Some of the most well known American companies, from all sectors, are contributing to this trend. Caterpillar, Cisco, Chevron, GE, Intel, Merck, Oracle, Stanley Works, and United Technologies have all outsourced at least 45 percent of their workforce to another country. GE has more than half of its workforce in other countries and yet GE’s CEO, Jeffrey Immelt, was appointed to head President Obama’s Economic Recovery Advisory Board to provide guidance on how to fix our economy.
And this outsourcing of our manufacturing base is creating enormous trade deficits.
For example, consider South Korea, where our automobile trade deficit alone is a whopping $10.8 billion. In 2009, South Korea exported $11.72 billion worth of cars into the US economy. We, on the other hand, were only allowed to export about $492 million worth of cars into theirs.84
Or India, where in 2010 we ran up a $10.3 billion trade deficit.85
Or China, where our 2010 trade deficit is a mind-boggling $273 billion—the largest trade deficit between two nations ever recorded in the history of the world.
Our trade relationship with China is particularly worrisome. While other nations are just banking off our dumb trade policies promoted by American CEOs who’ve sold their allegiance to Davos-promoted globalism instead of the United States, China is preparing to be the next world superpower.
Loose lips sink ships, but corporations that have developed some of America’s most advanced technologies are more than willing to sell off that technology to the Chinese government if they can just have a little taste of Chinese consumerism.
Leading IT manufacturers and defense industries are blatantly helping to grow the technological capacity of China in return for deeper market penetration and higher profits. In 2020, China will roll out its first full-size commercial airliner built thanks to technology largely developed by Boeing and Airbus.86
Of course, American transnational corporations have historically cavorted with nations whose interests were similarly opposed to those of the United States—morally at least. American CEOs made deals with Mahmoud Ahmadinejad in Iran—as was the case with foreign subsidiaries of Koch Industries, America’s second-largest private corporation. Other corporate interests worked with Nazi Germany and Apartheid South Africa. They signed contracts with dictators like Mu‘ammar Gadhafi in Libya (even while our military was bombing Gadhafi).
Trade expert and former Commerce Department official in the Clinton White House Patrick Mulloy wrote in a 2006 report by the United States-China Economic and Security Review Commission, “The interests of the U.S.-based multinational corporations, which have done so much to influence our current policies toward China, are often not aligned with the broader interest of our nation.”
Again, with nationalism off the table, it’s only about profits at whatever cost. Mulloy concludes, “Focused on ‘shareholder value’… [corporations] are not charged to consider the larger impact of their decisions on the American economy and workers, and the impetus they give to China’s growing international, political, and military strength.”87
Eamonn Fingleton, an economist, best-selling author, and former editor at Forbes, who predicted both the Japanese stock market crash in 1987 as well as the tech-bubble crash in 2000, described this wild American sell-off by saying, “For just a few years of profits, America is giving away a technological inheritance that took generations to accumulate… the big gainers are… just a few thousand top corporate executives,” the guys hanging out at Davos, “who reap huge returns via bonuses and stock options.”88
Thanks to them, our nation’s current account deficit, primarily our trade imbalance, in 2006 was 7 percent of GDP. That’s the highest peacetime current account deficit ever recorded—second only to Italy in 1924, a year before Benito Mussolini anointed himself dictator of fascist Italy.89
There’s a lot of money to be made seeking out cheaper and cheaper labor markets. So wealth was growing exponentially, which made both political parties buy into this new global paradigm.
Columnist Chrystia Freeland nailed this mind-set perfectly in her 2011 article “The Rise of the New Global Elite,” which ran in The Atlantic magazine. She reported that one influential American hedge fund manager argued that it didn’t matter if the US economy was in peril, because “if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade.”90
And yet, millions were being uprooted around the world as a result of these new globalized markets. Subsistence farmers in South America and India were shut out of trade, put out of business by massive transnational agribusiness, and forced into the slums.
Meanwhile, entire communities near Detroit and Camden that once buzzed with manufacturing plants and middle-class trappings were also leveled by the forces of globalism.
There were voices speaking out. People warning that the Royalists were not bringing with them genuine prosperity for all, but only prosperity for the few. They argued it was only an illusion that we were all getting rich and everyone’s conditions around the planet were improving thanks to deregulation and global free trade. In reality, they warned, just as Spengler and Galbraith had warned before the last Great Crash, our cultural core was decaying.
As Galbraith noted, when the madness takes hold, “the wise remain silent.”
Sir James Goldsmith didn’t remain silent. He questioned the logic of the time in his book, The Trap, when he wrote, “Many believe that the problems we face can be resolved by doing what we always have done, but doing it more effectively. They believe that we are going in the right direction but we should redouble our efforts to achieve our objectives.”91
Goldsmith then posed three questions to those who thought the Royalists were on the right track:
How is it that nearly two hundred years after the birth of the Industrial Revolution, which produced humanity’s greatest period of economic expansion, the absolute number of those living in misery, both material and social, has grown exponentially?
