democrats: These are people who generally “get it” as far as the corporate ties of the dominant players within the Democratic Party, who are concerned about various aspects of the Dems’ policies, strategies or methods of operating, but who believe that a “lesser evil” is better than a “greater evil.” With Obama as President, many are more supportive of him and the Democrats and give them more slack because he is our nation’s first African American president. A higher percentage of people in this grouping are probably professionals, people with more of a stake in the system, than in the three categories below. Some in this grouping are willing to take part in campaigns on issues, including participation in street demonstrations. Some give money to activist progressive organizations.

3) The Ambivalent Middle: These are people who tend to be registered to vote as independents, if they are registered to vote at all. They don’t much like, or have little enthusiasm for, either party. There are probably more white working-class people in this grouping than in the two categories above. This grouping includes what have been called “Reagan Democrats” as well as low-income people of color who rarely vote because they have little hope that things will change no matter whom they vote for.

4) Dems a Problem, Not the Solution (With Exceptions): These are people who affirmatively want an alternative to two-party politics as usual, either through the electoral arena, outside of it, or both. They range from activists and supporters of groups like PDA, the Green Party and local Occupy groups to people who work in or support constituency-based or single-issue groups, to people who are more willing to vote for an independent candidate on election day. They are often critical of Obama, believing that many of his decisions are nowhere close to what is really needed or just plain wrong. They are willing to work with progressive Democrats on issues, and they are willing to actively pressure Obama to do the right thing, as was true, for example, for activist people from this grouping as far as the tar sands pipeline. Some of them might end up voting for Democrats on election day but wish there was a different kind of electoral system that gave them more genuine choices without having to worry about a third party vote helping Republicans. Others rarely vote for either Dems or Republicans, certainly on the national level.

5) Dems and Reps are the Enemy: This grouping includes people who hardly ever, if ever, vote because they see the electoral system as rigged and corrupt. For those who do vote it’s rarely for a major party candidate. Their view of Obama is very negative, believing that whatever he does that is positive is almost always partial, at best and, as with grouping #4, nowhere close to what is really needed or wrong. Overall he is seen as an apologist for the U.S. Empire and its dominant players, and there is little sympathy from this grouping for him when he is attacked by the hard-right. For many there is little willingness to work closely with progressive Democrats, even those who have a consistently good track record as far as their positions on issues and a willingness to stand up for those positions. It is from this grouping that a fairly large percentage of hard-core and militant progressive activists comes.

In general, I would see most of the activists and supporters of a new, broadly-based alliance representing the interests of the “99%” coming from groupings #2, 3 and 4. Less will come from groupings #1 and 5. A fairly high percentage of those from #1 are going to stay tied to the Democratic Party for a long, long time, and a fairly high percentage of those from #5 will be leery about building an alliance reaching into the ranks of Critical Pro-Democrats.

So much for sociological analysis. Let’s make it happen in reality! We badly need such an alliance. This is not the only thing we need, but it’s an absolute necessity if we are to stand a chance of overturning the relations of power, empowering the disempowered majority and building a new world.

On November 3, 2011, Alan Minsky interviewed me on KPFK’s program, “Building a Powerful Movement in the United States” in preparation for an Occupy L.A. teach-in. Listen to the interview. To clarify my points I have edited and expanded my answers from the interview transcript.

Alan Minsky: I am joined now by Michael Hudson. He is a distinguished research professor of economics at the University of Missouri-Kansas City, and also is president of the Institute for the Study of Long Term Economic Trends. Welcome to the show, Michael.

Michael Hudson: Thank you very much.

Alan Minsky: Michael Hudson is scheduled to address Occupy L.A. as part of a teach-in that includes William Black and Robert Scheer, who will be moderating the panel that Michael will be on this weekend. Michael, I’m familiar with your work and I know that you are a big-picture economic thinker. This is definitely a movement that is asking the big questions about how the global economy and the national economy should be re-organized. What would you say to the movement at large about how best to organize a high-tech modern industrial economy in a way that would produce more social and economic justice?

America is being radicalized by coming to realize how radical Wall Street’s power grab is.

Michael Hudson: The Occupy Wall Street movement has many similarities with what used to be called the Great Awakening periods in America. Such periods always begin by realizing how serious the problem is. So diagnosis is the most important tactic. Diagnosing the problem mobilizes power for a solution. Otherwise, solutions will seem to come out of thin air and people won’t understand why they are needed, or even the problems that solutions are intended to cure.

The basic problem today is that nearly everyone is in debt. This is the problem in Europe too. There are Occupy Berlin meetings, the Greek and Icelandic protest, Spain’s “Indignant” demonstrations and similar ones throughout the world.

When debts reach today’s proportions, a basic economic principle is at work: Debts that can’t be paid; won’t be. The question is, just how are they not going to be paid? People with student loans are not permitted to declare bankruptcy to get a fresh start. The government or collection agencies dock their salaries and go after whatever property they have. Many people’s revenue over and above basic needs is earmarked to pay the bankers. Typical American wage earners pay about 40 percent of their wages on housing whose price is bid up by easy mortgage credit, and another 10 to 15 percent for credit cards and other debt service. FICA takes over 13 percent, and federal, local and sales taxes another 15 percent or so. All this leaves only about a quarter of many peoples’ paychecks available for spending on goods and services. This is what is causing today’s debt deflation. And Wall Street is supporting it, because it extracts income from the bottom 99% to pay the top 1%.

Half a century ago most economists imagined that the problem would be people saving too much as they got richer. Saving meant non-spending. But the problem has turned out to be just the opposite: debt. Overall salaries have not risen in decades, so many people have borrowed just to break even. Instead of an era of free choice, very little of their income is available for discretionary spending. It is earmarked to pay the financial, insurance and real estate sectors, not the “real” production and consumption economy. And now repayment time has arrived. People are squeezed. So when America’s saving rate recently rose from zero to 3 percent of national income, it takes the form of people paying down the debts.

Many people thought that the way to get rich faster was to borrow money to buy homes and stocks they expected to rise in price. But this has left the economy financially strapped. People are feeling depressed. The tendency is to blame themselves. I think that the Occupy Wall Street movement, at least here in New York, is like what has occurred in Greece and also in the Arab Spring. People are coming together, and at first they may simply watch what’s going on. Onlookers may come by to see what it’s all about. But then they think, “Wait a minute! Other people are having the same problem I’m having. Maybe it is not really my fault.”

So they begin to see that all these other people who have a similar problem in not being able to pay their debts, they realize that they have been financially crippled by the banks. It is not that they have done something wrong or are sore losers, as Herman Cain says. Something radically wrong with the system.

Fifty years ago an old socialist told me that revolutions happen when people just get tired of being afraid. In today’s case the revolution may grow nearer when people get over being depressed and stop blaming themselves. They come to think that we are all in this together – and if this is the case, there must be something wrong with the way the economy is organized.

Gradually, observers of Occupy Wall Street begin to feel stronger. There is positive peer pressure to reinforce their self-confidence. What they intuitively feel is that the Reagan-Clinton-Bush-Obama presidencies have squeezed their lives. The economy has become untracked.

What’s basically wrong is that the financial system is running the government. For years, Republicans and Democrats both have said that a strong government, careful regulation and progressive taxation is the road to serfdom. The politicians and neoliberal economists who write their patter talk say, “Let’s take planning out of the hands of government and put it in the ‘free market.’” But every market is planned by someone or other. If governments step aside, then planning passes into the hands of the bankers, because of their key role in allocating credit.

The problem is that they have not created credit to finance industrial investment and employment. They have lent for speculation on asset price inflation using debt leveraging to bid up housing prices, stock and bond prices, and foreign exchange rates. They have convinced borrowers that they can get rich on rising housing prices. But this merely makes new homebuyers go deeper into debt to buy a home. And when banks say that rising stock and bond prices are good for the economy, this price rise lowers the dividend or interest yield. This means that pension funds and individuals have to save much more for retirement. Instead of improving their life, it makes them work harder and borrow more just to stay in place.

The banking system’s alternative to “the road to serfdom” thus turns out to be a road to debt peonage. This financial engineering turns out to be worse than government planning. The banks have taken over the Federal Reserve and Treasury and put their lobbyists in charge – men such as Tim Geithner and the others with ties to Rubinomics dating from the Clinton administration, and especially to Goldman Sachs and other giant Wall Street firms.

So the first thing to realize is something that is characteristic of all great reform movements. Voters are not yet supporting a radical position to restructure the whole system. But at least they are coming to see that small marginal reforms won’t work, or are simply trick promises, like President Obama’s promise that banks would renegotiate mortgages for homes in negative equity as part of the quid pro quo for the bailouts they received from Treasury Secretary Geithner. There’s been no quid pro quo, merely talk.

People see that law enforcement is missing when it comes to the banks and Wall Street. So simply restoring the criminal justice system would be progress. It used to be that if you ran a fraud, if you cheated people, if you lied on your income tax and falsified statistics, then you would be sent to jail. But the Obama administration has appointed Eric Holder to represent Wall Street. He has not thrown any bankers in jail, recognizing that they are the major campaign contributors of the party, after all.

What is easiest for most people to accept is the idea of restoring the way the economy used to be more in balance – back when people earned income by being productive rather than getting rich by transferring other peoples’ savings and public giveaways into their own pockets. But what I sensed in New York was anger not only at this economic problem, but the fact that the political system is broken. There is no one to vote for as an alternative to pro-bank candidates. So what began as anger has become a gathering awareness that Mr. Obama was simply fooling voters instead of leading the change he promised. That’s what politicians do, of course. But people hoped that he might be different. That was the gullibility he played on. He has turned into the nightmare they thought they were voting against.

Moving to the right of the Republicans, he started his administration by appointing the Simpson-Bowles Commission staffed by opponents of Social Security. He recently followed that up by appointing the Congressional Super-committee of Twelve to come out with an even more anti-Social Security, anti-Medicaid and anti-minority position that the Republicans could get away with. If they would have tried to pass such a right-wing policy, the Democratic Congress would have refused to pass it. But they don’t know how to deal with a Democratic president who appoints Wall Street lobbyists to his cabinet and acts like Margaret Thatcher saying that There Is No Alternative (TINA) to making Social Security recipients, labor and minorities pay for Wall Street’s bad gambles and bank losses. He has helped Wall Street capture the government – on behalf of the 1%.

The man whom Mr. Obama asked to be his mentor when he joined the Senate was Joe Lieberman. He evidently gave Obama expert advice about how to raise funds from the financial class by delivering his liberal constituency to his Wall Street campaign contributors. So the problem is not that President Obama is well meaning but inept – an idealist who just can’t fight the vested interests and insiders. He’s thrown in his lot with them. In fact, he really seems to believe the right-wing, pro-Wall Street ideology – that the economy can’t function without a financial system that guarantees “savers” (the top 1%) against loss, even when the bottom 99% have to pay more and more.

And on a personal level, Mr. Obama knows that his fund raising comes mainly from Wall Street, and the only way to get this money is to sell out his constituency. You’ve got to give him enough credit to recognize this obvious fact.

The upshot is that we now have a political nightmare. Yet Mr. Obama still seems to be the best that the Democrats can offer! This is why I think the protestors are saying they are not going to let the Democrats jump in front of the parade to try and mobilize support for their party. Like the Irish say: “Fool me once, shame on you. Fool me twice, shame on me.” They realize that the financial system is broken and that neither party is trying to do much about it. So the political system has to be changed as well as the economic system.

Suppose you were going to design a society from scratch. Would you create what we have now? Or would you start, for instance, by reforming the most egregious distortions of campaign finance? As matters stand, Goldman Sachs has been able to buy the right to name who is going to be Treasury Secretary. They selected Geithner, who gave them $29 billion from A.I.G. just before he was appointed. It’s like that all down the line – in both parties. Every Democratic congressional committee chairman has to pay to the Party a $150,000 to buy the chairmanship. This means that the campaign donors get to determine who gets committee chairmanships. This is oligarchy, not democracy. So the system is geared to favor whoever can grab the most money. Wall Street does it by financial siphoning and asset stripping. Politicians do it by getting money from the beneficiaries – the 1%.

Once people realize that they’re being screwed, that’s a pre-revolutionary situation. It’s a situation where they can get a lot of sympathy and support, precisely by not doing what The New York Times and the other papers say they should do: come up with some neat solutions. They don’t have to propose a solution because right now there isn’t one – without changing the system with many, many changes. So many that it’s like a new Constitution. Politics as well as the economy need to be restructured. What’s developing now is how to think about the economic and political problems that are bothering people. It is not radical to realize that the economy isn’t working. That is the first stage to realizing that a real alternative is needed. We’ve been under a radical right-wing attack – and need to respond in kind. The next half-year probably will be spent trying to spell out what the best structure would be.

There is no way to clean up the mess that the Democratic Party has become since politics moved into Wall Street’s pockets. The Republicans also have become a party of lobbyists. So it looks like there is no solution within the existent system. This is a revolutionary, radical situation. The longer that the OWS groups can spend on diagnosing the problem and explaining how far wrong the system has gone, the longer the demonstrators can gain support by showing that they share the feelings everybody has these days – a feeling of being victimized. This is what is creating a raw material that has to potential to flower into political activism, perhaps by spring or summer next year.

