Real Change Depends on Stopping the Bailout Profiteers
By Naomi Klein, November 4, 2008
To understand the meaning of the U.S. election results, it is worth looking back to the moment when everything changed for the Obama campaign. It was, without question, the moment when the economic crisis hit Wall Street.
Up to that point, things weren’t looking all that good for Barack Obama. The Democratic National Convention barely delivered a bump, while the appointment of Sarah Palin seemed to have shifted the momentum decisively over to John McCain.
Then, Fannie Mae and Freddie Mac failed, followed by insurance giant AIG, then Lehman Brothers. It was in this moment of economic vertigo that Obama found a new language. With tremendous clarity, he turned his campaign into a referendum into the deregulation and trickle down policies that have dominated mainstream economic discourse since Ronald Reagan. He said his opponent represented more of the same while he stood for a new direction, one that would rebuild the economy from the ground up, rather than the top down. Obama stayed on this message for the rest of the campaign and, as we just saw, it worked.
The question now is whether Obama will have the courage to take the ideas that won him this election and turn them into policy. Or, alternately, whether he will use the financial crisis to rationalize a move to what pundits call “the middle” (if there is one thing this election has proved, it is that the real middle is far to the left of its previously advertised address). Predictably, Obama is already coming under enormous pressure to break his election promises, particularly those relating to raising taxes on the wealthy and imposing real environmental regulations on polluters. All day on the business networks, we hear that, in light of the economic crisis, corporations need lower taxes, and fewer regulations—in other words, more of the same.
The new president’s only hope of resisting this campaign being waged by the elites is if the remarkable grassroots movement that carried him to victory can somehow stay energized, networked, mobilized—and most of all, critical. Now that the election has been won, this movement's new missions should be clear: loudly holding Obama to his campaign promises, and letting the Democrats know that there will be consequences for betrayal.
The first order of business—and one that cannot wait until inauguration—must be halting the robbery-in-progress known as the “economic bailout.” I have spent the past month examining the loopholes and conflicts of interest embedded in the U.S. Treasury Department’s plans. The results of that research can be found in a just published feature article in Rolling Stone, The Bailout Profiteers, as well as my most recent Nation column, Bush’s Final Pillage.
Both these pieces argue that the $700-billion “rescue plan” should be regarded as the Bush Administration’s final heist. Not only does it transfer billions of dollars of public wealth into the hands of politically connected corporations (a Bush specialty), but it passes on such an enormous debt burden to the next administration that it will make real investments in green infrastructure and universal health care close to impossible. If this final looting is not stopped (and yes, there is still time), we can forget about Obama making good on the more progressive aspects of his campaign platform, let alone the hope that he will offer the country some kind of grand Green New Deal.
Readers of The Shock Doctrine know that terrible thefts have a habit of taking place during periods of dramatic political transition. When societies are changing quickly, the media and the people are naturally focused on big “P” politics—who gets the top appointments, what was said in the most recent speech. Meanwhile, safe from public scrutiny, far reaching pro-corporate policies are locked into place, dramatically restricting future possibilities for real change.
It’s not too late to halt the robbery in progress, but it cannot wait until inauguration. Several great initiatives to shift the nature of the bailout are already underway, including http://bailoutmainstreet.com. I added my name to the “Call to Action: Time for a 21st Century Green America” and invite you to do the same.
Stopping the bailout profiteers is about more than money. It is about democracy. Specifically, it is about whether Americans will be able to afford the change they have just voted for so conclusively.
The Bailout Profiteers
By Naomi Klein, Rolling Stone, October 31, 2008
On October 13th, when the U.S. Treasury Department announced the team of "seasoned financial veterans" that will be handling the $700 billion bailout of Wall Street, one name jumped out: Reuben Jeffery III, who was initially tapped to serve as chief investment officer for the massive new program.
On the surface, Jeffery looks like a classic Bush appointment. Like Treasury Secretary Henry Paulson, he's an alum of Goldman Sachs, having worked on Wall Street for 18 years. And as chairman of the Commodity Futures Trading Commission from 2005 to 2007, he proudly advocated "flexibility" in regulation — a laissez-faire approach that failed to rein in the high-risk trading at the heart of the meltdown.
Bankers watching bankers, regulators who don't believe in regulating — that's all standard fare for the Bush crew. What's most striking about Jeffery's résumé, however, is an item omitted when his new job was announced: He served as executive director of Paul Bremer's infamous Coalition Provisional Authority in Baghdad, during the early days of the Iraq War. Part of his job was to hire civilian staff, which made him an integral part of the partisan machine that filled the Green Zone with Young Republicans, investment bankers and Dick Cheney interns. Qualifications weren't a big issue back then, because the staff's main function was to hand over stacks of taxpayer money to private contractors, who were the ones actually running the occupation. It was this nonstop cash conveyor belt that earned the Green Zone a reputation, in the words of one CPA official, as "a free-fraud zone." During Senate hearings last year, when Jeffery was asked what he had learned from his experience at the CPA, he said he thought that contracts should be handed out with more "speed and flexibility" — the same philosophy he cited back when he was in charge of regulating Wall Street traders.
The Bush Administration has since reversed the Jeffery appointment, perhaps thinking better of giving a CPA alum such a central role in the Wall Street bailout. Still the original impulse underscores the many worrying parallels between the administration's approach to the financial crisis and its approach to the Iraq War. Under cover of an emergency, Treasury is rapidly turning into an economic Green Zone, overrun with private companies collecting lucrative contracts. Fittingly, one of the first to line up at the new trough was none other than the law firm of Bracewell & Giuliani — yes, that Giuliani. The firm's chairman, Patrick Oxford, could scarcely conceal his glee over the prospect of cashing in on the bailout. "This one," he told reporters, "is very, very big." At least four times bigger, in fact, than the post-9/11 homeland-security bubble, from which Giuliani and his various outfits have profited so extravagantly. Even bigger, potentially, than the price tag for the Iraq War itself.