How is it that the world’s slum population has developed at a rate vastly greater than that of global population growth?
And how is it that despite incredible technological innovations the world now faces man-made threats of quite different magnitude from the wars, famines, epidemics and other upheavals of previous dark ages?
Goldsmith asked these questions in 1994. Little did he know things were about to get a lot worse when the psychopathy was allowed to run loose on Wall Street a few years later.
Bankster Psychopaths
Reagan’s decision to stop enforcing the Sherman Antitrust Act led to a boom of big companies becoming enormous—a mergers-and-acquisitions (M&A) frenzy, led by “M&A Artists,” “LBO Artists” (Leveraged Buyouts), and “Corporate Raiders.”
The philosophy that drove the Reagan administration (and had infected the last two years of the Carter administration before it, which deregulated trucking, travel, and several other industries) opened the door for executive-suite psychopaths.
“Chainsaw” Al Dunlap, “King” Carl Icahn, Willard “Mitt” Romney—all made hundreds of millions to billions of dollars strip-mining companies, regardless of the impact of their actions on the employees. Famously, Dunlap bragged about how many thousands of employees he’d fired, and Romney bragged, “I like to fire people.”
As Jon Ronson, author of The Psychopath Test: A Journey Through the Madness Industry, told Forbes writer Jeff Bercovici, for Bercovici’s article titled “Why (Some) Psychopaths Make Great CEOs,” Chainsaw Al “effortlessly turns the psychopath checklist into ‘Who Moved My Cheese?’ Many items on the checklist he redefines into a manual of how to do well in capitalism.”92
The reason psychopaths were making hundreds of millions of dollars in the executive boardroom, Ronson said, was because “the way that capitalism is structured really is a physical manifestation of the brain anomaly known as psychopathy.”
By the 1990s, Corporate Raiders and LBO Artists had gotten a bad name, Michael Milken had gone to jail, and Drexel Burnham Lambert had gone bankrupt. Very large companies deployed a variety of strategies from poison pills to loading their balance sheets with debt to avoid the predations of the raiders, forcing them to look to smaller companies to buy, load with debt, and then strip. Instead of making billions like the first-generation raiders, these second-generation raiders were only personally making hundreds of millions.
The industry as a whole decided it needed a new image, and stopped referring to itself as “raiders” or “LBO Artists,” instead choosing the Middle America–sounding and ambiguous phrase “private equity.”
But the point was the same. In 1985, Mitt Romney explained what his private-equity firm does, saying, “Bain Capital is an investment partnership which was formed to invest in start-up companies and ongoing companies, then to take an active hand in managing them and hopefully, five to eight years later, to harvest them at a significant profit [italics added].”
Ronald Reagan’s deregulation of the savings and loan (S&L) industry through the Garn–St. Germain Depository Institutions Act of 198293 made it easier for very wealthy people to pass on money to their heirs, allowed banks to swindle customers with “adjustable”-rate mortgages, and eliminated much of the regulatory oversight under which S&Ls operated. The result was as predicted by naysayers in 1982: By 1986 the industry had collapsed.
Nonetheless, the relentless drive for more deregulation continued. As laid out in the Powell Memo, hundreds of millions of dollars were funneled into “conservative” and “libertarian” think tanks, which issued a nonstop stream of policy papers and proclamations about the wonders of “less government in business,” the very thing Warren Harding had campaigned on in 1920.
Then, Kenneth Lay of Enron wanted badly to run a division of his own company as a bank and to gamble on energy derivatives, both without regulatory oversight. Conveniently for him, Wendy Gramm, who’d worked for Reagan from 1985 to 1988 as head of the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA), was running the Commodity Futures Trading Commission from 1988 to 1993. Ken Lay appealed hard for the CFTC to exempt Enron from regulation, and Gramm complied. Shortly thereafter, she left her job at the CFTC and went to work on the Enron board of directors, serving on its Audit Committee.
Her husband, Senator Phil Gramm, laid the groundwork both for meeting Ken Lay’s goals and for the banking crash of 2007–08 by pushing, in 1999 and 2000, the Commodity Futures Modernization Act and the Gramm-Leach-Bliley Act, which did away with the 1935 Glass-Steagall Act that had banned regular commercial checkbook-banks from gambling in the markets with their depositors’ money.
Clinton signed it into law, and the preeminent lesson we learned about Wall Street following the last Great Crash was officially forgotten.
The madness had returned.
Financialization
Since we don’t build anything much anymore, as evidenced by the decaying factories across the nation, we have needed to manufacture at least the appearance of wealth in some other way. That means our economy headed into the twenty-first century was (and still is) heavily dependent upon psychopathic banksters.
In the early 1950s, Americans working in factories and building things accounted for more than a fifth of all the wealth created in the United States. At the same time, bankers offering loans and investments created only about one-tenth of the wealth in America.
Today, however, things are different. Manufacturing has plummeted to about one-tenth of our economy. Whereas finance has surged to nearly a third of our entire economy. This is a phenomenon that many economists have called “financialization.”