The most important message is that all this impoverishment and indebtedness is unnecessary. There is no inherent economic reason for things to be this way. It is not really the way that “markets” need to work. There are many kinds of markets, with many different sets of rules. So the important task is to explain to people how many possibilities there are to make things better. And of course, this is what frightens politicians, Wall Street lobbyists and the other members of the pro-oligarchic army of financial raiders.

Alan Minsky: Well, let me ask you this – and of course, it is something of an intellectual speculative game. Let’s say that it’s January 2013, and the radical progressive candidate X, Dennis Kucinich or Bernie Sanders, is miraculously elected president, and Michael Hudson is the chief economic advisor. What would you do, given the opportunity with a favorable congress, to transform the American economy in ways that would produce policies you think would at least start to help break the grip that the financial sector has had in devastating the economy in terms of its performance for average households?

Restore America’s past prosperity and rescue the future from the financial grabbers

Michael Hudson: There are two stages to any kind of a transformation. The first stage is simply to start re-applying the laws and the taxes that the Bush and Obama administrations have stopped applying. You don’t want Wall Street to be able to put its industry lobbyists in charge of making policy. So the first task is to get rid of Geithner, Holder and the similar pro-financial administrators whom Obama has appointed to his cabinet and in key regulatory positions. This kind of clean-up requires election reform – and that requires a reversal of the Supreme Court’s recent Citizens United ruling that enables a financial oligarchy to lock in its control of American politics.

One of the first things that is needed – and only a President could do it – would be to demand a new Supreme Court. This is what Roosevelt threatened, and it worked. You make them an offer they can’t refuse. If this can be done only by expanding the number of court justices, then you nominate ones who are not radicals on the right – judges who will reverse the 19th-century ruling that corporations are the same as people and indeed have even more rights (and certainly more campaign money) than people have. You then move to clean up the corruption of the legal system that has protected financial crooks instead of sending them to jail. Financial fraud has effectively been decriminalized, at least by Wall Street’s largest campaign contributors.

But this is really Bill Black’s area. I’m only going to talk about financial and tax reforms here, because they are the easiest to understand and ultimately the most immediate task.

Prevent monopoly price gouging. Bring bank charges in line with the real cost of doing business.

What is needed today is more than just going back to the past ideals. After all, the good old class warfare was not so rosy either. But at least the Progressive Era had a program to subordinate finance to serve industry and the rest of the economy. The problem is that its reformers never really had a chance to carry out the ideas that classical economists outlined.

The classical idea of a free market economy was radical in its way – precisely by being natural and thus getting rid of unnatural warping by special privileges for absentee landlords and banks. This led logically to socialism, which is why the history of economic thought has been dropped – indeed, excluded – from today’s academic curriculum. What is needed is to complete the direction of change that World War I interrupted and that the Cold War further untracked. After 1945 you didn’t hear anything any more about what John Maynard Keynes called for at the end of his General Theory in 1936: “euthanasia of the rentier.” But this was the great fight for many centuries of European reform, and it even was the path along which industrial capitalism was expected to evolve. So let me begin with what was discussed back in the 1930s, trying to recover the Progressive Era reforms.

Setting up a more fair banking and financial system requires changing the tax favoritism as well, which I will discuss below. There are a number of good proposals for reform. One of the easiest and least radical is set up a public option for banking. Instead of relying on Bank of America or Citibank for credit cards, the government would set up a bank and offer credit cards, check clearing and bank transfers at cost.

The idea throughout the nineteenth century was to create this kind of public option. There was a Post Office bank, and that could still be elaborated to provide banking services at cost or at a subsidized price. After all, in Russia and Japan the post office banks are the largest of all!

The logic for a public banking option is the same as for governments providing free roads: The aim is to minimize the cost of living and doing business. On my website, michael-hudson.com, I have posted an article just published in the American Journal of Economics and Sociology on Simon Patten. He was the first professor of economics at the Wharton Business School. He spelled out the logic of public infrastructure as a “fourth” factor of production (alongside, labor, capital and land). Its productivity is to be measured not by how much profit it makes, but by how much it lowers the economy’s price structure.

Providing a public option would limit the ability of banks to charge monopoly prices for credit cards and loans. It also would not engage in the kind of gambling that has made today’s financial system so unstable and put depositors’ money at risk. Ideally, I would like to see banks act more like the old savings banks and S&Ls. In fact, the most radical regulatory proposal I would like to see is the Chicago Plan promoted in the 1930s by the free marketer Herbert Simon. This is what Dennis Kucinich recently proposed in his National Emergency Employment Defense Act of 2011 (NEED).

This may seem radical at first glance, but how else are you going to stop the banks from their mad computerized gambling, political lobbying and creating credit for corporate raiders to borrow and pay their financial backers by emptying out pension funds and cutting back long-term investment, research and development?

The guiding idea is to take away the banks’ privilege of creating credit electronically on their computer keyboards. You make banks do what textbooks say they are supposed to do: take deposits and lend them out in a productive way. If there are not enough deposits in the economy, the Treasury can create money on its own computer keyboards and supply it to the banks to lend out. But you would rewrite the banking laws so that normal banks are not able to gamble or play the computerized speculative games they are playing today.

The obvious way to do this is to reinstate the Glass-Steagall Act so that they can’t gamble with insured deposits. This way, speculators would bear the burden if they lost, not be in a position to demand “taxpayer liability” by threatening to collapse the normal vanilla banking system. Abolishing Glass-Steagall opened the way for Wall Street to organize a protection racket by mixing up peoples’ deposits with bad gambles and with the growth of debts way beyond the ability to be paid.

To sum up, the idea is to shape markets so as to steer the banks to lend for actual capital formation and to finance home ownership without credit inflation that simply bids up prices for homes as well as for other real estate, stocks, and bonds.

Tax reform needs to back up and reinforce financial reform

Today’s economic problem is systemic. This is what makes any solution so inherently radical. In changing part of the economic system, you have to adjust everything, just as when a doctor operates on a human body. Financial reform requires tax reform, because much of the financial problem stems from the tax shift off real estate and finance onto labor and industry. Taxes are the business of Congress, not the President or his advisors, but I assume that your question really concerns what I think the economy needs.

The most obvious fiscal task that most people understand – and support – is to restore the progressive tax system that existed before 1980, and especially before the Clinton and Bush tax cuts. It used to be that the rich paid taxes. Now they don’t. But the key isn’t just income-tax rates as such. What needs to be recognized is the kind of taxes that should be levied – or how to shift them back off labor onto property where they were before the 1980s. You need to restore the land taxes to collect the “free lunch” that is not really “free” if it is pledged to pay the banks in the form of mortgage interest.

Over the past few decades the tax system has been warped more and more by bank lobbyists to promote debt financing. Debt is their “product,” after all. As matters now stand, earnings and dividends on equity financing must pay much higher tax rates than cash flow financed with debt. This distortion needs to be reversed. It not only taxes the top 1% at a much lower rate than the bottom 99%, but it also encourages them to make money by lending to the bottom 99%. The result is that the bottom 99% have become increasingly indebted to the top 1%. The enormous bank debt attached to real estate does not reflect rising rents as much as it reflects the tax cuts on property. Wall Street lobbyists have backed Congressional leaders who have shifted taxes onto consumers via sales taxes and income taxes, as well as FICA payroll withholding. This ploy treats Social Security and Medicare as “user fees” rather than paying them out of the overall budget – and financed out of progressive taxation on the top 1%. If wage earners pay more in FICA, you can be sure that the wealthy get a tax cut.

This anti-progressive tax shift is largely responsible for the richest 1% doubling their share of income. It also has led to the 99% having to pay banks what they used to pay the tax collector. They pay interest rather than taxes. If I were economic advisor, I would explain just how this works – which is what I already try to do on my website. In a nutshell, the tax shifts since World War II have left more and more of the land’s site value to be capitalized into interest payments on bank loans. So the banks have ended up with what used to be taken by landowners. There is no inherent need for this. It doesn’t help the economy; it merely inflates a real estate bubble. Economic growth and employment would be much stronger if income tax rates were lowered for most people. Property owners and speculators would pay. There would be less free lunch and more “earned” income.

The Obama Administration has proposed the worse of both worlds – getting rid of the tax deductibility of interest for homeowners. This would squeeze them, without scaling down the bank debts that have absorbed the cuts in property taxes. So Mr. Obama is sponsoring yet another anti-consumer proposal to make the bottom 99% pay for government – while using government funds to subsidize the banks and bail out their bad bets.

What needs to be done is to remove the tax deductibility of interest for investors in general. This tax favoritism is a subsidy for debt financing – and the main problem that the U.S. economy faces today is over-indebtedness. A good policy would aim at lowering the debt overhead. Debt leveraging should be discouraged, not encouraged.

Speculators have borrowed largely to make capital gains. They originally were taxed as normal income in the 1913 income tax. The logic was that capital gains build up a person’s savings, just as earning an income does. But the financial and real estate interests fought back, and today there is only a tiny tax on capital gains – a tax that sellers don’t have to pay if they plow their money into another property or investment to make yet more gains! So when Wall Street firms, hedge funds, and other speculators avoid paying normal taxes by saying that they don’t “earn” money but simply make capital gains, this is where a large part of today’s economic inequality lies.

I would tax these asset-price gains (mainly land prices) either at the full income-tax rate or even higher. The wealthy 1% make their gains in this way, claiming that they don’t really “earn” income, so they shouldn’t have to pay taxes as if they are wages or profits. But that’s precisely the problem: Why would you want to subsidize not earning income, but merely making money by speculating – and then demanding that the government bail you out if you make a capital loss when your speculations go bad, on the logic that you have tied up most peoples’ normal bank deposits in these gambles? This is what exists today. And it is why people think the system is so unfair. Most of the super-rich families have made their fortunes by insider dealing and financial extraction, not by being productive. They are not “job creators” these days. They have become job destroyers by demanding austerity to squeeze out more money from a shrinking economy to pay themselves.

Many people – especially homeowners – are sucked into thinking that low capital gains taxes make them rich, and that high property prices leave them with less to spend. But this turns out not to be the case once the process works its way through the economy. These workings need to be more widely explained.

For many years families got rich as the price of their home rose. But they also got much deeper in debt. The real estate bubble was debt-financed. A property is worth whatever a bank will lend against it. The end result of “easy lending” and tax distortions to favor interest-bearing debt is that most families own a smaller and smaller proportion of their homes’ value – and have to pay rising mortgage debt service. This doesn’t really make them better off. The job of a president or economic advisor should be to explain how this game works, so people can get off the debt treadmill. The economy will shrink if it doesn’t lower its debt overhead.

I would close down tax avoidance in offshore banking centers by treating offshore deposits by Americans as “earned but hoarded” income and tax it at 90%. You restore the rates of the Eisenhower administration when the country had the most rapid debt growth that it had. You reinstate criminal penalties for financial fraud and tax evasion by misrepresentation. But the tax avoiders are asking the Obama administration to do just the opposite: to declare a “tax holiday” to “induce” them bring this offshore money home – by not taxing it at all! This kind of giveaway should be blocked. Tax avoiders among the top 1% should be penalized, not rewarded.

The Bush-Obama administration has promoted “neoliberal” tax and financial policies that have reversed a century of Progressive Era reforms. The past 30 years have suffered a radical transformation of tax policy and financial policy. So it takes an equally deep response to undo their distortions and put the American economy back on track. The guiding idea is simply to restore normalcy. The Progressive Era that emerged from classical economics understood the economic benefits of taxing unearned wealth (“rent extraction”) at the top of the economic pyramid, provide basic infrastructure services at cost rather than creating fiefdoms for privatizers to install tollbooths and make their gains tax-exempt. Radical neoliberalism has reversed this. It has vastly multiplied the debts owed by the bottom 99% to the top 1%.

This is leading to debt peonage and what really is neo-feudalism. We are seeing a kind of financial warfare that is as grabbing as the old-style military conquests. The aim is the same: the land, basic infrastructure, and use of the government to extract tribute.

A financial Clean Slate

To restore the kind of normalcy that made America rich, most important long-term policy would be to recognize what is going to be inevitable for every economy. Debts need to be written down – and the politically easiest way to cut through the tangle is to write them off altogether. That would free the bottom 99% from their debt bondage to the top 1%. It would be a Clean Slate, starting over – and trying to do things right this time around. The creditors have not used the banking system to make America more productive and richer. They have used it as a vehicle to reduce the population to debt serfdom.

A debt write-down sounds radical and unworkable, but it’s been done since World War II with great success. It is the program the Allies carried out in the German economy in that country’s 1947 currency reform. This was the policy that created Germany’s Economic Miracle. And America could experience a similar miracle.

Any economy would benefit from cancelling the bad debts that have been built up. Keeping them on the books will handcuff the economy and cause debt deflation by diverting income to pay debt service rather than to spend on goods and services. We are going into a new economic depression – not just a “Great Recession” – because most spending is now on finance, insurance and real estate, not on goods and basic services. So markets are shrinking, and unemployment is rising. That is what will happen if debts are not written down.

This can be done either by a Clean Slate across the board, or it can be done more selectively, by applying what’s been New York State law since before the Revolution, going back to when New York was still a colony. I’m referring to the law of fraudulent conveyance. This law says that if a creditor lends to a borrower without having any idea how the debtor can pay in the normal course of business, without losing property, the loan is deemed to be fraudulent and declared null and void.