In Iraq, the contractors were tasked with reconstructing the country from the mess made by U.S. missiles. After years of corruption born of no-bid contracts and paltry oversight, many Iraqis are still waiting for the lights to come back on. Today, a new team of contractors is lining up to reconstruct the U.S. economy — reconstruct it from the mess made by the very banks, brokers and law firms that are now applying for contracts. And it's not at all clear that America can survive their assistance.
See if any of this sounds familiar: As soon as the bailout was announced, it became clear that Treasury officials would hire outsiders to perform their jobs for them — at a profit. Private companies wanting to help manage the bailout were given just two days to apply for massive, multiyear contracts. Since it was such a mad rush — after all, the entire economy was about to implode — there was no time for an open bidding process. Nor was there time to draft rigorous rules to make sure that those applying don't have serious conflicts of interest. Instead, applicants were asked to disclose their conflicts and to explain — and this is not a joke — their "philosophy in fulfilling your duty to the Treasury and the U.S. taxpayer in light of your proprietary interests and those of other clients." In other words, an open invitation to bullshit about how much they love their country and how they can be trusted to regulate themselves.
The first major contract to be awarded in the bailout was for legal advice — and the choice Treasury made was Halliburton-esque in its audacity. Six law firms were invited to bid, but four declined, either because they didn't want the contract or because they had too many conflicts of interest. Rep. Barney Frank, chairman of the House Financial Services Committee, said the fact that so many law firms chose not to bid "shows that the guidelines are sufficiently rigorous."
Or it may just show that the bidder who won the contract — Simpson Thacher & Bartlett — takes a more relaxed approach to conflicts than its colleagues. The law firm is a Wall Street heavy hitter, having brokered some of the biggest bank mergers in recent years. It also provided legal support to companies trading mortgage-backed securities—the "financial weapons of mass destruction," as Warren Buffett called them, that detonated the banking industry. More to the point, it was hired to provide legal services to the Treasury in its negotiations to spend $250 billion of the bailout money purchasing equity in America's banks. The first stage of the plan involves buying stakes in nine of the country's top banks. Incredibly, Simpson Thacher has represented seven of the nine: JPMorgan, Bank of New York Mellon, Bank of America, Citigroup, Morgan Stanley, Goldman Sachs and Merrill Lynch.
According to its contract, Simpson Thacher has agreed not to represent any of the banks "against the U.S." when they negotiate with Treasury for the equity money. However, the firm has retained the right to represent banks when they apply for other parts of the $700 billion bailout not covered by its contract. (It has promised to erect a "firewall" to stem the flow of "confidential information" to those clients.) The firm will also continue to work for the banks on a range of other lucrative deals — and that's where the problem lies. Take Lee Meyerson, Simpson Thacher's lead lawyer on the bailout negotiations, who is specifically named in the contract as "essential" to the project. As the company's hotshot attorney, Meyerson has personally represented three of the nine banks that were bailed out in the first round, in addition to many others that will surely apply for cash injections. One of the bailed-out banks is Bank of New York Mellon, whose $29 billion merger Meyerson helped negotiate. Mergers like that can bill in the millions. Is Simpson Thacher able to put aside its loyalties to its biggest clients and negotiate deals for the taxpayer that could exact real costs from those very clients?
It might be possible to set aside concerns about divided loyalties if it were clear that Simpson Thacher is helping Treasury to wrangle the best deals possible for U.S. taxpayers. But the firm's first test — the deal to give $125 billion to the nine big banks to ease the "credit crunch" that is crippling the economy — wasn't exactly reassuring. Secretary Paulson promised that the banks won't just "hoard" the money — they will quickly "deploy it" through the economy in the form of badly needed loans. There is just one hitch: Neither Paulson nor Simpson Thacher got that "deploy" part in writing — nor did they put in place any mechanism to require the banks to spend their taxpayer billions. Apparently, the part about lending the money to homeowners and small businesses was sort of implied.
"There is no obligation for banks to lend the money one way or the other," Jennifer Zuccarelli, a Treasury spokeswoman, tells Rolling Stone. "But the banks have the understanding" that the money is intended for loans. "We're not looking to control their operations."
Unfortunately, many of the banks appear to have no intention of wasting the money on loans. "At least for the next quarter, it's just going to be a cushion," said John Thain, the chief executive of Merrill Lynch. Gary Crittenden, chief financial officer of Citigroup, had an even better idea: He hinted that his company would use its share of the cash — $25 billion — to buy up competitors and swell even bigger. The handout, he told analysts, "does present the possibility of taking advantage of opportunities that might otherwise be closed to us."
And the folks at Morgan Stanley? They're planning to pay themselves $10.7 billion this year, much of it in bonuses — almost exactly the amount they are receiving in the first phase of the bailout. "You can imagine the devilish grins on the faces of Morgan Stanley employees," writes Bloomberg columnist Jonathan Weil. "Not only did we, the taxpayers, save their company...we funded their 2008 bonus pool."
It didn't have to be this way. Five days before Paulson struck his deal with the banks, British Prime Minister Gordon Brown negotiated a similar bailout — only he extracted meaningful guarantees for taxpayers: voting rights at the banks, seats on their boards, 12 percent in annual dividend payments to the government, a suspension of dividend payments to shareholders, restrictions on executive bonuses, and a legal requirement that the banks lend money to homeowners and small businesses.
In sharp contrast, this is what U.S. taxpayers received: no controlling interest, no voting rights, no seats on the bank boards and just five percent in dividend payouts to the government, while shareholders continue to collect billions in dividends every quarter. What's more, golden parachutes and bonuses already promised by the banks will still be paid out to executives — all before taxpayers are paid back.
No wonder it took just one hour for Paulson to convince all nine CEOs to accept his offer — less than seven minutes per bank. Not even the firms' own lawyers could have drafted a sweeter deal.
The day after it met with the nation's top banks, Treasury announced that it had selected the firm that would receive the juiciest contract of all: that of "master custodian." The winning company will be to the bailout what Halliburton is to the military: the contractor of contractors. It will purchase toxic debts from Wall Street, service them and auction them off in the future — a so-called "end-to-end process." The contract is for a minimum of three years.
Seventy firms applied for the gig; the winner was Bank of New York Mellon. Describing the scope of the megacontract, bank president Gerald Hassell said, "It's the ultimate outsourcing — because the Federal Reserve and the Treasury do not have the mechanics to run the entire program, and we're essentially the general contractor across the entire program. It's going to cross our entire company."
