The People vs. Goldman Sachs

(Note: This post of Tony's was lost a week ago in the big blogger crash.  I don't even want to think about the hassle that loses a post for a week.  I guess I am forgiving because I remember when computers would do this crazy stuff ALL THE TIME.  Of course, I can be blase about my blog because almost nothing I write is especially time critical.)

Compared to the billions of dollars Wall Street can spend to deploy thousands of lawyers and lobbyists in its defense, the few people who dare to reveal Wall Street's crimes to us are truly Promethean heroes. Matt Taibbi has been utterly fearless in his complete disdain and scorn for the Wall Street Masters of the Universe. It was Taibbi who memorably wrote that Goldman Sachs is a "great vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells like money."

Taibbi has now given us a list of particulars of the extreme criminality of Goldman Sachs, culled from the 650-page report recently released by the Senate Subcommittee on Investigations, chaired by Democrat Carl Levin of Michigan. As Taibbi writes: "the Goldman section describes an ongoing crime — a powerful, well-connected firm, with the ear of the president and the Treasury, that appears to have conquered the entire regulatory structure and stands now on the precipice of officially getting away with one of the biggest financial crimes in history." Here's the beginning:

Elevator Speech #9--The pursuit of clarity

One of my favorite words that I rarely get to use is epistemology.  The term was introduced by the Scottish philosopher James Frederick Ferrier (1808–1864).  Essentially this word covers three subjects

• What is knowledge?
• How is knowledge acquired?
• How do we know what we know?

The word epistemology has fallen out of favor for many reasons but I like to think it is because the Producers came up with the ultimate answer to these questions--experimentation.  Knowledge is what we can demonstrate.  We acquire that knowledge through experimentation.  And we know what we know because the experiments are published and we can either choose to replicate them or believe the original experimenters.

Unfortunately, philosophy has a long tradition of teaching that we "really cannot know anything."  Of course, when most of this philosophical sighing was originally written, humanity actually didn't know much.  When Montaigne, the father of such skepticism wrote in the 16th century, we didn't even know how fire worked.  We knew nothing about electricity, chemistry, or physics either.  The idea that about 1/5 of the gas around us was oxygen wouldn't be known for a couple of centuries.  So a complaint that was once a sign of intellectually honesty has become a sign of profound intellectual laziness in a world were we can measure the gasses in our atmosphere to six-decimel precision using fairly cheap instruments.

But oh what cheap excuses the debates over epistemology provide! "If one can never really 'know' anything, goes the 'reasoning' of the dullards, then why should anyone put forth the effort to learn anything?"  These folks even have an answer for the Producers that goes something like, "Since your information is always open to revision, why should I learn something that will be obsolete in a few years?"  And so the honest debates over epistemological questions become an alibi for lazy students everywhere.

Because the real economy runs on information that not only can be known, but must be known, the tolerance--nay insistence--of a culture for teaching and perpetuating the intellectual cop-out that nothing can really be known can only have dire consequences.  It might be argued that the economic decline of the USA economy since 1973 can be largely explained by this factor.

I settled my own epistemological questions during the early research for what would become Elegant Technology.  I was hunting for a reasonable explanation for the recession of 1981-82 and making little progress.  I had tried reading political economy, business magazines, advertising publications, and philosophy.  I was a good little Liberal Arts graduate so I organized my search like I had been taught.  And while it was probably a good thing to read Marx and Nietzsche and Keynes, I felt I was just getting nowhere.

Then one warm summer night, a friend and I went for a drive.  He had actually gotten his degree in Philosophy and I wanted to talk about the practical epistemological riddles I had to solve to understand a financial calamity that had caused peaceful farmers to shoot their bankers.  By the end of that drive, I had decided that by setting up some simple epistemological "rules", I could eventually answer my big questions.

• Since I did not know where my answers could be found, I decided that I would evaluate the factoids I discovered with a simple question--is the information beyond reasonable debate?  If it was, it was a keeper even if I had no idea why it would ever be important.
• From little factoids grow mighty interesting truths.  No information is too small or unimportant so long as it is beyond reasonable debate.

From these two principles, an interesting worldview emerges.  If you limit your pursuit of information to beyond-debate factoids, you tend not to get sidetracked by idle speculation and weird conspiracy theories.  This process is amazingly flexible--if new information arrives, one merely adjusts the relevant factoid and while an altered factoid will affect the edifice built around it, it will rarely destroy the larger truth being constructed.