Applying this law to defaulting homeowners would free the homes that are in negative equity throughout the country. It would undo the fraudulent loans that banks have made, the trick loans with exploding interest rates, balloon mortgages and so forth. It also would free debt-strapped companies from being forced to sell off their parts to make their corporate raiders rich.

As an associated law, pension funds should be first in line in any bankruptcy, not at the end of the line as they now are. Current practice lets companies replace defined-benefit programs with defined contribution programs – where all that employees know is how much is taken out of their paychecks each month, not what they will be receiving when they retire. Only the managers have protected their pensions with special contracts and golden parachutes. This is the reverse of what pension plans were supposed to do.

Employee Stock Option Plans (ESOPs) also are being looted. This is what has recently happened at the Chicago Tribune by Sam Zell, who borrowed money and repaid it by looting the Tribune’s ESOP. A fraudulent conveyance law applied at the nationwide level would stop this. People like Zell are looters, and so are the bankers behind him. This is the class warfare that is being waged today. And the war is being won by the 1% – while pushing the American economy into depression.

As part of the rules to define what constitutes “fraudulent” or irresponsible lending, mortgage debt service should be reduced to the rate that FDIC head Sheila Bair recommended: 32 percent. The problem with debt write-downs, of course, is that when you cancel a debt, you also cancel some party’s savings on the other side of the balance sheet. In this case, the banks would have to give up their claims. But this is what used to happen in financial crashes. When debts go bad, so do the loans. So the government is radical in saying that America’s debts will be kept on the book, but it will create new public debt to give to Wall Street for its own debts that have gone bad as a result of its reckless lending.

The banks obviously would prefer to bankrupt millions of homeowners than to take even a penny’s loss. Their fight to make the government pay for their bad debts – while keeping the debts of the bottom 99% on the books – explains why the richest 1% of Americans have doubled their share of income and the returns to wealth in the last thirty years. That’s inequitable. Their accumulation of financial savings has not taken the form of tangible capital investment in factories or other enterprises to employ labor. It’s looted labor’s savings and got employees so deep into debt that they’re “one paycheck away from homelessness.” They’re afraid to go on strike, because they would miss a mortgage payment or an electric utility payment, and their credit-card interest rates would jump to 29 percent. They’re even afraid to complain about working conditions today, because they’re afraid of getting fired.

This wasn’t formerly the case. It is the result of “financial engineering” that should be reversed. There’s no reason to treat the savings that the top 1% have got in this predatory way as being sacrosanct. Their gain – their increase in financial wealth, in bonds, savings and ownership of bank loans – equals the debts that have been imposed on the bottom 99%. This is the basic equation that needs to be more widely understood. It is not an equilibrium equation. At least, it won’t be political equilibrium when people start to push back.

We are seeing a financial grab for special privilege and for political power to use the government to subsidize the top 1% at the expense of the bottom 99%, by scaling back social spending, Social Security, Medicare, Medicaid and federal revenue sharing with the states. The Treasury and Federal Reserve have printed new debt to give to Wall Street – some $13 trillion and still counting since Lehman Brothers went under in September 2008. Tim Geithner and Hank Paulson used the crisis as an opportunity to give enormous U.S. debt to Wall Street. That’s more radical than reversing this to restore the economy’s financial structure to the way it used to be. If you don’t restore it, you’ve replaced economic democracy with financial oligarchy.

The way to reverse this power grab is to reverse the giveaways by cancelling the bad debts that have been loaded onto the economy. That is the only way to restore balance and prevent the polarization that has occurred. The problem is that savings by the top 1% have been used in a parasitic, extractive manner. It has been lent to the bottom 99 percent to get them deeper and deeper into debt. So they “owe their soul to the company store,” as the song Sixteen Tons put it. “You get a day older, and deeper in debt.”

The government itself has become more indebted, most recently by the $13 trillion in new debt printed and given to the banks to make sure that no financial gambler need surfer a loss. At the same time the Obama administration did this, it claimed that a generation in the future, the Social Security system may be $1 trillion in deficit. And that, Mr. Obama says, would cause a crisis – and not leave enough to continue subsidizing his leading campaign contributors. So in view of this new debt creation – while moving debts to consumers and Social Security contributors to the bottom of the list – if you are going to reverse the bad-debt polarization that we’ve reached today, it is necessary to do more than simply reinstate progressive taxation and shift the tax system so that you collect predatory unearned income – what the classical economists call economic rent. The burdensome debts need to be written off.

This probably will take half a year to get most people to realize and accept the idea is to reconstitute the system by lending for productive purposes, not speculation and rent-seeking opportunities. You want to stop the banks from lobbying for monopolies to create a market for leveraged buy-outs of these opportunities – and of course also for real estate speculation and outright gambling.

Wall Street has orchestrated and lobbied for a rentier alliance whose wealth is growing at the expense of the economy at large. It is extractive, not productive. But this fact is concealed by the national income and product accounts reporting financial and other FIRE sector takings as “earnings” rather than as a transfer payment from the economy at large – from the 99% – to the 1% of Americans who have got rich by making money off finance, monopolies and absentee real estate rent-seeking.

It is not really radical to resist Wall Street’s financial attack on America. Resistance is natural – and so is a reversal of the savings they have built up by indebting the rest of the economy to themselves. They have taken their money and run, stashing it offshore in tax-avoidance islands, in Switzerland, Britain and other havens. Shame on the political hacks who defend this and who attack Occupy Wall Street simply for resisting the financial sector’s own radical power grab and shifted taxes off themselves onto the bottom 99%.

Privatization is an asset grab masquerading as full employment policy 

Alan Minsky: I have one final question for you. Would you support programs that are put forward similar to what Randy Wray, an associate of yours, suggests in terms of government employment projects to guarantee full employment?

Michael Hudson: Yes, of course I approve. In fact, it was I who introduced Randy, Pavlina Tchernova and others to Dennis Kucinich’s staff to help write his full-employment proposal along these lines. My first caveat is to warn against letting the Obama administration turn these projects into a military giveaway. I think Randy and I are in agreement with that.

My second caveat is to prevent this full-employment program from creating a later privatization giveaway to Wall Street – that is, infrastructure that the government will sell off to the ruling party’s major campaign contributors for pennies on the dollar. This is what Public/Private Partnerships have become, as pioneered in England under Margaret Thatcher and Tony Blair. Wall Street is rubbing its metaphoric hands and saying, “That’s a great idea! Let the government pay for infrastructure and spend a billion dollars on a bridge – and then sell it to us for a dollar.” The “us” may not be the banks themselves, but their customers, who will borrow the money and pay the banks an underwriting commission as well as interest on the money they use to buy what the government is privatizing.

The pretense is that privatization is more efficient. But privatizers add on interest and financial fees, high executive salaries and bonuses, and turn the roads into toll roads and other infrastructure into neofeudal fiefdoms to charge monopolistic access fees for people to use. This is what has happened in Chicago when it sold off its sidewalks to let bankers finance parking meters in exchange for a loan. Chicago needed this loan because the financial lobbyists demanded that it cut taxes on commercial real estate and on the rich. So the financial sector first creates a problem by loading the economy down with debt, and then “solves” it by demanding privatization sell-offs under distress conditions.

This is happening not only in America, but in Greece and other countries under the insistence of Europe’s bank lobbying organization, the European Central Bank. That’s why there are riots in Athens. So the financial war against society is not only being waged here, but throughout the world.

To answer your question about how best to promote full employment, the aim should be to invest public money in a way that the Republicans and Democrats cannot later turn around and privatize the capital investment at a giveaway price. So I am all on favor of public infrastructure spending as long as you have safeguards against the financial fraud and giveaways to insiders of the sort that the current administration is sponsoring. The privatizers and their banks would like to install tollbooths on new bridges and get a free ride to turn America into a tollbooth economy. But that’s really another story.

Alan Minsky: Michael Hudson, I want to thank you for joining us on KPFK.

Michael Hudson: Thanks a lot, Alan.

It seems that Leon Panetta's plan to "save" money by making the F-35 more expensive (by delaying and stretching out production) didn't exactly impress Chuck Spinney, who has written about the problems in America's combat aviation for years and years. He's seen it all before, and he has written so instructively about it that if you don't know Spinney's findings you don't know much about the problem. Chuck has written a new piece at Time's Battleland blog summarizing the problems that are deep in the F-35's genes. It makes for quick but informative reading, and he provides links to more for those who want t probe further. He says he's going to write more on the F-35; I am looking forward to it: to understand why the F-35 is such a colossal failure degrading our defenses in a quite literal way is to understand our defense problems fundamentally.

F-35: Out of Altitude, Airspeed, and Ideas — But Never Money

by Chuck Spinney 

No program better illustrates the pathologies of the weapons acquisition process as it is currently practiced by the Military – Industrial – Congressional Complex (MICC) than the entirely predictable, and in this case, predicted, problems dragging the F-35 Joint Strike Fighter into a dead man’s spiral.

The F-35 in on track to be the most expensive program in the history of the Defense Department, and it has repeated just about every mistake we invented since Robert McNamara concocted the multimission, multi-service TFX — a program conceived with the same kind of fanciful one-shoe fits all imaginings as the F-35.

Technical problems, cost overruns, and schedule slippages caused the TFX to implode into one of the most infamous debacles in Pentagon’s history. The result was the super-costly single-mission (deep strike), single service, swing-wing F-111. Planes were delivered without mission essential avionics and sat on the runway for two years awaiting parts. Production rates were slowed and total production quantities were reduced from 1,500 to 500. That cutback would have worked materially to wreck tactical fighter aviation in the Air Force, had it not been for the intervention of a brilliant iconoclastic band of military officers and civilians, who became known in the Pentagon and industry as the Fighter Mafia (their exploits are described here).

The Fighter Mafia began its operation by saving the F-15 from going down the same pathway to swing-wing oblivion as the F-111, and then conceived the lower cost, high-performance F-16 and the lethal A-10 attack aircraft. Together these three airplanes were produced at sufficiently high production rates to modernize and expand the tactical fighter force in the late 1970s through the mid 1980s — something not achieved by any other major category of force structure. Ironically, the bulk of these airplanes were purchased with money appropriated during the Carter Administration. Costs skyrocketed and production rates declined as soon as the Reagan Administration began to flood money into Pentagon, because the contractors loaded these planes with bells and whistles … and raised prices, sometimes quite arbitrarily, according to official data I assembled while working in the Pentagon in the 1980s.

Today there is no Fighter Mafia to rescue tactical aviation form the predators in the MICC. But the boondoggles remain: Like the ill-fated TFX, the F-35 is planned to be produced in high quantities for all three services. Like the TFX, the future of fighter aviation is dependent on the high F-35 production rates. Like the TFX the F-35 has suffered from chronic requirements creep, technical problems (engineering change proposals are now flooding in like water going over Niagara Falls — an official summary of the current technical problems can be found here). Like the TFX, the F-35 is suffering severe cost overruns, and horrendous schedule slippages as production rates are cut back. And like the TFX, the F-35, now entering its sixth year of low rate production, was put into production way before before its technical/cost problems were solved, a process known as concurrent engineering and manufacturing development that guarantees costly backfits and/or specification relaxations (known in the trade as ‘managing to a rubber baseline).

But the F-35 program is not at serious risk, despite all the hysterical hype in the trade press — not by a long shot. The F-35′s political safety net has been front- loaded and politically engineered (the general practices of the power games are explained here) with exquisite malice of forethought. Domestically, the F-35 employs 130,000 people and 1300 domestic suppliers in 47 states and Puerto Rico. The only states missing the gravy train are Hawaii, Wyoming, and North Dakota. Internationally, there are already cooperative development/production plans involving nine countries, and more are in the offing. Given the intensity of the geographic carpet-bombing of contracts around the globe, can there be any question why the Secretary of the Air Force said in September, “”Simply put, there is no alternative to the F-35 program. It must succeed.” If you think that is an accident, dear reader, I have a Brooklyn Bridge to sell you.

I will be writing more about many of these problems in the future, but today I want to concentrate on the gold-plating process at the front the end — by introducing a remarkable discussion of requirements creep.

At issue is the short take off and vertical landing (STOVL) F-35B for the Marine Corps to replace its AV-8B Harrier jump jets and its F-18C/D fighter/bombers. My friend Bob Cox, a senior reporter for the Fort Worth Star-Telegram posted an amazing entry by a serving Marine on his blog. Cox has given me permission to reproduce it below.

In addition to being a thoughtful critique, it is an inspiring example of an officer’s integrity on the one hand and a telling discussion of the problems with the basic STOVL requirement the Marine Corps is wedded to, on the other. I have heard many Marines utter similar critiques in hushed tones behind closed doors since the late 1970s, but few have stated them openly. This requirement is not a minor issue, because the STOVL specifications have caused untold compromises in the already heavily compromised F-35 design. After reading it, I urge interested readers to check out commenters’ reaction to the Marine’s assertions at this link. Attached herewith is Cox’s blog entry:

Marine questions value of STOVL jets, Harrier and F-35B 

Occasionally someone in the active duty military has the courage to go off the script and say what they really think about their service’s dogma and pet projects.