This raises an interesting point: Has the Treasury partially nationalized the private banks, as we have been told? Or is it the other way around? Is it Treasury that has been partially privatized by Wall Street, its massive rescue plan now entirely in the hands of a private bank it is directly subsidizing?
Shortly after receiving the contract, Hassell told investors that his institution is now well-positioned to profit from the market meltdown. "There's a lot of new business that's going on even in this chaotic marketplace," he said, "and so some of those things have been very positive to us." Just how positive, we don't know, because Treasury has blacked out the 10 lines of the "master custodian" contract that reveal how much Bank of New York Mellon will be paid. Though Treasury says it will release the information eventually, the secrecy goes beyond anything the Bush administration attempted in Iraq. Even Halliburton's dodgy contracts came with price tags attached.
Still, when the terms of the contract do become public, they may turn out to be surprisingly modest. Goldman Sachs has apparently offered to fulfill at least one bailout contract for free. Altruism may not be their only motivation. The real money at stake in the bailout lies not in payment for the work but in how the work is done. Think about it: If you're the one selling your debts to the government, wouldn't you also want to help decide which debts are eligible and how much they're worth? "The financial firms with assets to sell are in many instances the same firms the Treasury will rely on to value and manage the assets it is buying," The New York Times observed. "That is an invitation for these firms to set the price too high or to indulge in other mischief at the taxpayers' expense."
Bank of New York Mellon has a bad record for mischief. It is embroiled in a $22.5 billion money-laundering lawsuit in Moscow and has been forced to pay out a $14 million settlement in a related case. Though the bank's "master custodian" contract with Treasury prohibits unethical conduct, the arrangement seems rife with opportunities for abuse. According to its most recent earnings report, Bank of New York Mellon holds $1.2 billion in subprime mortgage securities. That means that in addition to the $3 billion it will receive as part of the equity program, it will also be eligible to apply for taxpayer money from the program it is being paid to administer. Neither the bank nor Treasury would comment on this direct conflict of interest.
On the same day that he allocated the first $125 billion to the banks, Secretary Paulson announced the largest federal budget deficit in U.S. history. Buried in his statement was a preview of the next phase of the financial disaster. The deficit numbers, he declared, reinforce the need to "pursue policies that promote economic growth and fiscal responsibility, and address entitlement reform." He was referring to Americans who feel entitled to receive Social Security in their old age and Medicaid when they are sick. Those programs, Paulson implied, might not be able to survive the budget crisis he is currently creating for the next administration.
This is why the stakes of the bailout are so high: Unless we get a good deal, there will be nothing left over after the banks are done feeding to pay for the meager services now provided in exchange for taxation, let alone for the more ambitious initiatives promised on the campaign trail. The spiraling cost of saving Wall Street from its bad bets is already being used as an excuse for why we can't solve our many other crises, from health care to climate change.
There is a better way to fix a broken financial system. Treasury's plan to buy up the toxic debts never made sense and should be immediately scrapped — a move that would also handily get rid of most of the crony contractors. As for purchasing equity in banks, the next round of deals — and there will be more — has to start from the premise that the banks are bankrupt and will therefore accept whatever terms we choose to impose, including real regulatory oversight. The possibilities of what could be done if a chunk of the banking system were genuinely under public control — from a moratorium on home foreclosures to mandatory investment in green community redevelopment — are limitless.
Because here is what George Bush and Henry Paulson are hoping we won't figure out: When a society no longer has enough money to pay for its most pressing needs, there are worse things than discovering you own the banks.
This article was first published in Rolling Stone. See original documents related to this article.
The Bailout: Bush's Final Pillage
By Naomi Klein, The Nation, October 29, 2008
In the final days of the election, many Republicans seem to have given up the fight for power. But that doesn't mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700 billion bailout out the door. At a recent Senate Banking Committee hearing, Republican Senator Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. "How much of it do you think may be actually spent by January 20 or so?" Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bailout.
When European colonialists realized that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts.
The Bush gang prefers bureaucratic instruments: "distressed asset" auctions and the "equity purchase program." But make no mistake: the goal is the same as it was for the defeated Portuguese--a final frantic looting of the public wealth before they hand over the keys to the safe.
How else to make sense of the bizarre decisions that have governed the allocation of the bailout money? When the Bush administration announced it would be injecting $250 billion into America's banks in exchange for equity, the plan was widely referred to as "partial nationalization"--a radical measure required to get the banks lending again. In fact, there has been no nationalization, partial or otherwise. Taxpayers have gained no meaningful control, which is why the banks can spend their windfall as they wish (on bonuses, mergers, savings...) and the government is reduced to pleading that they use a portion of it for loans.
What, then, is the real purpose of the bailout? I fear it is something much more ambitious than a one-off gift to big business--that this bailout has been designed to keep pillaging the Treasury for years to come. Remember, the main concern among big market players, particularly banks, is not the lack of credit but their battered share prices. Investors have lost confidence in the banks' honesty, and with good reason. This is where Treasury's equity pays off big time.
By purchasing stakes in these institutions, Treasury is sending a signal to the market that they are a safe bet. Why safe? Because the government won't be able to afford to let them fail. If these companies get themselves into trouble, investors can assume that the government will keep finding more cash, since allowing them to go down would mean losing its initial equity investments (just look at AIG). That tethering of the public interest to private companies is the real purpose of the bailout plan: Treasury Secretary Henry Paulson is handing all the companies that are admitted to the program--a number potentially in the thousands--an implicit Treasury Department guarantee. To skittish investors looking for safe places to park their money, these equity deals will be even more comforting than a Triple-A rating from Moody's.
Insurance like that is priceless. But for the banks, the best part is that the government is paying them--in some cases billions of dollars--to accept its seal of approval. For taxpayers, on the other hand, this entire plan is extremely risky, and may well cost significantly more than Paulson's original idea of buying up $700 billion in toxic debts. Now taxpayers aren't just on the hook for the debts but, arguably, for the fate of every corporation that sells them equity.