Of course, piling up information by itself doesn't lead to anything more intellectually stimulating than any other form of collecting.  For a bunch of little truths to become a big truth, there needs to be a theory to guide the assembly.  And there is no better place to find theory than to study history.  Not only do you find a defense of the best experiments of the human race, you also get a superb list of those things that should never be tried again.

Big truths constructed from little truths tend to hold up amazingly well.  Elegant Technology was mostly finished by 1987 and yet if it were rewritten for today, only a very few sentences would need to be changed.  This durability of ideas is a remarkable demonstration of the power of a Producer Class epistemology that is rooted in that most useful command in any language, "Show me!"

Final Testing on Beijing–Shanghai High Speed Rail, While US Dithers

The Chinese have begun final testing of their new 819-mile high-speed rail line between Beijing and Shanghai. They have lowered the speed, to contain costs and to make tickets less pricey. Meanwhile, in the United States, conservatives and economists continue to obstruct efforts by the national and governments to get the country moving forward. In California, the California Legislative Analyst is seeking to prevent funding for actual ground-breaking, arguing that funds should be used only for administrative costs and more studies.

The California situation is especially outrageous, because voters there approved funding for implementation of a state high speed rail network with the 2008 passage of Proposition 1a. Just goes to show that conservatives are more wedded to their destructive anti-government ideology, than the actual processes of democracy.

Testing on Beijing – Shanghai HSL enters final stages

FINAL testing has begun on the new high-speed line between Beijing and Shanghai. For the first time CR380A trains are operating on the entire 1318km route with testing set to continue for a month before the line opens for commercial services at the end of June.

The Chinese Ministry of Railways says that fault simulations and emergency drills will be carried out during the trial period, while the ministry also confirmed that 300km/h and 250km/h services will be offered on the line for a travel time of approximately five hours. An additional stop at Nanjing has also been added to the 300km/h service.

Operating speeds on the new high-speed line, which has been constructed within three years, were originally set at 350km/h. However, the ministry says that due to safety concerns and in an effort to reduce ticket prices, speeds have been cut.

Read more.

The question of scale

There are many times when I discuss wind power that someone will come up to me and ask whether there is a future in household-sized wind turbines.  Most of them want so badly for there to be a cheap way to generate electricity on their own--it would be their way of saying "f**k you" to The Man.  Hoping for assurance that there are at least a good set of plans out there, they grow visibly disappointed when I tick off the real reasons (aside from male ego) why wind turbines are so large.

• In most places on earth (and that most certainly includes Minnesota) the wind isn't very strong or reliable until about 100 ft (good round number) above the surface.  By the time you erect a tower tall enough to get to the good wind, you have so much invested that putting a tiny generator up there makes no sense.
• Owning your own wind turbine is a LOT harder than it sounds.  These things are outside in insanely tough conditions that causes damage to even the best-built mechanical devices.  Most folks barely keep up with the maintenance on their cars--and maintaining a wind turbine would be at least 10 times more difficult (and probably expensive).  

There was a time not so long ago when wind power was touted as a sort of "alternative lifestyle" answer to the evils of burning coal.  But these days wind turbine installations are often opposed by a motley collection of self-styled environmentalists making absurd charges about bird kills or complaining that these graceful creations are ugly.  Because these complaints are so crazy, I am tempted to believe their real problem with modern wind turbines is that they aren't hippy-scaled, but are in fact large industrial projects.

This is a long way of explaining why I think energy projects will always have sound reasons for being some variation on ginormous.  But just because the technology tends to be large and complex doesn't mean citizens cannot do something about who controls the technology.  The Man isn't the Man because powerplants are so large, it's usually because the financial arrangements are too large.

Germany's "Electricity Rebels"

DW BUSINESS | 18.04.2005

Germany's reputation for environmental friendliness may have found its expression in the Black Forest citizens' initiative that won a David and Goliath battle against the local electricity provider.

In April 1986, Ursula Sladek lay at home, incapacitated with a broken thigh after a skiing accident. As fallout from the Soviet reactor Chernobyl rained over Europe, Sladek pleaded with her kids not to go out in the yard. They ignored her, and that got her thinking. 

To counter her feeling of helplessness, Sladek, a homemaker, joined forces with other Schönau residents and formed Parents for a Nuclear-Free Future. Their aim was to put an end to atomic energy. The group did what they could to raise townspeople's energy awareness, running competitions to save energy and even approaching the Black Forest town's electricity provider, hoping that Kraftübertragungswerke Rheinfelden (KWR) would introduce prices that rewarded customers for frugal energy use.