Here’s a piece by a Marine aviator questioning the value and purpose of the Marine Corps love and commitment to the STOVL fighter-attack airplane, the Harrier and now the costly and complex F-35B.

Other analysts and experts have said it before, probably some Marines too, but in his blog “Boats Against the Current,” Peter J. Munson, an active duty officer and KC-130 commander, lays out much of the case against the F-35B. Marine generals love to argue it gives them the capability to go fight close to the front lines, without air bases, but never bother to add how many truckloads of fuel and supplies and men and defense weaponry will have to be hauled over land to that forward base, and at what cost and vulnerability to enemy attack.

Munson writes:

The Harrier has surely been a large part of Marine aviation since 9/11, but its STOVL characteristics were rarely, if ever, critical to the conduct of operations. If anything, the capability was a liability when it came to the requirement for long on-station times, multiple ordnance options, and tedious scanning of compounds and cities with targeting pods in support of troops on the ground. While Harriers have conducted some forward rearming and refueling at shorter strips, these were more driven by the Harrier’s limitations and the desire to validate its expeditionary capability than a value added to the fight. That is, while a Harrier was rearming and refueling, a Hornet would be overhead, sensor still on target, refueling from a KC-130, more weapons still on the wing. So, when the program hits a rough spot again, which I think it will, and when the budget adjusters come knocking, the Marine Corps needs to be honest about how much STOVL capability it really needs to maintain its close air support capability aboard amphibious shipping, how soon unmanned aerial systems can fill that gap, and what the best option is for the rest of our close air support needs.

One can’t help but suspect that when former Defense Secretary Bob Gates put the F-35B on probation last January that he had some of these same arguments in mind, but didn’t want to fight a war with the Marines in his final months in office. Secretary Panetta last week swooped in and freed the “B,” winning friends in USMC HQ and Lockheed Martin, among othe places.

The extraordinary complexity and demands of the F-35B have undoubtedly hampered the whole F-35 problem, creating technical problems and sucking up limited (in Pentagon terms) development dollars and engineering resources. The need to redesign the whole aircraft (all three models) to take out weight was largely an effort to salvage any combat payload for the B-model. Now, with the airframes of early planes showing cracks and wear and tear early in their lives one has to wonder how much of those and future problems will be due to weight reduction for the F-35B. 

Well, he had to get up there and say something. In this particular winter of our discontent, the wispiest nostrums and baldest lies will do. America is not interested in reality. America is a nine-hundred pound man imprisoned in a fetid trailer bedroom begging for one more case of Little Debbie Cocoa Cremes before the front-end-loader bashes through the wall to haul him to intensive care. America just wants to hear another story about its own wonderfulness before that happens. America's soul is so lost that it has disappeared into the same cosmic wilderness that MF Global's client accounts were last seen entering.

Mr. Obama keeps telling nationwide audiences that "we have a supply of natural gas that can last America nearly 100 years." That is just not true. If he believes it then he is either 1) getting treasonously bad advice from dishonest advisors or 2) not reading reports issued by his own agencies or 3) just making shit up. This was the same week, by the way, when the US Department of Energy dropped its estimate for the Marcellus shale gas play by 66 percent, while the estimate for all US shale basins went down 42 percent. The shale gas industry is another Ponzi bubble that is about to founder on a scarcity of investment capital. Just watch.

The "energy independence" trope is a lie, too. At least in the sense that Mr. Obama means - that we can run the suburban clusterfuck and all its accessories by other means than fossil fuels. He just says it because it makes voters feel better. By the time they find out it was just a story, he won't need their votes anymore. Meanwhile, we'll do nothing to prepare for a different way of life, and so, necessarily, the result will be an obscene scramble for power and resources that will leave a lot of people dead.

The topper for me, though, was the President's cheeky announcement that he'd ordered the Department of Justice to form a "special unit" to investigate mortgage fraud and other lethal irregularities in the banking sector. The fact that his congressional audience did not bust out laughing shows what a convocation of craven and perfidious cat's paws they are. Note to readers: the DOJ has a long-established criminal division fully empowered to prosecute all the familiar scams of our time from NINJA lending to the robo-signing of titles to MERS mortgage mischief, to the bundling and sales of booby-trapped CDOs - up to and including whatever Jon Corzine thought he was doing at MF Global.

Notice how lame the major newspapers and cable news networks were in responding to Mr. Obama's impudent japery. None of them, including The New York Times, bothered to ask Attorney General Eric Holder what he's been up to along these lines for the past three years. It is really hard to account for the stupendous incompetence of the news media in recent years. Of course, I'm allergic to conspiracy theories and the only explanation that adds up for me is the diminishing returns of technology. Among other untruths we've embraced collectively is the idea that computer-distributed information amounts to knowledge and understanding, tending toward judgment. Apparently, it's only made our society much dumber and more irresponsible. After all, none of the supposed media watchdogs even asked The New York Times or The Wall Street Journal, or CNN and a hundred other outlets why they didn't interview the Attorney General of the United States and ask him why he has not been taking care of the business now assigned to this special unit.

Not included in the State of the Union message was any reference to the provision in the recently signed National Defense Authorization Act that allows the US government to suspend due process of law and use the military to arrest and indefinitely detain US citizens on vague and opportunistic charges of "suspicion" You will remember a month ago when Mr. Obama signed the law and issued a "signing statement" that said his administration would not carry out these specific provisions. Did anyone notice that it is an impeachable offense for the president to state his opposition to enforcing the law? In which case, why isn't there a bill of impeachment making its way through Congress right now?

I've had enough of Obama, though I voted for him in 2008. I won't vote for him again. But I'm not altogether confident that any of us will be voting for anyone in the fall of 2012. Too many systems we depend on are spinning out of control. I suppose we will continue feeding ourselves a diet of lies and evasions until circumstances become so extreme that language itself loses all relevance and only real action will answer. I believe that moment is approaching in the yet-to-be-acted-out political uproars of the spring and summer. In the meantime, American leadership is bankrupt. Just accept the fact that America has no legitimate leadership. The vacuum is total and we know how nature feels about a vacuum.

The recent strikes protesting the government’s abrupt elimination of gasoline and other fuel subsidies, that brought Nigeria briefly to a standstill, came as a surprise to most in the country. Months earlier President Jonathan had promised the major trade union organizations that he would conduct a gradual four-stage lifting of the subsidy to ease the economic burden. Instead, without warning he announced an immediate full removal of subsidies effective January 1, 2012. It was “shock therapy” to put it mildly.

Nigeria today is one of the world’s most important producers of light, sweet crude oil—the same high quality crude oil that Libya and the British North Sea produce. The country is showing every indication of spiraling downward into deep disorder. Nigeria is the fifth largest supplier of oil to the United States and twelfth largest oil producer in the world on a par with Kuwait and just behind Venezuela with production exceeding two million barrels a day. [1]

The curious timing of IMF subsidy demand

Despite its oil riches, Nigeria remains one of Africa’s poorest countries. The known oilfields are concentrated around the vast Niger Delta roughly between Port Harcourt and extending in the direction of the capital Lagos, with large new finds being developed all along the oil-rich Gulf of Guinea. Nigeria’s oil is exploited and largely exported by the Anglo-American giants—Shell, Mobil, Chevron, Texaco. Italy’s Agip also has a presence and most recently, to no one’s surprise, the Chinese state oil companies began seeking major exploration and oil infrastructure agreements with the Lagos government.

Ironically, despite the fact that Nigeria has abundant oil to earn dollar export revenue to build its domestic infrastructure, government policy has deliberately let its domestic oil refining capacity fall into ruin. The consequence has been that most of the gasoline and other refined petroleum products used to drive transportation and industry, has to be imported, despite the country’s abundant oil. In order to shield the population from the high import costs of gasoline and other refined fuels, the central government has subsidized prices.

Until January 1, 2012, that is. That was the day when, without advance warning President Goodluck Ebele Azikiwe Jonathan announced immediate removal of all fuel subsidies. Prices for gasoline shot up almost threefold in hours from 65 naira (35 cents of a dollar) a liter to 150 naira (93 cents). The impact rippled across the economy to everything including prices of grains and vegetables. [2]

In justifying the move, Central Bank Governor Lamido Sanusi insisted that “The monies will be used in provision of social amenities and infrastructural development that will benefit Nigerians more and save the country from economic rift.” [3] President Goodluck Jonathan says he is phasing out the subsidy as a part of a move to “clean up the Nigerian government.” If so how he plans to proceed is anything but apparent.

The huge unexpected price hike for domestic fuel triggered nationwide protests that threatened to bring the economy to a halt by mid-January. The president deftly took the wind out of protester sails by announcing a partial rollback in prices, still leaving prices effectively double that of December. The trade union federation immediately called off the protests. Then, revealingly, Goodluck Jonathan’s government ordered the military to take to the streets to “keep order” and de facto prevent new protests. All that took place during one of the bloodiest waves of bombings and murder rampages by the terrorist Boko Haram sect creating a climate of extreme chaos. [4]

The smoking gun of the IMF

What has been buried from international accounts of the unrest is the explicit role the US-dominated International Monetary Fund (IMF) played in the situation. With suspicious timing IMF Managing Director Christine Lagarde was in Nigeria days before the abrupt subsidy decision of President Jonathan. [5] By all accounts, the IMF and the Nigerian government have been careful this time not to be blatant about openly announcing demands to ends subsidies as they were in Tunisia before food protests became the trigger for that country’s Twitter putsch in 2011.

During her visit to Nigeria Lagarde said President Jonathan’s ’Transformation Agenda’ for deregulation "is an agenda for Nigeria, driven by Nigerians. The IMF is here to support you and be a better partner for you." [6] Few Nigerians were convinced. On December 29 Reuters wrote, "The IMF has urged countries across West and Central Africa to cut fuel subsidies, which they say are not effective in directly aiding the poor, but do promote corruption and smuggling. The past months have seen governments in Nigeria, Guinea, Cameroon and Chad moving to cut state subsidies on fuel." [7]

Further confirming the role US and IMF pressure on the Nigerian government played, Jeffery Sachs, Special Adviser to the United Nations (UN) Secretary General, during a meeting with President Jonathan in Nigeria in early January days after the subsidy decision, Sachs declared Jonathan’s decision to withdraw petroleum subsidy “a bold and correct policy.” [8]

Sachs, a former Harvard economics professor became notorious during the early 1990’s for prescribing IMF “shock therapy” for Poland, Russia, Ukraine and other former communist states which opened invaluable state assets for de facto plundering by dollar-rich western multinationals. [9]

Making the sudden decision to end the domestic fuel subsidy even more suspicious is the manner in which Washington and the IMF are putting pressure on only select countries to end subsidies. Nigeria, whose oil today sells for the equivalent of $1 a liter or roughly $3.78 a US gallon, is far from cheap. Brunei, Oman, Kuwait, Bahrain, Qatar, Saudi Arabia all offer their petrol very cheap to their people. The Saudis sell their oil at 17 cents, Kuwait at 22 cents. [10] In the US gasoline averages 89 cents a liter. [11]

That means the IMF and Washington have forced one of the poorest economies in Africa to impose a huge tax on its citizens on the implausible argument it will help eliminate corruption in the state petroleum sector. The IMF knows well that the elimination of subsidies will do nothing about corruption in high places.

Were the IMF and World Bank genuinely concerned with the health of the domestic Nigerian economy, they would have provided support for rebuilding and expanding a domestic oil refinery industry that has been let to rot so that the country need no longer import refined fuels using precious state budget resources to do so. The easiest way to do that would be to expedite a two-year-old deal between China and the Nigerian government to invest some $28 billion in massive expansion of the oil refinery sector to eliminate need for importing foreign gasoline and other refined products.

Quite the opposite—the criminal cabal inside NNPC and the Government making huge profits on the old subsidy system are suddenly making double and potentially triple more to maintain the old corrupt import system, and, of course, to sabotage Chinese refinery construction that could put an end to their gravy train.

Cutting their nose to spite the face…

Rather than benefit ordinary Nigerians as the IMF proclaims to want, the elimination of the subsidies has further pauperized the 90 per cent living on less than $2 a day, according to Mallam Sanusi Lamido Sanusi, the Nigerian Central Bank governor. [12] An estimated 40 million Nigerians are unemployed in the country of 148 million.

Because transport costs are a significant factor in delivery of food to the cities, food price inflation has soared along with costs of public transportation for the majority of poorer Nigerians. According to the Nigerian Leadership Sunday, “prices of commodities which shot up as a fallout of the fuel pump price increase have refused to come down.” Everything from street vegetable sellers to carwashes to roadside photographers are feeling the shock of the rise in fuel prices. Unemployment is rising as small businesses fold. [13]

The argument of the IMF and the Jonathan Administration is that by freeing fuel prices, funds would be available to more social services and rebuild Nigeria’s “infrastructure.” Both the IMF and the Government know it would have been far more economically viable to replace the current corrupt system of importing refined gasoline and fuels with investing in rebuilding Nigeria’s domestic refining capacity.