Interestingly, Fannie Mae and Freddie Mac both enjoyed this kind of unspoken guarantee. For decades the market understood that, since these private players were enmeshed with the government, Uncle Sam would always save the day. It was the worst of all worlds. Not only were profits privatized while risks were socialized but the implicit government backing created powerful incentives for reckless investments.
Now, with the new equity purchase program, Paulson has taken the discredited Fannie and Freddie model and applied it to a huge swath of the private banking industry. And once again, there is no reason to shy away from risky bets--especially since Treasury has not required the banks to give up high-risk financial instruments in exchange for taxpayer dollars.
To further boost confidence, the federal government has also unveiled unlimited public guarantees for many bank deposit accounts. Oh, and as if this wasn't enough, Treasury has been encouraging the banks to merge with one another, ensuring that the only institutions left standing will be "too big to fail." In three different ways, the market is being told loud and clear that Washington will not allow the country's financial institutions to bear the consequences of their behavior. This may well be Bush's most creative innovation: no-risk capitalism.
There is a glimmer of hope. In answer to Senator Corker's question, Treasury is indeed having trouble dispersing the bailout funds. It has requested about $350 billion of the $700 billion, but most of this hasn't yet made it out the door. Meanwhile, every day it becomes clearer that the bailout was sold on false pretenses. It was never about getting loans flowing. It was always about turning the state into a giant insurance agency for Wall Street--a safety net for the people who need it least, subsidized by the people who need it most.
This grotesque duplicity is an opportunity. Whoever wins the election on November 4 will have enormous moral authority. It can be used to call for a freeze on the dispersal of bailout funds--not after the inauguration, but right away. All deals should be renegotiated immediately, this time with the public getting the guarantees.
It is risky, of course, to interrupt the bailout. The market won't like it. Nothing could be riskier, however, than allowing the Bush gang their parting gift to big business--the gift that will keep on taking.
This article was first published in The Nation.
The Roots of the Financial Crisis
Both of Naomi's pieces deal with the corruption of the proposed "bailout" process -- but what forces created the financial crisis in the first place? Naomi's partner Avi Lewis devoted his half hour weekly show, Inside USA on Al Jazeera English, to providing an in-depth answer to that question. His terrific report makes complex financial concepts accessible to any viewer, and he interviews some of our favorite analysts, including Robert Johnson, Dean Baker, and Michael Hudson. Watch Part 1 and Part 2 here.
Don't forget to check out Naomi's Facebook and MySpace pages.
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Showing posts with label bailout. Show all posts
Showing posts with label bailout. Show all posts
Thursday, November 06, 2008
Sunday, September 28, 2008
Bailing Out the Foes of Public Eduction
September 27 / 28, 2008
Quoting Friedman All the Way ...
Bailing Out the Foes of Public Eduction
By TODD ALAN PRICE
We live in dubious times when staunch deregulators howl for vigorous and immediate regulation.
Lessons from the past
In 1983, the release by the Reagan administration of the report A Nation at Risk, launched over two decades of attacks on public education by right wing foundations and corporate pundits. Teachers and students were ill equipped to defend against the Heritage Foundation, the Hoover Institution, and the American Enterprise Institute, just a few of the many shock troops aiming their sights on the public schools.
The document stated that we were losing the battle against economic powers such as Japan, "unilaterally disarming ourselves" by miseducating youth.
In a previous Fighting Bob article, Demolition Reauthorization, it was described how "some of the loudest critics of public education, the Hoover Institution, the Fordham Foundation, the Aspen Institute, Bill Gates, Eli Broad, Milwaukee's Bradley Foundation and Fortune 500 corporations everywhere have partnered with the federal government in an effort to, they claim, save our public schools."
The strategy employed so successfully in this all out blitz of the media by supposedly august foundations and think tanks is to attack the public schools, try and drain them of funds through tax payer vouchers to private schools, then to 'save' the remaining public schools, placing them under increased regulation, and when they fail, restructure them and reopen them as newly reconstituted charter schools.
The collapse of the banking, investment and housing industry draws similar parallels.
Some of the same critics of public education have also roundly criticized government. . . until this last week.
As the feds buy up bad loans and "toxic" securities, the critics have found new hope in big government. Republicans and Democrats band together in a newly minted bi-partisanship. The current proposed buyout of the reckless speculation in the collapsed housing finance bubble dwarfs any previous efforts of big government to rescue finance capitalism from its worst tendencies. Indeed big government is under way, in an unprecedented scale of intervention with the Federal Reserve, not only to rein in the floundering "quasi-governmental" agencies of Freddie Mac and Fannie Mae, but also to throw a life-line to the Mortgage insurance/security agency, (AIG).
Aftershock
Naomi Klein explains this phenomenon when she writes of a pernicious "disaster capitalism" in the prescient document, The Shock Doctrine. Disasters, it seem, breed opportunity. There are only too many financial predators ready to take advantage of others' tragedy, be it war, lack of affordable housing or a decent education. They strike during the shock, quoting Friedman all the way.
In the case of New Orleans, the aftershock is truly tragic; the city, (as well as much of the Gulf Coast, lest we forget) devastated by flood, was truly doubly shocked when thousands of teachers were fired and hundreds of housing units were leveled. Ushered in with new force were "school choice" or vouchers by Bush and Congress, and a latent "Recovery School District" management style, based largely on the philosophy that a newly fashioned and deregulated system of Charter schools would work best.
With the recent demise of several investment banks, insurance companies, and "quasi-governmental" agencies, the nation and the world's financial markets left spinning, the obvious question would be (and following upon The Shock Doctrine's formula): how soon before the wealthy and connected benefit from the current economic meltdown and how much will the taxpayer have to pay to foot the bill?
Fannie Mae, Lehman Brothers, and AIG: Foes of Public Education
The Bush administration saved Fannie Mae, but Treasury Secretary Henry Paulson and Federal Reserve Chairman Ed Bernanke sat on their hands while the Lehman Brothers' stock went south. Then they became nervous and bought up AIG.
Fannie Mae survives, barely. Fannie Mae is also fond of charter schools. The Fannie Mae Foundation, the World Bank, and the Washington Regional Association of Grant makers have set up a Public Education Partnership Fund to implement 'reform' in DC Public Schools and to "develop charter school capacity."