But by showing the parents the door, the stony faces at KWR inadvertently heralded the end of their golden days of providing Schönau with electricity. After 13 years, two town referendums and a successful nationwide campaign to raise funds, the Schönau "electricity rebels," as the press dubbed the citizens' initiative, became the first German community to buy back their own power grid.

"We weren't after the electricity network," Sladek has said. "In the beginning we just wanted a little support for our idea."

The "rebels" started producing the energy their town needed by building block heating stations and installing solar panels, including outfitting the local Protestant church with solar cells. What they couldn't supply themselves they bought. And in 1999, Elektrizitätswerke Schönau (EWS) went national, a year after the German electricity market was liberalized.

With size comes power

Today, the Schönauer initiative heads one of the largest of Germany's half dozen "green" electricity companies and is rapidly on its way to 30,000 customers, according to Sladek, now one of EWS's managing directors.

"We see ourselves as a political energy organization," said Sladek. "The aim isn't to earn more but to have more power." Size is the way to influence, she said. 

In a country of 80 million people, however, EWS Schönau's customer base appears insignificant. The company doesn't advertise, relying instead on word of mouth from satisfied customers to recruit new ones and investing its profits in promoting environmentally friendly electricity sources. To that end, EWS helps customers set up their own environmentally friendly means of producing electricity and pays them for the kilowatts they deliver into the grid. more

Tax havens and the rise of new oligarchies

One of the major bastions of the new financial and corporate oligarchies that have emerged and entrenched themselves the past four or five decades is an international financial system that has usurped many of the powers of the sovereign nation state. Ironically, many nation states are in fact mere tools in the hands of these new oligarchies. These nation states function as tax havens, and there is an interesting new book on the subject, Treasure Islands: Tax Havens and the Men who Stole the World by Nicholas Shaxson. It has been reviewed by David Runciman in the London Review of Books.

An example of pure economic rent: Disney Grabs ‘SEAL Team 6’ Trademark

One of the key concepts we need to understand is "economic rent." When the big oil companies exercise their political power to keep in place U.S. subsidies for oil exploration, or to prevent an investigation into how they are manipulating and profiting from both futures and physical markets for oil, these companies are acting to protect their "rent seeking" economic behavior: trying to maintain not just the profitability, but the revenue streams, they derive from the trillions of dollars of investment in the oil-based economy that has been created in the past century. They have a vested interest in keeping that century-old investment from having to face competition or replacement.

Summary of the State AGs Case Against Mortgage Fraudsters

Mike Konczal at RortyBomb points to a very informative and eye-opening summary of the state attorneys general case against the mortgage services and banks by Adam Levitin: The Servicing Fraud Settlement: the Real Game. One fun aspect: looking at the actions of Senate and House Republicans, particularly their oppostion to and attacks on the Consumer Financial Protection Bureau (CFPB), it's clear that they are completely depraved and shameless whores for the banksters. His conclusion is also interesting, and repeats a point that I've seen made a few times recently: Republicans and conservatives, because of their blind ideological faith in "market efficiency" just have a hard time accepting that large economic actors have engaged in massive fraud and criminality.

Basically, the banksters made $25 billion in mortgage servicing fraud - the largest consumer fraud qua consumer fraud in world history. The settlement being discussed would have the banksters disgorge almost all of this illegally gained amount. The real fight now is over mortgage principal reductions, which could cost the banks up to $160 billion - wiping out a third of the equity of the four biggest U.S. banks.

Obama's financial reform is "Moderate 1990s Republican"

Mike Konczal at RortyBomb has two interesting observations:

Darrell Duffie on Regulating Foreign-Exchange Swap; Moderate 1990s Republican Style Financial Reform?

This is interesting. Well-respected Stanford University financial economics professor Darrell Duffie comes out in favor of regulating the foreign-exchange swap market:

“There’s as much reason to clear this class as any other class of derivative,” Duffie said in a telephone interview today. The market, which consists of all the largest global banks, for foreign-exchange forwards and swaps is $25.6 trillion in notional value, according to the Bank for International Settlements.

“If those were to suddenly revalue, we don’t know whose ability to pay is threatened,” Duffie said.

Read more.

Konczal then puts the Obama adminstration and Dodd-Frank financial reform in an interesting context:

Ezra Klein had a very good observation a while back: ”President Obama, if you look closely at his positions, is a moderate Republican of the early 1990s. And the Republican Party he’s facing has abandoned many of its best ideas in its effort to oppose him.”