Son Gyoh of the Nigerian Awareness for Development organization stated, “Would it not be more expedient to pressure government to service the refineries to full production capacity given the implications on overhead and competitiveness for local industries?” [14] Gyoh pointed to the source of the problem: “Why have successive governments left the refineries in a state of disrepair while spending huge on subsidy? Is there any chance that the savings from subsidy withdrawal will go directly into rehabilitating the refineries? Does deregulation imply NNPC will no longer operate a monopoly in importation of refined petroleum product or is this lobby a self-serving lifeline to continue its monopoly? ” He concludes, “In any case, there is good reason to doubt subsidy removal will solve the fuel scarcity problem as the cabal will only regroup to change tactics, a fact Nigerians are only too aware of.” [15]

After Nigeria partly nationalized its oil sector in the late 1970’s, they also took control of Shell Oil’s Port Harcourt I refinery. In 1989 Port Harcourt II refinery was built. Both refineries fell into serious disrepair after 1994 when the Abacha military dictatorship cut the “take” of the Nigerian National Petroleum Company (NNPC) from domestic sale of refined oil products such as gasoline from 84% to 22%. That caused a cash crisis for NNPC and a halt to refinery maintenance. Today only one of four refineries operates at all. [16]

What developed since was a system of NNPC importing foreign gasoline and other refined products for Nigeria’s domestic needs, naturally at a far more expensive cost. The price subsidies were to relieve that higher import cost, hardly a sensible solution but a very lucrative one for those corrupt elements in the state and private sector making a killing, literally, off the import process.

NNPC criminal enterprise

The IMF is well aware of the real cause of Nigeria’s fuel industry problems. A Nigerian legislative committee examining the sources of the industry’s problems recently released a report documenting that at least $4 billion annually is taken from taxpayers in fuel industry corruption with the state Nigerian National Petroleum Company (NNPC) at the center. According to the commission, “every day, fuel importers drop off 59 million liters of fuel. The country consumes 35 million liters daily. That leaves 24 million liters of oil available for smugglers to export, paid for by government fuel subsidies. This costs the Nigerian people roughly $4 billion yearly, according to Reuters.” [17]

The Nigerian government has said that the 7.5 billion dollars spent yearly on fuel subsidies could be used to provide desperately needed infrastructure. But they omit any mention of the rampant siphoning off of $4 billion of oil by black market smugglers, reportedly with connivance of high NNPC government officials, to sell to neighboring countries at a hefty profit. The refined imported fuel is reportedly smuggled into neighboring countries like Cameroon, Chad and Niger where petrol prices are far higher, according to Abdullahi Umar Ganduje, Deputy Governor of Kano State. [18]

China as IMF target?

One major geopolitical factor that is generally ignored in recent discussion of Nigerian oil politics is the growing role of China in the country. In May 2010 only days after President Jonathan was sworn in, China signed an impressive $28.5 billion deal with his government to build three new refineries, something that in no way fit into the plans of either the IMF or of Washington or of the Anglo-American oil majors. [19]

China State Construction Engineering Corporation Limited (CSCEC) signed the deal to build three oil refineries with Nigerian National Petroleum Corporation (NNPC), in the biggest deal China has made with Africa. Shehu Ladan, head of NNPC, said at the signing ceremony that the added refineries would reduce the $10 billion spent annually on imported refined products. As of January 2012 the three Chinese refinery projects were still in the planning stage, reportedly blocked by the powerful vested interests gaining from the existing corrupt import system. [20]

A report in China Daily last November quoted Nigeria’s Olusegun Olutoyin Aganga, the minister of trade and investment that Nigeria was seeking added Chinese investors for its energy, mining and agribusiness industries. Last September on a visit to Beijing, Nigeria central bank governor Lamido Sanusi announced his country planned to invest 5 percent to 10 percent of its foreign exchange reserves in China’s currency, the renminbi (RMB) or yuan, noting that he sees the yuan becoming reserve currency. In 2010 China’s loans and exports to Nigeria exceeded $7 billion, while Nigeria exported $1 billion of crude oil, Sanusi stated. [21]

Until now Nigeria has held some 79% of her foreign currency reserves in dollars, the rest in Euro or Sterling, all of which look dicey given their financial and debt problems. The move of a major oil producer away from dollars, added to similar moves recently by India, Japan, Russia, Iran and others, augurs bad news for the continued role of the dollar as dominant world reserve currency. [22] Clearly some in Washington would not be happy with that.

The Chinese are also bidding to get a direct stake in Nigeria’s rich oil reserves, until now an Anglo-American domain. In July 2010, China’s CNPC (China National Petroleum Corporation) won four prospective oil blocks - two in the Niger Delta and two in the frontier Chad Basin - with plans to become core investor in the Kaduna refinery, and construction of a double track Lagos-Kano railway. [23] As well China’s oil company, CNOOC Ltd has a major offshore production area in Nigeria.

The IMF and Washington pressure to lift subsidies on imported fuels is at this point in question as is the future of China in Nigeria’s energy industry. Clear is that lifting subsidies in no way will benefit Nigerians. More alarming in this context is the orchestration of a major new wave of terror killings and bombings by the mysterious and suspiciously well-armed Boko Haram. This we will look at next in the context of Nigeria’s recent transformation into a major narcotics hub.

Citations here

In the more than two centuries since the beginning of radical transformation of economic life that accompanied the rise of industrial capitalism, one of the most interesting trends has been the changing nature of the forms through which people have engaged in economic activities. Before the industrial revolution, an artisanal mode of production predominated, with many small work-shops producing the goods required by the largely agrarian economy. At first glance, such the existence of many small firms would suggest a highly competitive economy; however this was not the case. Rather, the high cost of transporting goods created by primitive transportation networks, the risk of brigands, etc., meant that, rather than a single integrated economy, there existed many small economies between which only low-bulk, high-value goods (such as spices) were exchanged. In this situation, workshops were almost universally owned locally, since the cost of monitoring an agent in a distant city would be prohibitively high (the exception being those in the aforementioned low-bulk, high-value businesses, but they also helped ensure the loyalty of distant agents by using family members).

However, the advent of the 19th century transportation and communication revolutions, which brought better roads, canals, steamships, railroads, and telegraphs into widespread use, changed the game. The many local markets became increasingly integrated, and the prices of commodities converged over the course of the century. These changes also led to radical shifts in how firms were both run and owned. With huge, growing markets at their disposal, firms could, as Chandler describes in his brilliant book Scale and Scope: The Dynamics of Industrial Capitalism, drastically reduce the unit cost of many products by engaging in capital-intensive mass production. However, in order to fully take advantage of such available efficiencies, firms needed to mobilize amounts of capital beyond the resources of almost any individual or family. As a result of this problem, the "managerial firm" emerged as the dominant model in many industries by the end of the 19th century. Where, previously, the owner of a business was generally involved with its operations, managerial firms were characterized by a separation of ownership and management (which began to be undertaken by salaried professionals).

The practical result of this change was that it meant that the ownership of a firm could be divided between a far greater number of individuals than had been previously possible when owners were responsible for directly monitoring a firm's performance. Such a division would not have been cost effective at the beginning of the 19th century, but the drastically reduced cost of information brought about by the aforementioned revolutions meant that, by the 1920s, a small but respectable percentage of the American population held some ownership stake in a corporation through the stock market.

I believe that this historical dynamic has a very interesting implication for our contemporary situation. If the cost of information, in fact, influences the optimal structure of a firm in the economy, then the growth of the Internet over the last decade should be understood as a signal that the traditional corporate model is heading the way of the dinosaur. Indeed, there is plenty of evidence to suggest that small to mid-size firms can use their flexibility to outmaneuver the existing behemoths in many ways; however, there are certain industries in which economies of scale will remain extremely important. However, some very recent developments have to potential to radically alter the ownership structures of such firms.

Of paramount importance is the emergence of peer-to-peer online monetary systems such as Bitcoin. By enormously reducing transaction costs and allowing for true micro-payments (on the order of hundred-thousandths of a cent), such systems have the potential to drastically reduce the minimum barrier to entry to obtaining an ownership stake in a firm. As a result, I believe we might begin to witness the organic transformation of many large firms to co-operative ownership.

The logic of such a transition is as follows. In a perfectly competitive market, the margin of profit trends towards zero, with consumers obtaining products at cost. In such a situation, the motivation for shareholders who do not use the firm's products to retain ownership is fairly low, while the only tool left for a firm to attract customers away from its competitors would be to offer them an ownership stake in the business, which would guarantee that they would continue to receive the firms products at cost in the future. As such, it would be reasonable to expect the gradual transition of the ownership of many companies in the coming years from absentee shareholders to consumers.

A possible objection to this scenario would be to inquire as to why such a transition has not already occurred? The answer, I believe, lies in the relative cost of ownership. In 1800, owning a share of a London blacksmith's shop while living in New York would have been prohibitively expensive, due to the fact that the transaction costs necessary to receive the benefits of ownership would eat up most, if not all, of the profits. However, once the underseas telegraph cable was in place, such costs were reduced to the point that such ownership became possible. It seems there is a similar dynamic at play with co-operatives.

In the past, co-operatives have only been successful in economic sectors in which the size of the economic relationship they have with their members is sufficiently large to offset the transaction costs of ownership (i.e., groceries, insurance, feed for livestock), and they have often further defrayed such costs through the use of volunteer labor. However, with such technologies as Bitcoin sending transaction costs plummeting towards zero, the range of firms that could be economically owned by their users/consumers is drastically expanding. The logic is simple - why patronize a for-profit firm when you can be assured you're receiving goods and services at cost from your co-op store/auto repair shop/social networking website. Just as the first communications revolution gave birth to the age of the corporation, the rapid changes that our contemporary world is experiencing could be paving the way towards the age of the co-operative.

Ethan Allen, the unpredictable frontier rebel who rallied resistance during the revolution era, has exerted a powerful influence over Vermont’s image as a refuge for rugged individualists and defiant outsiders. Both the true and mythical aspects of his story have helped ingrain an affinity with rebels and independent thinkers.

Nevertheless, the political values that have more consistently influenced the state are accountability, local control and autonomy. Frequently crossing party lines, they have persisted from the time in which Vermont was known as reliably Republican, a place where not even FDR could win an election, to the decades since 1988, when Vermonters have voted for every Democratic presidential candidate.

Beneath the differing political labels is a common approach to governance. The state’s administrative structure is relatively centralized, but government has remained more accountable than most through the retention of short terms of office, a citizen legislature, and the pull of local control.

Localism is a long cherished value. Even when Gov. Deane Davis, a Nixon Republican, backed a state land use law in the late 1960s, he felt the need to call it “creative localism.” Town Meeting Day has a powerful enduring influence, both practical and symbolic. As a last vestige of direct democracy, it holds out hope that self-government remains possible in the age of powerful administrative states. The stakes may be overstated at time, but the use of this forum – in some cases the only one available – can be a form of self-empowerment reminiscent of the early Jeffersonian impulse.

With Vermont’s “citizen legislature” meeting four days a week for up to five months, House and Senate members can still return to other work. Due to the state’s size, many of them can also drive home at night during sessions. The pay is modest, but the Statehouse functions much like a graduate school for motivated students. Some are in training for higher office. Most stay in touch with their home base.

Nevertheless, political leaders have frequently advocated a proposal bound to alter the dynamic: a constitutional amendment to extend the terms of some or all statewide offices to four years. In the late 1950s a Commission to Study State Government – known as the “Little Hoover Commission” for its similarity to a federal effort in the 1940s led by the former president – concluded that forcing candidates to campaign for re-election so often was a waste of money and detrimental to the state’s welfare.

The necessary amendment failed in the Legislature, but was brought back repeatedly over the next decades. In 1974, at the height of the Watergate scandal, it was voted down on Town Meeting Day.

Gov. Richard Snelling recommended four-year terms for the governor and lieutenant governor “as a team” in his 1983 inaugural address. His rationale was that the “structure and complexity of our society and the value of experienced administrative leadership” had both increased.

Many democratic and Republican leaders supported the idea, including all eight former Vermont governors still alive at the time. Supporters of longer terms frequently cited the increased expense of campaigns and the need for more continuity in program implementation.

The opposition was diverse and unusual, however, ranging from Secretary of State James Guest, a Democrat, and Senate Government Operations Chair Bill Doyle, a Republican, to UVM professor Frank Bryan and anarchist philosopher Murray Bookchin. Once more the proposal, which would have required approval in two consecutive sessions and voter acceptance in a referendum, failed to make it out of the legislature.

Most other states extended terms of office long ago. Beyond a suspicion of politicians and the power of Vermont traditions, another reason that hasn’t happened in Vermont can be traced back to the last of the conventions called by the old Council of Censors.

When terms of office were doubled to two years in 1870, the amendment process was also changed. The legislature would henceforth initiate any constitutional innovations, but only once every 10 years. This “time lock” provision was later shortened to five year intervals, but has remained a deterrent to rapid changes in the structure and processes of government.

Vermont doesn’t have a provision for referendum by public petition. In 1890, legislation approved the printing of Australian ballots by state government to be used at town meetings. Since then, the state has continued to influence the nature of local politics. Lawmakers can request endorsement of a decision in a Town Meeting Day referendum, for example. Exercising the authority to seek local opinion led to the enactment of the “local option” for alcohol in 1902, and to the defeat of the proposed Green Mountain Parkway in 1936.