In the mid-1980s, after a decade of financial deregulation flirted with by Jimmy Carter, fully endorsed by Ronald Reagan, and put on steroids by Clinton and the Bushes, banking, which for forty years had been a very, very boring and safe industry, got a makeover and became the Wild West of lawlessness and get-rich-quick schemes.
These stages of deregulation, fueled by a belief that markets should be “free,” produced many different ways of manipulating money and investments to return high profits. Remember, new ways to generate high profits were necessary to keep the American economy thriving, since manufacturing profits were no longer being returned to the nation.
And after deregulation, droves of college graduates who might have gone into engineering forty years earlier, or rocket science during the 1960s, flocked to Wall Street to get involved in the new game of exotic financial instruments that would make them billionaires. Welcome to the world of “credit default swaps” and “collateralized debt obligations.” Welcome to the “financialized” world.
In his book Griftopia, Rolling Stone investigative journalist Matt Taibbi examined how these new exotic financial instruments could make the banks a lot of money by preying on the rest of the economy and the middle class.
In 2008, oil prices and food prices were inexplicably on the rise. As far as supply and demand is concerned, there was no reason why prices should have been going up.
Yet, between January 2003 and July 2008, the price of a barrel of oil went from $30 to $149—a 500 percent increase! Again, there was more than enough oil in the world to meet demand. So why was the price going up?
During this 500 percent price hike over five years in oil, Taibbi noticed something odd in the derivatives markets. He writes, “From 2003 to July 2008… the amount of money invested in commodity indices rose from $13 billion to $317 billion—a factor of twenty-five in a space of a little less than five years.”94
To put that into perspective, Taibbi goes on to say, “the total increase in Chinese oil consumption over the five and a half years… turns out to be just under a billion barrels—992,261,824, to be exact.”95 On the other hand, “during that same time… the increase in index speculator cash pouring into the commodities markets for petroleum products was almost exactly the same—speculators bought 918,966,932.” That’s right, speculators used their exotic financial weapons to “fake buy” just as much oil as the enormous Chinese dragon economy.96
These speculators were really the only game in town. By 2008, actual commodity sellers and buyers were completely marginalized in the market by speculator banksters, who accounted for 80 percent of all futures purchases. And with their price manipulations, these derivative bombs cratered our economy with high gas prices.
Then there were food prices. Started toward the end of the first Bush administration, the Goldman Sachs Commodity Index is the signature derivatives market in the world. And the betting lines for banksters include energy resources such as oil and gas and food such as cattle, wheat, corn, and soybeans, among other things. Food wasn’t immune from the speculator frenzy.
Professor and author Frederick Kaufman details the speculator effect on food prices in a 2010 article he wrote for Harper’s Magazine. “Nothing had changed about the wheat, but something had changed about the wheat market,” Kaufman wrote.97 “Robber barons, gold bugs, and financiers of every stripe had long dreamed of controlling all of something everybody needed or desired, then holding back the supply as demand drove up prices.”98 That’s exactly what speculators were doing—buying up huge amounts of wheat contracts and holding on to them until they could be sold at a higher price.
This had catastrophic effects on the global food supply. “The global speculative frenzy sparked riots in more than thirty countries and drove the number of the world’s ‘food insecure’ to more than a billion… The ranks of the hungry had increased by 250 million in a single year, the most
abysmal increase in all of human history,” Kaufman writes.99
When the Supreme Court selected George W. Bush as president, the transition from New Deal regulations to the Coolidge Prosperity deregulation was largely complete. The psychopathic banksters were free to run wild, and went on to create out of thin air over $800 trillion worth of unregulated derivatives—more than ten times the annual GDP of the entire planet.
And just like the previous period of madness in 1929, it all crashed.
The 1920s All Over Again
As Noah Mendel, of George Mason University’s History News Network, noted, although the term “great depression” had been used periodically from the James Monroe administration to the Hoover administration, “It was only later, once the Depression had subsided and could be remembered as a historical era, thankfully in the past, that the term ‘great depression’ could fulfill its proper noun potential and take on the capitalized form that we know today.”100
Many modern economists have discussed the causes of the 2006–07 American housing-market meltdown, but far fewer have told the story of the housing-market meltdown of 1926.
Evoking that same theme of madness as Galbraith, historian Frederick Lewis Allen recalls the first six years of the Roaring Twenties as “the most delirious fever of real-estate speculation which had attacked the United States in ninety years.”101 (Interestingly, he was parenthetically mentioning the housing bubble bursting just before the Civil War.)
With the advent of the automobile and construction of new roads in the second decade of the twentieth century, the state of Florida suddenly became accessible to millions of Americans seeking warmer weather and new fortunes. The stock market was surging through the 1920s, consumer spending soared, and confidence in the economy was at an all-time high. It was the time of “Coolidge Prosperity”—a term birthed by Republicans and echoed in the newspapers of the mid-1920s, when our nation’s thirtieth president said that good times were here to stay in America forever, and that every American could become rich thanks to the “free market.”
The Crash of 2016 Page 12