Lehman is a notorious privatizer. As noted by educational statistician and writer Gerald Bracey (2003), they sponsored a conference in 1996 with the Center for Education Reform where they boasted: "we've taken over the health care system; we've taken over the prison system; our next big target is the education system. We will privatize it and make a lot of money." Lehman worked to set up a front group called Fight for Children which received, as noted by writer Basav Sen, Walton Family Foundation funding, and support from "Anheuser Busch, Bank of America, Citigroup, The Gap's Donald Fisher, Lockheed Martin, the Marriott Foundation, Microsoft, Exxon Mobil, the New York Times, Northwest Airlines, former Secretary of State Colin Powell, the U.S. Chamber of Commerce, Verizon, Wachovia, and the Washington Post." Lehman's CEO made $17,000 an hour while the one hundred and fifty year old company tanked. Even the President's brother Jeb, brought in as a last minute advisor couldn't save the company.
AIG has close links to Los Angeles billionaire Eli Broad and his Broad Foundation. Broad is the long-time chairman of AIG Retirement. Eli Broad is the most outspoken advocate of the business model for education-treat school district like corporations, schools like "profit centers", students as "revenue sources". Broad's disciples now control or heavily influence public education in dozens of large urban centers, including New York, Philadelphia, Chicago and Oakland. Broad has poured hundreds of millions of dollars into charter schools-through direct donations to charter school chains like KIPP, Green Dot and Aspire, as well as by funneling money through the Silicon Valley-based New Schools Venture Fund. Eli Broad, and his close collaborator, disgraced former AIG chief executive officer Maurice "Hank" Greenberg (who was forced to resign as AIG CEO when he was caught fraudulently inflating the value of AIG stock a few years ago), are upset with the federal bailout of AIG. They want an even bigger bailout from taxpayers. Public schools that aren't "profitable" should be closed, says Broad-but AIG investors losses must be subsidized! Truly, privatization of profit, socialization of loss!
The deregulation agenda is occurring in the school districts in not only Washington D.C., and New Orleans, Louisiana, but in Chicago and elsewhere in Ohio, and despite tepid results (where those results are even released), Charters continue to gain support.
Charter Schools to the Rescue
In Chicago, where we work with teachers sharpening their knowledge and craft in graduate school and preparing for National Board Certification, teachers are overburdened and discouraged by the relentless before, during and after school preparation for standardized testing. They are told to not worry about social studies, and in many cases, to not even teach science as mathematics and reading consume the bulk of their curriculum. More and more teachers we work with have been handed scripted curriculum written by outside private contractors. When their schools fail to meet Annual Year Progress under NCLB, they face declining enrollment as students are recruited for the burgeoning charter schools growing in Chicago.
Last spring, despite vociferous community resistance, eighteen public schools in Chicago were permanently closed, reorganized with the complete replacement of building principals and teachers or reconstituted as new charter schools. These trends go forward with the substantial political and financial support from the Chicago corporate and banking leaders who typically live in the suburbs or don't send their own children to the schools they have come to control behind the scenes.
Meanwhile, the continuing expansion of charter schools undermines the teacher union movement as charters by law exclude unions. And in the past year the Daley run school system appears to have moved to silence community involvement in school operation by increasing the number of appointed local school leaders and attacking the integrity of school councils across the city. In this brave new world of alternatives to public schools, teachers become lone entrepreneurs in the spirit of the free market advocates who push for the replacement of public education in the United States. And all of this moves forward with Chicago school operations dictated by the mayor's office in alliance with the corporate school agenda of the Commercial Club of Chicago.
Renaissance 2010
But finally, and beyond the merit of Charter schools versus Public schools is the question: why can't we find the will to fix public schools? To fund them properly?
As stated by a Chicago group, Teachers for Social Justice, Charters are being used to replace public schools. Cited verbatim from their blog is the following assertion:
Renaissance 2010 is not just a school plan. It is part of a much larger plan for gentrification and for moving out low-income African Americans and some Latinos from prime real estate areas, in fact from the city altogether. These are the areas where the proposed school closings are concentrated. Gentrification is a central source of profit for developers, banks, and investors and a key element in making Chicago a global city of increasing inequality in housing, income, quality of life, and use of urban space.
Unfortunately, both major party candidates seem intent on expanding charter schools with Obama calling for a doubling of federal money for subsidizing charter expansion. And this support comes in the face of the 2006 Department of Education large scale study which showed public schools outperform charters on the limited, but mandated, measures being used to determine student learning and school success.
This is not to say that Charter schools or their advocates are all the same. Nor does this suggest that everyone who supports charters, supports deregulation, or supports in turn the dismantling of the public school system. As Joe Nathan pointed out for the magazine Rethinking Schools when the charter movement kicked into gear in the mid 90's, charter schools can serve as creative responses to needs unmet by the larger school system, and can offer alternatives that may inform and guide the larger public education system "to empower the powerless and to help encourage a bureaucratic system to be more responsive and more effective." Unfortunately, from the beginning of charter schools free market ideologues have sought to privatize and repackage large swaths of public education into another consumer choice option joined at the hip to the pervasive inequalities of market capitalism.
Much of the thrust of the current charter school movement, and certainly of the last twenty years of vouchers is clearly indicative of those educational policy makers who, with their corporate and foundation backers, see no problem in steering public funds to private and for-profit corporations. And it is those same foundations and corporations today, hat in hand, begging for handouts, who are responsible for the proposed and current deregulation and privatization of our commons. With the current track record comes the even more obvious question:
Why do we let them get away with it?
In this so far victorious war of the soon to be rescued finance industry super-powers against the public schools, disaster capitalism has made an impressive debut. The scenario of wrecking institutions in the public sector in order to save them with intervention by private capital has now spread like a wildfire that can only take hold in the rest of the public sector -- health, housing, and Social Security retirement income provision. Too bad for Lehman that they won't be around to share the rewards from this coming Golden Age of privatization and deregulation for which they can claim such a key share of authorship.