These political traditions – local control, short terms and a citizen legislature – as well as small-scale, decentralist impulses, reflect Vermont’s fundamental commitment to individual autonomy. The original Greek idea is self-rule. Valued for its contribution to the search for truth and the functioning of a self-governing society, autonomy involves making conscious choices. Without this basic form of self-management democracy can’t succeed.

According to Bookchin, who lived in Vermont for decades, self-rule also applies to society as a whole. “Self-management is the management of villages, neighborhoods, towns, and cities,” he wrote. “The technical sphere of life is conspicuously secondary to the social. In the two revolutions that open the modern era of secular politics – the American and French – self-management emerges in the libertarian town meetings that swept from Boston to Charleston and the popular sections that assembled in Parisian quartiers.”

Total individual autonomy can be an illusion. Whether acknowledged or not, all humans are influenced by social needs and impulses, cultural norms and values. But fundamentally, autonomy is a powerful aspiration that pulls human beings toward self-sufficiency, moral courage and personal development. It is the basic quest for identity, the search for self-actualization studied and debated by psychologists, theologians and social theorists.

In Vermont, this quest underpinned the struggles of early settlers against outside control during the revolutionary era. Active dissent began when they organized to declare themselves free of British rule and exploitation by land speculators. Since then, an instinctive preference for autonomy has fueled numerous Vermont campaigns of resistance and direct, sometimes dramatic challenges to state and federal overreach.

Over and over again in the Middle East, we see the same pattern repeating itself: An oil-rich country takes control of its own oil fields and cuts out the Western oil companies. What follows as the night the day, the western countries overthrow the offending government and reinstall their favorite oil companies. This has happened in both Iran and Iraq.

Right now, the U.S. is threatening Iran with war on grounds that it is making a nuclear weapons. To begin with, Iran is a peaceful country. It hasn’t started a war in hundreds of years. It only fought when Iraq invaded it in 1980. In that war, Iraq used chemical weapons that it got from the United States---so here we have an example of an American attack by proxy on Iran without any provocation. But the United States attacked Iran on its own without using intermediaries in 1953 and overthrew the legitimate government. Most Americans don’t know about that overthrow. It was engineered by the Central Intelligence Agency. Since Iran did not even have a nuclear facility in 1953, what could have been the excuse for the attack?

The answer is oil. Iran kicked out the British oil company it felt was cheating it out of a fair profit for the oil it was extracting and took the oil field over from the British. The British tried to overthrow the “insolent” Iran government but failed. Iran kicked the British spies out of the country. So Britain asked the American CIA to overthrow the government and the U.S. did, deposing Prime Minister Mossadegh and putting a king on the throne.

And guess who got the contracts? The western oil companies: Gulf, Standard Oil of New Jersey, Texaco and Mobil---got a 40 percent share of the new National Iranian Oil Company.

What happened in Iran in 1953 was also going to happen in Iraq in 2003---- the U.S. attacked Iraq after which the western oil companies got the plum contracts.

“Prior to the 2003 invasion and occupation of Iraq, US and other western oil companies were all but completely shut out of Iraq’s oil market,” industry analyst Antonia Juhasz told Al Jazeera wire service. “But thanks to the invasion and occupation, the companies are now back inside Iraq and producing oil there for the first time since being forced out of the country in 1973.” And, adds Business Week magazine, “Western producers like BP, ExxonMobil, and Shell are enjoying their best access to Iraq’s southern oil fields since 1972”. 1972 was the year Saddam Hussein nationalized Iraq’s oil fields. (A big winner of the U.S. invasion was Hunt Oil Co., of Dallas, Tex., run by Ray Hunt. Hunt is President George W. Bush’s friend and fund-raiser.) Oil industry analyst Juhasz says that ExxonMobil, BP, and Shell aggressively lobbied their governments “to ensure that the invasion would result in an Iraq open to foreign oil companies” and that “they succeeded.”

Sure they succeeded. Because the Pentagon works hand-in-glove with the oil industry.

So what we have here is history repeating itself. Whenever Iraq or Iran have been attacked by the U.S. in the past it’s been over oil. That’s the record. Those are facts. But if you like you can believe the U.S. and Israel are threatening to attack only because they’re trying to stop Iran from getting a nuke. That’s an echo of President George Bush’s lie that Iraq had weapons of mass destruction.

There’s an inscription from Shakespeare etched on the National Archives building in downtown Washington, D.C. It says, “What’s past is prologue.” Shakespeare was right. Better believe it. And history will repeat itself with a new U.S.-Israeli attack on Iran unless the American people rise up and declare: “No blood for oil.” 

We hover like vultures, waiting for the wounded beast to die:  The murderous, torturing, depraved beast that the US has become, or always was.  To the beast, it’s just a facet of nature, the predator feeding on prey.  It’s not an ethical issue, the strong kill the weak in nature all the time.  It’s an evolutionary strategy, that feeds the empire for a while and keeps it strong, until the inevitable corruption and decline. 

The suffering of millions of victims is irrelevant to its subjects, insulated by distance, propaganda, and narcissism.  But, what feeds on the death of others will be food for the vultures.  And we hover, the doomsters, secessionists, anti-imperialists, decentralists, waiting for the beast to die; watching incredulous as the sheeple, living in their delusional bubble, go on with life as usual, believing in the myth of America as the shining city on the hill, the exceptional nation, immune from the laws of history and economics, the greatest superpower of all time, this century destined to be the American Century; Pax Americana, global hegemony through our infinite benevolence.

But it’s too late.  The beast is already dead.  It’s just a “dead man walking”.

The phrase refers to a convict on death row making his walk to the “gallows”, where he will be executed, meaning he is already a dead man, but is walking down death row one last time. It was made famous by the award winning Sean Penn and Susan Sarandon film, “Dead Man Walking” written by Sister Helen Prejean.

The US empire is also a “dead man walking”.  It’s already dead, but keeps on walking for a little while longer, like a zombie.   US officials mouth their ridiculous platitudes; Congress cheers; citizens engage in farcical elections; on it goes.  No one knows how long, it’s only a matter of time.   The US empire is similar to the death row convict in the film in one other important way: denial.  But as the film progresses, more and more of the crime is revealed, until the culmination of the film, when he admits to both sister Prejean and to himself that he did the horrible deed.  Will we do the same?

The US empire and its citizens remain in a condition of denial and woeful ignorance of their situation and their crimes.  Even the 9/11 wake up call did not awaken the populace from denial in the slightest.  The supposed perpetrators stated their grievances:  Get infidel troops out of the Muslim Holy land (Saudi Arabia), stop killing Muslims, and stop supporting Israel’s occupation of Palestine.  Did we listen?  Of course not.  People here believe America is the light of the world, we promote goodness and democracy everywhere, and we have never done wrong (See Bill Blum anti-empire report for more on this http://killinghope.org/#essays).  We believe we have the greatest economy in the world and renewed prosperity is just around the corner.

This is an empire whose President takes pride in “a job well done by our soldiers” in the invasion and occupation of Iraq that killed one million people and displaced half the population; an empire that is engaged in at least 6 wars at one time in Iraq (still), Afghanistan, Pakistan, Yemen, Somalia, Iran (coming soon); an empire where a presidential candidate (Newt Gingrich) celebrates Andrew Jackson’s extermination of the American Indian by proclaiming that he knew what to do to America’s enemies: kill them.  The other candidates of both parties, all compete to show they are the most blood thirsty, except for Ron Paul of course, who doesn’t have a chance in hell to be nominated.  This is a country, supposedly about freedom, that locks up about half its black youth, mostly for non-violent drug crimes, incarceration substituting for 200 years of slavery; A country about justice, where 45 million have no health care, and a country about opportunity, where 1/3 of children live in poverty, in one of the richest countries in the world.  This is a country transformed from the highest net producing country to the highest net consuming country, from the biggest lender country to the biggest debtor country, a country of beggars.  This is a dead man walking.

The crimes are many and the denial is deep.  And we don’t commit crimes from passion, temporary insanity, malevolence, or from our abused and tortured soul.  We do it for money.  Unlike the film, there weren’t just two murders and the double rape of a single woman.  As US Marine Corps General Smedley Butler confessed in 1933, “I helped in the raping of half a dozen Central American republics for the benefits of Wall Street. The record of racketeering is long. I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in.  I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912. I brought light to the Dominican Republic for American sugar interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested.” 

If anything this record accelerated after WWII.  We murdered democracy in Iran (1953), Guatemala (1954), Congo, Honduras, Dominican Republic, Nicaragua, El Salvador, etc.  See http://killinghope.org/ for complete list. 

How does the dead man keep walking?

It survives on “the kindness of strangers”, in the form of loans from other countries to prop up our debt, and monetizing (purchasing) the US debt by credit created out of thin air by the Federal Reserve Bank.  What keeps it going is that people still trust the US dollar, US bonds, and US stock market as a secure place to put their money.  The slightest loss of confidence and interest rates will shoot up, making interest on the US debt unpayable, just as has happened to many other countries in recent years.

How long can you live on your credit card, when you have no net income?  As long as credit card companies trust that you will get a job or borrow from someone else, and pay the interest, they really don’t care if you ever pay off the principle.  In fact they would prefer it if you didn’t, because then you are a steady stream of income to them forever.  But if you should default on your interest payments, then you are a poor credit risk and the credit spigot will be turned off rapidly.  Banks are the ultimate vulture capitalists, feeding off the funding and spoils of empire.

As long as the US can keep making interest payments on its debt, the dead man will keep walking.  Consider how little it would take to make the interest unpayable.  Figures from: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm around Jan. 20, 2012:

Total debt outstanding: $15,236 billion which equals 100% of US GDP.  2011 interest payments: $454.4 billion.  Average interest rate (calculated): 2.98%

The 2011 federal budget was $3.8 trillion.  $454.4 billion interest represented 12% of the budget.  Holding the budget constant, if interest rates went up to 6%, interest would be doubled to $908.8 billion or 24% of the budget.  At 9% interest equals $1363.2 billion or 36% of the budget.  At 12% interest equals $1817.5 billion, or 48% of the budget.  And holding the budget constant, means austerity for everything else of course.  How much can you cut before producing riots and social unrest?  If this sounds unlikely, consider that the federal prime rate on April 2, 1980 was 20.00%.

When does it become unpayable?  Only Nemesis knows.  Until then the Empire is a dead man walking.

After months of wrestling with the County Building Department about permits and codes, excruciating financial gymnastics and down and dirty back-breaking spadework, we finally got our solar installation up. It’s a massive 3 kw (stc) photovoltaic pole mount.

We feel like we created the best of two worlds, too, since we live way back in the woods while, at the same time, are generating a lot of electricity. We inscribed a Sun Mantra, OM Suryaya Namaha, around the base of the installation, honoring the Sun as the principal of light, life and love. In Vedic Philosophy, the Sun represents the soul—the causal body or reincarnating entity, as well as the mind of clarity and illumination.

As Charles Eisenstein, in Sacred Economics, points out, he is “not surprised that ancient people worshiped the sun, the only thing we know that gives without expectation or even possibility of return. The sun is generosity manifest.” He goes on, a bit later, to say that “solar energy is the light of earthly love reflected back at us”.

So, it goes without saying that we think our solar array is beautiful. It’s a piece of  architectural artwork; it’s practical spirituality; it’s earthly love reflected back at us!

We have learned that this, however, is not a popularly held viewpoint. Comments have ranged from “what is that monstrosity in your back yard?” to “I wouldn’t put something like that on my property!”. Oh, there was also the woman who asked if we were “expecting an alien landing”. Good grief. 

These comments, mind you, all came from people who wouldn’t think twice if there were a couple of junk cars sitting out there, or maybe even a garish TV satellite receiver. If we had stashed an old washer or dryer on the back porch or had a couple of broken-down snowmobiles in the shed, they’d walk right by them, too, and never bat an eyelash. But, some solar panels? No way!

Take, for example, the town of Warwick, in southern Orange County. They were the first community in the US to install solar panels on their Town Hall, install an electric car charging station near their farmers' market and attract an LEED-certified supermarket. While this all sounds good to me, the town is now contending with the complaints of people who do not like the idea of solar panels on downtown village homes. John Hicks, the town attorney and former Orange County Republican chairman whose wife sent in a letter of complaint regarding the solar installations, said he and his wife support energy efficiency but oppose the installation of solar panels on historic downtown homes "because basically solar panels are pretty ugly."

And, Warwick isn’t the only place where solar panels are under assault.  Residents and politicians in Ridgewood, Wyckoff, and several other posh suburban towns just outside New York City are attacking local utility company PSE&G for putting up solar panels. Specifically, in an attempt to double the Garden State’s solar capacity, the company has been installing 3-foot-by-5-foot solar modules on utility poles. And the reactions are less than positive: “It’s just horrible,” said Ridgewood’s Deputy Mayor Tom Riche, according to an article in The Record, of Bergen County, N.J.

Aren’t we really addressing an age-old philosophical question about what constitutes beauty? Or fashion?

For example, no self-respecting chic woman of the 21st century would be caught dead in a fitted bodice with gathers and padded shoulders. But, if this were 1942, she’d be sizzling.