Todd Alan Price, author of The Myth and Reality of NCLB: Public Education and High Stakes Assessment & John Duffy, author and contributor to Democracy and Education, are professors of education at the National College of Education in Chicago, Illinois.
Quoting Friedman All the Way ...
Bailing Out the Foes of Public Eduction
By TODD ALAN PRICE
We live in dubious times when staunch deregulators howl for vigorous and immediate regulation.
Lessons from the past
In 1983, the release by the Reagan administration of the report A Nation at Risk, launched over two decades of attacks on public education by right wing foundations and corporate pundits. Teachers and students were ill equipped to defend against the Heritage Foundation, the Hoover Institution, and the American Enterprise Institute, just a few of the many shock troops aiming their sights on the public schools.
The document stated that we were losing the battle against economic powers such as Japan, "unilaterally disarming ourselves" by miseducating youth.
In a previous Fighting Bob article, Demolition Reauthorization, it was described how "some of the loudest critics of public education, the Hoover Institution, the Fordham Foundation, the Aspen Institute, Bill Gates, Eli Broad, Milwaukee's Bradley Foundation and Fortune 500 corporations everywhere have partnered with the federal government in an effort to, they claim, save our public schools."
The strategy employed so successfully in this all out blitz of the media by supposedly august foundations and think tanks is to attack the public schools, try and drain them of funds through tax payer vouchers to private schools, then to 'save' the remaining public schools, placing them under increased regulation, and when they fail, restructure them and reopen them as newly reconstituted charter schools.
The collapse of the banking, investment and housing industry draws similar parallels.
Some of the same critics of public education have also roundly criticized government. . . until this last week.
As the feds buy up bad loans and "toxic" securities, the critics have found new hope in big government. Republicans and Democrats band together in a newly minted bi-partisanship. The current proposed buyout of the reckless speculation in the collapsed housing finance bubble dwarfs any previous efforts of big government to rescue finance capitalism from its worst tendencies. Indeed big government is under way, in an unprecedented scale of intervention with the Federal Reserve, not only to rein in the floundering "quasi-governmental" agencies of Freddie Mac and Fannie Mae, but also to throw a life-line to the Mortgage insurance/security agency, (AIG).
Aftershock
Naomi Klein explains this phenomenon when she writes of a pernicious "disaster capitalism" in the prescient document, The Shock Doctrine. Disasters, it seem, breed opportunity. There are only too many financial predators ready to take advantage of others' tragedy, be it war, lack of affordable housing or a decent education. They strike during the shock, quoting Friedman all the way.
In the case of New Orleans, the aftershock is truly tragic; the city, (as well as much of the Gulf Coast, lest we forget) devastated by flood, was truly doubly shocked when thousands of teachers were fired and hundreds of housing units were leveled. Ushered in with new force were "school choice" or vouchers by Bush and Congress, and a latent "Recovery School District" management style, based largely on the philosophy that a newly fashioned and deregulated system of Charter schools would work best.
With the recent demise of several investment banks, insurance companies, and "quasi-governmental" agencies, the nation and the world's financial markets left spinning, the obvious question would be (and following upon The Shock Doctrine's formula): how soon before the wealthy and connected benefit from the current economic meltdown and how much will the taxpayer have to pay to foot the bill?
Fannie Mae, Lehman Brothers, and AIG: Foes of Public Education
The Bush administration saved Fannie Mae, but Treasury Secretary Henry Paulson and Federal Reserve Chairman Ed Bernanke sat on their hands while the Lehman Brothers' stock went south. Then they became nervous and bought up AIG.
Fannie Mae survives, barely. Fannie Mae is also fond of charter schools. The Fannie Mae Foundation, the World Bank, and the Washington Regional Association of Grant makers have set up a Public Education Partnership Fund to implement 'reform' in DC Public Schools and to "develop charter school capacity."
Lehman is a notorious privatizer. As noted by educational statistician and writer Gerald Bracey (2003), they sponsored a conference in 1996 with the Center for Education Reform where they boasted: "we've taken over the health care system; we've taken over the prison system; our next big target is the education system. We will privatize it and make a lot of money." Lehman worked to set up a front group called Fight for Children which received, as noted by writer Basav Sen, Walton Family Foundation funding, and support from "Anheuser Busch, Bank of America, Citigroup, The Gap's Donald Fisher, Lockheed Martin, the Marriott Foundation, Microsoft, Exxon Mobil, the New York Times, Northwest Airlines, former Secretary of State Colin Powell, the U.S. Chamber of Commerce, Verizon, Wachovia, and the Washington Post." Lehman's CEO made $17,000 an hour while the one hundred and fifty year old company tanked. Even the President's brother Jeb, brought in as a last minute advisor couldn't save the company.
AIG has close links to Los Angeles billionaire Eli Broad and his Broad Foundation. Broad is the long-time chairman of AIG Retirement. Eli Broad is the most outspoken advocate of the business model for education-treat school district like corporations, schools like "profit centers", students as "revenue sources". Broad's disciples now control or heavily influence public education in dozens of large urban centers, including New York, Philadelphia, Chicago and Oakland. Broad has poured hundreds of millions of dollars into charter schools-through direct donations to charter school chains like KIPP, Green Dot and Aspire, as well as by funneling money through the Silicon Valley-based New Schools Venture Fund. Eli Broad, and his close collaborator, disgraced former AIG chief executive officer Maurice "Hank" Greenberg (who was forced to resign as AIG CEO when he was caught fraudulently inflating the value of AIG stock a few years ago), are upset with the federal bailout of AIG. They want an even bigger bailout from taxpayers. Public schools that aren't "profitable" should be closed, says Broad-but AIG investors losses must be subsidized! Truly, privatization of profit, socialization of loss!
The deregulation agenda is occurring in the school districts in not only Washington D.C., and New Orleans, Louisiana, but in Chicago and elsewhere in Ohio, and despite tepid results (where those results are even released), Charters continue to gain support.