And, I’ll bet nobody thought that all of those electric lines that got hung in the early 1900’s were ugly. Probably not: they were too excited about exchanging their oil lamps for light bulbs. If we’re really talking about aesthetics, a nicely trimmed oil lamp is way prettier than a light switch. But, electric lights were a step forward. They lessened the chance of a house fire, didn’t emit fumes and put off way more light. So, nobody complained.

Well, it’s kind of the same with solar panels. They are a step forward. Solar power is renewable and non-polluting. And, after the initial investment, all of the electricity produced is free. As a culture, we’re just not used to looking at them yet. But, give us a decade or so, and they’ll be like those electric wires that are strung all over the place—we will hardly even notice them. And, when we do, we’ll recognize that they are beautiful. They’re beautiful because they are renewable and non-polluting. And, because they are a step forward. Their beauty is grounded in their contribution to sustainable futures. They are an icon to something that we are giving to—instead of taking away from—subsequent generations. They are not a fashion statement: they’re an evolutionary statement. They are monuments to the awakening of our species.

OM Suryaya Namaha.

The Wall Street Journal reported on January 19 that the Obama administration was pushing heavily to get the 50 state attorneys general to agree to a settlement with five major banks in the "robo-signing" scandal. The scandal involves employees signing names not their own, under titles they did not really have, attesting to the veracity of documents they had not really reviewed. Investigation is revealing that it did not just happen occasionally, but was an industry-wide practice, dating back to the late 1990s; and that it may have clouded the titles of millions of homes. If the settlement is agreed to, it will let Wall Street bankers off the hook for crimes that would land the rest of us in jail - fraud, forgery, securities violations and tax evasion.

To the president's credit, however, he seems to have shifted his position on the settlement in response to protests before his State of the Union address. In his speech on January 24, President Obama did not mention the settlement, but announced instead that he would be creating a mortgage crisis unit to investigate wrongdoing related to real estate lending. "This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans," he said.

The Deeper Question Is, Why?

Whether massive robo-signing occurred is no longer in issue. The question that needs to be investigated is why it was being done. The alleged justification - that the bankers were so busy that they cut corners - hardly seems credible given the extent of the practice.

The robo-signing largely involved assignments of mortgage notes to mortgage servicers or trusts representing the investors who put up the loan money. Assignment was necessary to give the trusts legal title to the loans. But assignment was delayed until it was necessary to foreclose on the homes, when it had to be done through the forgery and fraud of robo-signing. Why had it been delayed? Why did the banks not assign the mortgages to the trusts when and as required by law?  

Here is a working hypothesis, suggested by Martin Andelman: securitized mortgages are the "pawns" used in the pawn shop known as the "repo market." "Repos" are overnight sales and repurchases of collateral. Yale economist Gary Gorton explains that repos are the "deposit insurance" for the shadow banking system, which is now larger than the conventional banking system and is necessary for the conventional system to operate. The problem is that repos require "sales," which means the mortgage notes have to remain free to be bought and sold. The mortgages are left unendorsed so they can be used in this repo market.

The Evolution of the Shadow Banking System

Gorton observes that there is a massive and growing demand for banking by large institutional investors - pension funds, mutual funds, hedge funds, sovereign wealth funds - which have millions of dollars to park somewhere between investments. But FDIC insurance covers only up to $250,000. FDIC insurance was resisted in the 1930s by bankers and government officials and was pushed through as a populist movement: the people demanded it. What they got was enough insurance to cover the deposits of individuals and no more. Today, the large institutional investors want similar coverage. They want an investment that is secure, that provides them with a little interest and that is liquid like a traditional deposit account, allowing quick withdrawal.

The shadow banking system evolved in response to this need, operating largely through the repo market. "Repos" are sales and repurchases of highly liquid collateral, typically Treasury debt or mortgage-backed securities - the securitized units into which American real estate has been ground up and packaged, sausage-fashion. The collateral is bought by a "special purpose vehicle" (SPV), which acts as the shadow bank. The investors put their money in the SPV and keep the securities, which substitute for FDIC insurance in a traditional bank. (If the SPV fails to pay up, the investors can foreclose on the securities.) To satisfy the demand for liquidity, the repos are one-day or short-term deals, continually rolled over until the money is withdrawn. This money is used by the banks for other lending, investing or speculating. Gorton writes:

This banking system (the "shadow" or "parallel" banking system) - repo based on securitization - is a genuine banking system, as large as the traditional, regulated banking system. It is of critical importance to the economy because it is the funding basis for the traditional banking system. Without it, traditional banks will not lend and credit, which is essential for job creation, will not be created.

All Behind the Curtain of MERS

The housing shell game was made possible because it was all concealed behind an electronic smokescreen called MERS (an acronym for Mortgage Electronic Registration Systems, Inc.). MERS allowed houses to be shuffled around among multiple, rapidly changing owners while circumventing local recording laws. Title would be recorded in the name of MERS as a placeholder for the investors and MERS would foreclose on behalf of the investors. Payments would be received by the mortgage servicer, which was typically the bank that signed the mortgage with the homeowner. The homeowner usually thinks the servicer is the lender, but in fact it is an amorphous group of investors.

This all worked until courts started questioning whether MERS, which admitted that it was a mere conduit without title, had standing to foreclose. Courts have increasingly held that it does not.

Making matters worse for the servicing banks, Fannie Mae sent out a memo telling servicers that in order to be reimbursed under HAMP - a government loan modification program designed to help at-risk homeowners meet their mortgage payments - the servicers would have to produce the paperwork showing the loan had been assigned to the trust.

The hasty solution was a rash of assignments signed by an army of "robo-signers," to be filed in the public records. But the documents are patent forgeries, making a shambles of county title records.

Complicating all this are tax issues. Since 1986, mortgage-backed securities have been issued to investors through SPVs called REMICs (Real Estate Mortgage Investment Conduits). REMICs are designed as tax shelters; but to qualify for that status, they must be "static." Mortgages can't be transferred in and out once the closing date has occurred. The REMIC Pooling and Servicing Agreement typically states that any transfer significantly after the closing date is invalid. Yet, the newly robo-signed documents, which are required to begin foreclosure proceedings, are almost always executed long after the trust's closing date. The whole business is quite complicated, but the bottom line is that title has been clouded not only by MERS, but because the trusts purporting to foreclose do not own the properties by the terms of their own documents.

John O'Brien, register of deeds for the Southern Essex District of Massachusetts, calls it a "criminal enterprise." On January 18, he called for a full-scale criminal investigation, including a grand jury, to look into the evidence. He sent to Massachusetts Attorney General Martha Coakley, US Attorney General Eric Holder and US Attorney Carmen Ortiz over 30,000 documents recorded in the Salem Registry that he says are fraudulent.

From Lending Machines to Borrowing Machines

The bankers have engaged in what amounts to a massive fraud, not necessarily because they started out with criminal intent, but because they have been required to in order to come up with the collateral (in this case real estate) to back their loans. It is the way our system is set up: the banks are not really creating credit and advancing it to us, counting on our future productivity to pay it off, the way they once did under the deceptive but functional façade of fractional reserve lending. Instead, they are vacuuming up our money and lending it back to us at higher rates.

"Instead of lending into the economy," says British money reformer Ann Pettifor, "bankers are borrowing from the real economy." She wrote in The Huffington Post in October 2010:

[T]he crazy facts are these: bankers now borrow from their customers and from taxpayers. They are effectively draining funds from household bank accounts, small businesses, corporations, government Treasuries and from e.g. the Federal Reserve. They do so by charging high rates of interest and fees; by demanding early repayment of loans; by illegally foreclosing on homeowners and by appropriating and then speculating with trillions of dollars of taxpayer-backed resources.

Not only has the system destroyed county title records, but it is highly vulnerable to bank runs and systemic collapse. In the shadow banking system, as in the old, fractional reserve banking system, the collateral is being double counted: it is owed to the borrowers and the depositors at the same time. This allows for expansion of the money supply, but bank runs can occur when the borrowers and the depositors demand their money at the same time. And unlike the conventional banking system, the shadow banking system is largely unregulated. It doesn't have the backup of FDIC insurance to prevent bank runs.

That is what happened in September 2008 following the bankruptcy of Lehman Brothers, a major investment bank. Gorton explains that it was a run on the shadow banking system that caused the credit collapse that followed. Investors rushed to pull their money out overnight. LIBOR - the London interbank lending rate for short-term loans - shot up to around 5 percent. Since the cost of borrowing the money to cover loans was too high for banks to turn a profit, lending abruptly came to a halt.

Fixing the System

The question is how to eliminate this systemic risk. As noted by The Business Insider:

Regulate shadow banking more tightly and you probably have to also provide government backstops. Shudder. Try to shut the thing down or restrict it and you suck credit out of the system, credit which much of the non-financial "'real" economy uses and needs.

Interestingly, countries with strong public-sector banking systems largely escaped the 2008 credit crisis. These include the BRIC countries - Brazil, Russia, India and China - which contain 40 percent of the global population and are today's fastest growing economies. They escaped because their public-sector banks do not need to rely on repos and securitizations to back their loans. The banks are owned and operated by the ultimate guarantor - the government itself. The public-sector banking model deserves further study.

Whatever the solution, a system that requires the slicing and dicing of mortgages behind an electronic smokescreen so they can be bought and sold as collateral for the pawn shop of the repo market is obviously fraught with perils and is unsustainable. Please contact your state attorney general and urge him or her not to go through with the robo-signing settlement, which will be granting immunity for crimes that are not yet fully known. Phone numbers are here. The surface of this great shadowy second banking system has barely been scratched. It needs a very thorough investigation.

Originally published at Truthout

This is such a great debate on the floor of the Scottish Parliment. Can you imagine this kind of debate happening in United States??? 

As-it-happened: First Minister's Questions on Thursday, 26 January

Here is some additional material on Scotland's bid for independence:

Twelve unresolved questions on Scottish independence

"5) How much debt would Scotland take on?

There's little doubt that Scotland would be expected to take on a share of UK national debt - the size of the share and the basis on which it should be calculated is up for discussion. Alex Salmond would like it to be based either on a share of the UK's GDP, or population, which could put the figure at some £80bn. But there are other issues to consider. The debt could be serviced issuing bonds. An independent Scotland - would need its own credit rating. SNP ministers say the UK government's own figures show that Scotland - whose budget is currently funded through a Treasury block grant - had a surplus of £19bn compared to the UK as a whole, between 1980 and 2009. With no credit history, an independent Scotland may run into problems with the bond markets. However, the SNP says it's "entirely confident" Scotland could, taking into account its own assets and resources, secure a top credit rating."

Scottish independence: First Minister Alex Salmond set to unveil referendum plans

"The Scottish Government and people across Scotland believe that we can and will make a compelling case for independence - with the powers we need to build an economically-successful and socially-just nation. While others disagree, we do come together on the democratic principle that it is a decision for Scotland to make."

Scottish independence: a brave new world

"This is the start of something bold, exciting and liberating. A nation and political community beginning a journey to articulate a national mission, purpose and story. Who knows where it might lead? We may need a different name for the space that was once called the United Kingdom."

It was typical Obama, taking credit for what should be condemned. He's a fraud, a crime boss, a war criminal multiple times over, a moral coward, and serial liar. His State of the Union address was beginning-to-end doublespeak, duplicity, coverup, and denial of failed policies complicit with Wall Street crooks, war profiteers, and other corporate favorites while popular needs go begging.

Not according to fawning New York Times writers, however. Suppressing truth and full disclosure, Helene Cooper headlined "Obama Speech Makes Pitch for Economic Fairness" saying Obama:

"pledged on Tuesday night to use government power to balance the scale between America's rich and the rest of the public....toward an economy 'built to last' and what he called irresponsible policies of the past that caused economic collapse."

Fact check: throughout his tenure, Obama transferred trillions of dollars to Wall Street, other corporate favorites. In the process, he deepened a Main Street Depression. As a result, half of US households are impoverished or bordering on it. Hunger and homelessness grow. Nothing is being done to help. The unaddressed human need is incalculable with  over 25 million remain unemployed, with job creation nil except for low wage/no benefit temp or part-time ones and inequality in America is unprecedented. Obama supports austerity when massive stimulus is needed. Rich elites never had it so good at the expense of ordinary people left out.

Obama's Failed State isn’t fit to live in for growing millions. Nonetheless, an accompanying Times editorial headlined "The State of the Union in 2012" said "A year ago....we applauded" Obama's plan to "put millions of struggling people to work (and his support for) wrestl(ing) down the deficit (by requiring) the wealthy (to pay) a fairer share of taxes." Applause continued, ignoring Obama's duplicitous Tuesday address and agenda.

Fact check: Obama's plan includes imperial wars, tax cuts for the rich, corporate handouts, and austerity for ordinary people. His America perpetuates permanent wars, disproportionate wealth extremes, spiraling debt, and unaddressed human need. He ignores growing millions unemployed and impoverished. He cut Medicare for seniors and America's disabled as well as Medicaid for poor and disadvantaged recipients. He left growing millions of students debt entrapped, many for life. His latest proposal involves looting pension funds to enrich mortgage lenders. He's packaging fraud as a boon to ordinary people.