Charter Schools to the Rescue
In Chicago, where we work with teachers sharpening their knowledge and craft in graduate school and preparing for National Board Certification, teachers are overburdened and discouraged by the relentless before, during and after school preparation for standardized testing. They are told to not worry about social studies, and in many cases, to not even teach science as mathematics and reading consume the bulk of their curriculum. More and more teachers we work with have been handed scripted curriculum written by outside private contractors. When their schools fail to meet Annual Year Progress under NCLB, they face declining enrollment as students are recruited for the burgeoning charter schools growing in Chicago.
Last spring, despite vociferous community resistance, eighteen public schools in Chicago were permanently closed, reorganized with the complete replacement of building principals and teachers or reconstituted as new charter schools. These trends go forward with the substantial political and financial support from the Chicago corporate and banking leaders who typically live in the suburbs or don't send their own children to the schools they have come to control behind the scenes.
Meanwhile, the continuing expansion of charter schools undermines the teacher union movement as charters by law exclude unions. And in the past year the Daley run school system appears to have moved to silence community involvement in school operation by increasing the number of appointed local school leaders and attacking the integrity of school councils across the city. In this brave new world of alternatives to public schools, teachers become lone entrepreneurs in the spirit of the free market advocates who push for the replacement of public education in the United States. And all of this moves forward with Chicago school operations dictated by the mayor's office in alliance with the corporate school agenda of the Commercial Club of Chicago.
Renaissance 2010
But finally, and beyond the merit of Charter schools versus Public schools is the question: why can't we find the will to fix public schools? To fund them properly?
As stated by a Chicago group, Teachers for Social Justice, Charters are being used to replace public schools. Cited verbatim from their blog is the following assertion:
Renaissance 2010 is not just a school plan. It is part of a much larger plan for gentrification and for moving out low-income African Americans and some Latinos from prime real estate areas, in fact from the city altogether. These are the areas where the proposed school closings are concentrated. Gentrification is a central source of profit for developers, banks, and investors and a key element in making Chicago a global city of increasing inequality in housing, income, quality of life, and use of urban space.
Unfortunately, both major party candidates seem intent on expanding charter schools with Obama calling for a doubling of federal money for subsidizing charter expansion. And this support comes in the face of the 2006 Department of Education large scale study which showed public schools outperform charters on the limited, but mandated, measures being used to determine student learning and school success.
This is not to say that Charter schools or their advocates are all the same. Nor does this suggest that everyone who supports charters, supports deregulation, or supports in turn the dismantling of the public school system. As Joe Nathan pointed out for the magazine Rethinking Schools when the charter movement kicked into gear in the mid 90's, charter schools can serve as creative responses to needs unmet by the larger school system, and can offer alternatives that may inform and guide the larger public education system "to empower the powerless and to help encourage a bureaucratic system to be more responsive and more effective." Unfortunately, from the beginning of charter schools free market ideologues have sought to privatize and repackage large swaths of public education into another consumer choice option joined at the hip to the pervasive inequalities of market capitalism.
Much of the thrust of the current charter school movement, and certainly of the last twenty years of vouchers is clearly indicative of those educational policy makers who, with their corporate and foundation backers, see no problem in steering public funds to private and for-profit corporations. And it is those same foundations and corporations today, hat in hand, begging for handouts, who are responsible for the proposed and current deregulation and privatization of our commons. With the current track record comes the even more obvious question:
Why do we let them get away with it?
In this so far victorious war of the soon to be rescued finance industry super-powers against the public schools, disaster capitalism has made an impressive debut. The scenario of wrecking institutions in the public sector in order to save them with intervention by private capital has now spread like a wildfire that can only take hold in the rest of the public sector -- health, housing, and Social Security retirement income provision. Too bad for Lehman that they won't be around to share the rewards from this coming Golden Age of privatization and deregulation for which they can claim such a key share of authorship.
Todd Alan Price, author of The Myth and Reality of NCLB: Public Education and High Stakes Assessment & John Duffy, author and contributor to Democracy and Education, are professors of education at the National College of Education in Chicago, Illinois.
Ask tough questions about the bailout
David Cay Johnston was an economics/tax reporter for the Times. This piece was posted on a forum for journalists. Contradicting most of what we've been told about the credit situation, that he says is not a crisis, Johnston exhorts his fellow reporters to be skeptical and "check it out" instead of making the mistake they made in reporting the Administration's case for the Iraq war and the Patriot Act.
http://poynter.org/forum/view_post.asp?id=13611
Topic: Letters Sent to Romenesko
Date/Time: 9/23/2008
Title: Ask tough questions about the bailout
Posted By: Jim Romenesko
From DAVID CAY JOHNSTON: Journalists, start your skepticism.
In covering the proposed $700 billion bailout of Wall Street don't repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don't assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don't assume there is a case just because officials say there is.
The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.
The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)
Ask this question -- are the credit markets really about to seize up?
If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.
If the problem is toxic mortgages then how come they are still being offered all over the Internet? On the main page AOL generates for me there is an ad for a 1.9% loan (which means you pay that interest rate and the rest of the interest is added to your balance due.) Why oh why or why would taxpayers be bailing out banks that are continuing to sell these toxic loans?
How does the proposal help Joe and Mary Sixpack who can afford their current monthly payment, but not the increased interest rate that has been or soon will take effect? Every day bankers work out loans with customers -- so why are taxpayers being asked to act when banks are largely on strike, refusing to negotiate revised deals with many loan customers?
How about interviewing small landlords who were drawn into these toxic loans. Are banks negotiating with them? If not it means more foreclosures and renters who had nothing to do with this being evicted. Ask why banks are refusing (landlords I spoke to said they are) to negotiate with small landlords.
What steps are being taken to take back bonuses, fees and other compensation from the folks who got rich selling toxic mortgages and illiquid investments that Secretary Paulsen claims are threatening the whole system.
How will adding $700 billion to the national debt ease strains on the credit markets?
As of now we are, as a group, behaving just as we did the last two times the administration sought to rush through a hastily thought out, ill-conceived plan. Why in the world are we being so gullible and naive? whatever happened to the core value of journalism -- check it out?
The questioning on the Sunday talk shows was all softball. ABC, CBS, NBC and Fox, shame on your anchors and roundtable regulars all for engaging in lightweight faux journalism. This passivity, superficiality and gullibility was at its worse Monday night on NBC in the banter between anchor Brian Williams and a CNBC correspondent with its utter lack of skepticism.
Here are some question to ask:
Do we need a bailout of American and foreign banks? Show us in detail the reasons for this, and the numbers: make the case.
Is there a market solution to this? If so, why impose a government solution? If not what does that tell us about our entire economic theory?
Is there a less expensive solution?
How do we know this will not just be a downpayment on a much bigger
bailout?
Is there a solution that provides direct help to those who took out these loans, rather than those who sold them?
If AIG and others are too big to fail, what does that tell us about government anti-trust policy and regulatory policy and inaction?
Why have both Goldman Sachs and Morgan Stanley made clear that they want IN on this deal? Get skeptical and ask the basic questions -- who benefits, how much and what makes this plan so attractive that Goldman and MS want to participate? Ditto for GE. That they are others want to be included should prompt a great deal of skeptical questioning.
How does banning short selling of the stocks of 900 companies help the markets? (The markets are heavily biased toward the sell side, so why constrain the shorts, who often turn out to be right about stocks whose share prices has been artificially inflated.)
How is banning short selling of this growing list of companies show a commitment to "free markets," a stated goal of this and a long lost of previous administrations?
During this short selling ban, why are there no parallel controls on insiders getting out of their positions?
Reporters, hit the streets and telephones to ask business owners if their credit lines have been frozen. Look at swings in the stock market and put the recent swings in perspective.
Look on the Internet and see all of the ads for the very toxic mortgages that are supposedly at the core of this mess. Ask why are 1.9% loans (in which you pay that in cash and the rest of the interest is added to your mortgage balance) still being sold? Find out who continues to buy these loans.
Lets do our job -- be skeptical and ask the core questions, not the detailed ones around the edges.
http://poynter.org/forum/view_post.asp?id=13611
Topic: Letters Sent to Romenesko
Date/Time: 9/23/2008
Title: Ask tough questions about the bailout
Posted By: Jim Romenesko
From DAVID CAY JOHNSTON: Journalists, start your skepticism.
In covering the proposed $700 billion bailout of Wall Street don't repeat the failed lapdog practices that so damaged our reputations in the rush to war in Iraq and the adoption of the Patriot Act. Don't assume that Congress must act instantly, as so many news stories state as if it was an immutable fact. Don't assume there is a case just because officials say there is.
The coverage of the Paulson plan focuses on the edges, on the details. The focus should be on the premise. And be skeptical of what gullible Congressional leaders, most of them up before the voters in a few weeks, say after being given a closed-door meeting on supposed horrors.
The Administration has scared the markets and some key legislative leaders, but it has not laid out a coherent, specific and compelling need for this enormous proposal, which is the equivalent of a one-time 55 percent income tax surcharge. (Instead the money will be borrowed, so ask from whom and how this much can be raised so quickly if the credit markets are nearly seized up with fear.)
Ask this question -- are the credit markets really about to seize up?
If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.
If the problem is toxic mortgages then how come they are still being offered all over the Internet? On the main page AOL generates for me there is an ad for a 1.9% loan (which means you pay that interest rate and the rest of the interest is added to your balance due.) Why oh why or why would taxpayers be bailing out banks that are continuing to sell these toxic loans?
How does the proposal help Joe and Mary Sixpack who can afford their current monthly payment, but not the increased interest rate that has been or soon will take effect? Every day bankers work out loans with customers -- so why are taxpayers being asked to act when banks are largely on strike, refusing to negotiate revised deals with many loan customers?
How about interviewing small landlords who were drawn into these toxic loans. Are banks negotiating with them? If not it means more foreclosures and renters who had nothing to do with this being evicted. Ask why banks are refusing (landlords I spoke to said they are) to negotiate with small landlords.
What steps are being taken to take back bonuses, fees and other compensation from the folks who got rich selling toxic mortgages and illiquid investments that Secretary Paulsen claims are threatening the whole system.
How will adding $700 billion to the national debt ease strains on the credit markets?
As of now we are, as a group, behaving just as we did the last two times the administration sought to rush through a hastily thought out, ill-conceived plan. Why in the world are we being so gullible and naive? whatever happened to the core value of journalism -- check it out?
The questioning on the Sunday talk shows was all softball. ABC, CBS, NBC and Fox, shame on your anchors and roundtable regulars all for engaging in lightweight faux journalism. This passivity, superficiality and gullibility was at its worse Monday night on NBC in the banter between anchor Brian Williams and a CNBC correspondent with its utter lack of skepticism.
Here are some question to ask:
Do we need a bailout of American and foreign banks? Show us in detail the reasons for this, and the numbers: make the case.
Is there a market solution to this? If so, why impose a government solution? If not what does that tell us about our entire economic theory?
Is there a less expensive solution?
How do we know this will not just be a downpayment on a much bigger
bailout?
Is there a solution that provides direct help to those who took out these loans, rather than those who sold them?
If AIG and others are too big to fail, what does that tell us about government anti-trust policy and regulatory policy and inaction?
Why have both Goldman Sachs and Morgan Stanley made clear that they want IN on this deal? Get skeptical and ask the basic questions -- who benefits, how much and what makes this plan so attractive that Goldman and MS want to participate? Ditto for GE. That they are others want to be included should prompt a great deal of skeptical questioning.
How does banning short selling of the stocks of 900 companies help the markets? (The markets are heavily biased toward the sell side, so why constrain the shorts, who often turn out to be right about stocks whose share prices has been artificially inflated.)
How is banning short selling of this growing list of companies show a commitment to "free markets," a stated goal of this and a long lost of previous administrations?
During this short selling ban, why are there no parallel controls on insiders getting out of their positions?
Reporters, hit the streets and telephones to ask business owners if their credit lines have been frozen. Look at swings in the stock market and put the recent swings in perspective.
Look on the Internet and see all of the ads for the very toxic mortgages that are supposedly at the core of this mess. Ask why are 1.9% loans (in which you pay that in cash and the rest of the interest is added to your mortgage balance) still being sold? Find out who continues to buy these loans.
Lets do our job -- be skeptical and ask the core questions, not the detailed ones around the edges.
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