He lied saying "The state of our union is getting stronger. In the last 22 months, businesses have created more than three million jobs." Progressive Radio News Hour regular, economist Jack Rasmus said Obama's "stimulus" programs consisted largely of corporate and personal super-rich tax cuts. As a result, they failed. Corporations hoarded cuts and other subsidies. Job creation investments weren't made. Big business benefitted while ordinary people lost out. Economic recovery failed. According to Rasmus, Obama's agenda "failed because (it) relied on the private market sector to generate a sustained recovery, instead of on the government directly taking the lead to create jobs, rescue homeowners and resurrect housing, and stabilize state-local government finances long run." He "bailed out banks that (don't) lend, rescued corporations that (don't) create jobs, and (inadequately) subsidized state and local governments for a brief period and then cut them loose to fend fiscally for themselves." 

Obama's agenda was and remains devastating for ordinary Americans. At the same time, corporations and rich ones flourish. His "built to last" economy favors them alone. He lied saying he wants to assure "everyone gets a fair shot." His notion of "American values" rewards the rich at the expense of everyone else. He took credit for letting auto giants destroy jobs, slash worker pay and benefits, ban strike actions, and let corrupt union bosses serve as corporate enforcers. He said what Detroit did "can happen in other industries." In fact, Detroit's "success" is bankruptcy and ruin. Motown became ghost town. In death throes, it symbolizes America's decline. In disrepair and decline, it's dying with shocking unemployment, poverty and unaddressed human need levels. What Obama did to Detroit, he offers other cities packaged as populism. He took direct aim at destroying decades of painful labor struggles. They included taking to the streets, going on strike, holding boycotts, battling rogue bosses, police and National Guard forces, as well as paying with their blood and lives before real gains were won. Now they're lost, including a living wage, decent benefits, and the right to bargain collectively on equal terms with management. What grassroots struggles achieved, he and other rogue leaders destroyed. All this in a nation claiming to be government of, by and for the people, most of whom are working class ones struggling to get by. What Reagan era politics began, Obama raised to new levels.

Praising "America's Armed Forces," he also assured permanent war. They "exceed all expectations," he said. "Imagine what we could accomplish if we followed their example." Perhaps he has destroying humanity in mind to assure unchallenged US hegemony. Ron Paul Responds to Obama's Address Obama "once again showed that he does not represent the fundamental change this country needs. Instead of offering solutions to the problems our country faces, (he) deliver(ed) a campaign speech....typical (of) Washington political gamesmanship that (got) us exactly nowhere close to improving the lives of the American people." His policies assure "continue economic stagnation" and decline. He "claims to want an economy where everyone gets a fair shot, everyone does their fair share, and everyone plays by the same set of rules." "Yet he remains committed to the same old system of debt, deficits, bailouts and cronyism that created our economic troubles." "Of course, (he) refuses to even mention the role the Federal Reserve plays in creating an economic system where some are denied a fair shot or even to support my efforts at bringing transparency" to an opaque, secretive process. "In the area of foreign policy and civil liberties, (Obama's) rhetoric" belies his agenda. It's "hardly 'change we can believe in.' " No wonder more and more Americans, especially young people, (reject his) phony alternatives (and those of) establishment Republicans"

Throughout his tenure, Obama waged multiple imperial wars, plans others, looted the nation's wealth, wrecked the economy, consigned growing millions to impoverishment without jobs, and institutionalized tyranny to target dissenters challenging political corruption, corporate crooks, or abuse of power lawlessness. He also destroyed hard won labor rights, wants education commodified as another business profit center, and wages war on whistleblowers, dissenters, Muslims, Latino immigrants, and environmental and animal rights activists called terrorists. He wrecked America, governs lawlessly, and threatens worse ahead. Imagine the unpalatable options facing voters in November between a lawless/crime boss/militarist/pro-war/anti-populist/morally corrupt president, and a rogue's gallery of alternatives looking more like a police lineup than legitimate candidates. They assure continued pro-business/pro-war/anti-populist policies. They threaten Middle America's survival and perhaps humanity if they're not stopped. Imagine a president taking credit for what should be condemned. Imagine an aroused public refusing to let him. It's happening with legs but needs to grow. What OWS began, millions need to join and support. That's how great struggles are won. This one's the mother of them all.

In response to Obama's duplicitous and delusional state of the disUnion speech, and the ongoing criminal conspiracy that comprises our national government, as defined by the Nuremburg Principles, I offer the readers a copy of my recent letter to the IRS regarding my tax refusal for 2006 and 2007.  Substitute Obama for Bush in the letter below and there is no difference.  Sheeple, if you are nauseated by your choices this year and by your government you will have to starve the beast.  As former Reagan Secretary of State Alexander Haig said, "Let them protest all they want, as long as they pay their taxes."

Dear Miss Duenas,

                  Thank you for providing me with additional time to complete my tax returns for 2006 and 2007.  I appreciate it.  In response to our conversation August 30, 2011, I am enclosing my returns for 2006 and 2007.  The tax due for 2006 after credit for tax withheld is $3925.35. This contrasts with the IRS calculation of tax due before penalties and interest of $6709.00.  The tax due for 2007 is $2845.85 after credit for tax withheld.  This contrasts with the IRS calculation of tax due before penalties and interest of $3396.00.  Since I have no way to recalculate the penalty and interest on the revised tax due, I would appreciate it if you would make this calculation and notify me so I know what the total amount due is.

However, I must inform you that I will be unable to pay the balance at this time.  I have no objection to the payment of taxes under normal circumstances, and I am not making any frivolous claims about the denial of my obligation to pay taxes.   However, I feel that due to the extraordinary circumstances in 2006 and 2007 when these taxes were due, I am unable to pay.  Please allow me to explain.

Extensive legal review performed by the National Lawyers Guild, by international legal scholar Francis A. Boyle, and former attorney general Ramsey Clarke determined that the United States was engaged in war crimes, crimes against humanity, and crimes against peace in the conduct of the wars in Iraq, Afghanistan, and the “war on terrorism” in violation of the UN charter, the Nuremburg Principles, the US Constitution, the Kellogg-Briand Peace Pact, and Army Field Manual 27-10.   To quote Professor Boyle,  “In international legal terms, the Bush Jr. Administration should be viewed as constituting an ongoing criminal conspiracy under international criminal law in violation of the Nuremburg Charter, the Nuremburg Judgement, and the Nuremburg Principles, due to its formulation and undertaking of war policies which are legally akin to those perpetrated by the NAZI regime in pre-WWII Germany”.  Some of these actions include pre-emptive war, massacre of civilian populations, torture, rendition for torture, use of indiscriminate weapons of mass destruction (depleted uranium), and assassinations without due process of law.

The political and judicial systems of this country failed to prevent these crimes from taking place, and therefore we were left with no other option than civil disobedience and civil resistance.  I had a legal and moral obligation as an American citizen under international law not to cooperate with these international war crimes.  Part of the system that enabled these crimes to take place was financing provided by the tax system.  I do not deny that I owe these taxes, but under international law I would be complicit with war crimes if I paid.  International law is a higher law than US tax law, and as signatories to the UN and Nuremburg charter we are bound by it as US citizens.  Therefore I am compelled not to pay, and accept the consequences.  I would like to offer you a more detailed explanation, which I hope to explain in any future legal proceedings.

Sincerely,

Gary Flomenhoft

Update: More evidence in support of this letter:  Bush and Blair were recently found guilty of Nuremburg War Crimes by a tribunal in Malaysia.  See link.

I was doing some digging and I found a short essay I posted on facebook in early August of 2011. I thought Vermont Commons might find it relevant. I was responding to an article that suggested that the youth of America have been successfully pacified. I disagreed. I don't mean to brag, or suggest prophecy, but "occupy" started three weeks later.

Here's the article I was responding to:

8 Reasons Young Americans Don't Fight Back: How the US Crushed Youth Resistance

Here is my essay as it was then:

"This article does point out a lot of social ills that need to be confronted, but it's a little more hopeless than it needs to be. There's still a lot of resistant energy among young people, it's just not being flaunted to the public with organized protests like it used to be. The way I see it, there are essentially four ways to resist:

1. Working within the system.

2. Overt direct action.

3. Covert direct action.

4. Separation, abandonment and/or cutting off support.

Each of these methods of resistance comes with it's own risks and benefits. This article seems to be lamenting the lack of overt resistance in contemporary youth culture, particularly as compared to the Vietnam war. However, overt direct action (IE protests, sit-ins etc) seems to be the least effective method of action by itself. Covert direct actions appear to be slightly more frequent than ever, though of course it's difficult to track because it's covert, usually illegal, and often the subject of media black out. Young people I know shoplifting from corporate chains, disabling cameras, spraying graffiti and so on seem to be going strong.

I've met many, many people my age who are intent on "working within the system." Usually these are the people who had the mental energy to educate themselves, despite also succeeding in public school (an increasing difficult feat, as the article points out). Unfortunately, they often have only the most vague concept of exactly how they're going to work AGAINST the system while they are with in it. This is where a quote by revolutionary-rapper Immortal Technique comes to mind: "When you try to change the system from within, it's not you who will change the system, it's the system that will eventually change you."

That said, a decent number of these kids actually do have a clear goal in mind, or, more importantly, they understand the need to coordinate with other types of resistance in order to be effective. The best thing about my generation, in revolutionary terms, is the increasingly widespread understanding that the 4th type of resistance is by far the most effective. Separating from corporate monoculture by localizing the economy as far as possible, growing our own food, using alternate currencies, and even staying below the official poverty line in US dollars as though not to pay taxes are more effective than any protest, lobbying or graffiti. People of all ages, but particularly among the youth, are beginning to realize that. Once the "corpratocracy" to use the parlance, is cut off from tax-dollars and direct consumers it's dead in 15 minutes.

In order to allow that essential cut-off to happen, there does also need to be a somewhat coordinated upswing in the three other types of resistance. If the other three types of resistance can increase the costs of doing business, we can tip the balance in favor of local economies so even totally disinterested people will buy local because it will make more immediate economic sense. Working within the system, if done with a great deal of care and control, also provides opportunities for a some degree of a soft, gradual shift into economics on a human scale." 

Obviously, since August, 2011, the youth of our generation have shown ourselves to be capable of rallying and has put on some excellent displays of overt direct action. Not just protests associated with "occupy" but 350.org's mobilizations to delay the Trans-Canada pipeline, the blackouts and protests against congresses consideration of Draconian internet censorship and the anti-Lowell Wind movement closer to home.

My generation can't claim to be behind all of this by it's self, but we also can no longer be chided as not caring at all. Protests for civil rights and against the Viet Nam war were very multigenerational. A movement must draw on multiple age groups to be effective. I find great solace and great hope in the rekindling of the protest movement sense I wrote this defense of my generation. However, there are some blind spots that some of these movements seem to have. In the essay, I talk about the four methods of resistance. It seems like, for the most part, these movements have only been using overt direct action. I describe this as the least effective method in most cases. I'm not saying it's not worth doing, just that it can't achieve all that much by itself. I think overt direct action is excellent for identifying and networking with allies, with whom people The campaigns of calling the local legislator during the anti-SOPA protests could be described as simple form of working within the system, and they were probably the most effective part of the whole movement.

However, the most effective of those four strategies will always be separation and isolation. I'm always wishing that boycotts, strikes, divestments and tax-resistance could become the primary strategies of of anti-censorship movements, of environmental groups and of "occupy." Once those four strategies come into play, things will change rapidly.

A storm is coming. I’m in for 2012, as part of the Vermont Thirty, taking back our Legislature from corporate control.

You may find my positions here, the evolving platform that earned my status as a Liberty Candidate for 2012. The platform may be summed up in the words of Sitting Bull, Chief of the Lakotah Nation: Let us put our minds together, and see what kind of life we can make for our children.

In 2012, I’m going to be a grandpa. Folks, it takes something like this to broaden your perspective… and now it’s personal for me: I am strongly opposed to Vermont taking federal money, because it’s borrowed money that my grandchildren will get stuck paying back. Deprived of the opportunities that I had, simply because of one short-sighted, greedy generation.

I say this now: the job of a State Legislator is to protect the rights and fortunes of the people who sent him to Montpelier. Not; I repeat NOT to give up those rights to gain federal grants for make-work projects in his district.

These federal grants, stimulus and other welfare is DEBT: money borrowed from my grandkids without my consent and spent today. We Vermonters would be better off holding onto our hard-earned cash. It is a traditional Vermont value to do without what we cannot yet afford, to scrimp & save until we can buy something honestly. Handouts simply aren’t the Vermont way.

And that means deep tax reform. No more bogus, partisan, rubber-stamping “blue ribbon commissions”. I’ve been writing about tax reform for a couple years now at ProsperVermont.com, I know what to do.

And I want to hear from you. If the 2012 election taught me anything, it was how to listen. Patiently. And learn.

What’s next?

-Public forums & debates: make your voice heard. Ask the hard questions, hold your current representatives accountable. We’ll have a lot more of these this time around, sponsored by communities and independent third parties.

-Smart Meters: Learn the truth, and act on it to protect your family from them. Lockheed/Sandia Smart Meters are being pushed as ‘green’, yet they’re anything but. Beware of huge corporations twisting words that are dear to us, words like ‘sustainability’. They do this for their own ends.

-Independent ownership & control of Finance, Local Food, Energy, and the Political Will that it takes to get us there. In short, a real future. Doing for ourselves.

See you out there. Want to run too? Want to help? Click to contact me and we’ll get started!