I’ve been meaning to try and develop this argument with regards to financial reform, so please jump in if you’d like. Let’s make three assumptions: (1) I’m not sure how to best describe the political economic default policy outlook of the participants of the Squam Lake working group – people like John H. Cochrane, Darrell Duffie, Frederic Mishkin, Raghuram G. Rajan. Let’s say it’s moderate Right, what we could comfortably call early 1990s moderate Republican.

(2) You can take the Squam Lake report on what financial reform should look like as a kind of moderate Right/moderate Republican view of financial reform post-financial crisis. (3) Dodd-Frank is conceptually similar in theory and very similar in practice to the Squam Lake’s report.

If those pan out, Dodd-Frank financial reform act, like cap/trade and health-care reform and others, would be the equivalent of a moderate Republican approach to finreg in an age where moderate Republicans have become extinct.

Read more.

Peak oil explained

As regular readers know, I don't have a lot of respect for folks who can actually believe that Peak Oil and climate change aren't real problems.  The evidence isn't all THAT hard to understand, but even so, I am always looking for ways to explain these life-threatening dilemmas to folks who slept through eight-grade science class.  This is one of the best I have seen.

The aesthetics of sustainability

"Permanence is a function of design. Design as beauty is essential to permanence. Committees are rarely formed to save eyesores. Design as function can assist in the goal of permanence by making maintenance easier. Design as beauty is the easiest to explain because everyone can think of an example. Builders for centuries have known this trick. Design it to be beautiful and the powerful will insure access to premium materials and labor. Build with good design, premium materials, and skilled labor, and the result is the Acropolis in Athens, the Vatican, or the Eiffel Tower. Apply this principle to a city and you get Paris, Prague, or Copenhagen. The only reason to restate such an obvious notion is that one cure for industrial waste must be permanent structures. No law has been found that says a powerplant, or sewage treatment plant, or waste recovery center must be ugly. Humanity must arrive at the conclusion that this is the only planet for light-years in any direction that will support human life. Structures necessary for human survival will be with us for a very long time and we are going to have to look at them. They may as well be beautiful."

Elegant Technology pp. 121-122  (first written 1986)

Food and weather

One of the reasons farmers tend to be more religious than most is because no matter how well they plan or how hard they work, they are still at the mercy of the weather (gods).  Those who use irrigation are insulated somewhat from drought but even they are subjected to all the other natural catastrophes that can fall from the sky.  Here in Minnesota irrigation is very rare.  Farmers around here are utterly exposed to the forces of nature.  Crops can be destroyed by wind, hail, floods, and early frosts. Etc.!

Correcting the record

There is a lot blame-the-victim economic "analysis" going around these days.  Here Paul Krugman steps in and swats down the idea that the economic mess we find ourselves in is somehow the fault of the greedy little guy.

Sustainable energy strategies

Ever since I began writing Elegant Technology, I have been convinced that powering civilization was POSSIBLE using renewables.  Not easy.  Not cheap.  But certainly possible--and highly desirable.  That it why Elegant Technology does not concentrate so much on the technologies involved (because these are still evolving) but rather on the sociological and economic dilemmas that make a conversion to renewables so much more difficult than the technological problems alone would indicate (and goodness knows, the technological problems alone are difficult enough.)

Watching the economics "profession" self-destruct

Paul Krugman writes about the absurdity of what he calls VSP economics--the droolings of the Very Serious People who have been getting it utterly wrong for the past 35 years.

Has Peak Food already happened

No less an authority than the Scientific American seems to think so.

Cereal Killer: Climate Change Stunts Growth of Global Crop Yields

A crop-yield analysis reveals that warming temperatures have already diminished the rate of production growth for major cereal crop harvests during the past three decades

By David Biello | May 5, 2011

The people of the world get 75 percent of their sustenance—either directly, or indirectly as meat—from four crops: maize (corn), wheat, rice and soybeans. The world's rising population—now predicted by the United Nations to reach 10.1 billion by century's end—has been fed thanks to rising yields of all four of these crops during the past century. Humanity's predilection for burning fossil fuels, however, is now contributing to the slowing of such rising yields, cutting harvests of wheat 5.5 percent and maize 3.8 percent from what they could have been since 1980, according to a new analysis of yields.

"On a global scale, we can see pretty clearly significant changes in the weather for most places where we grow crops," explains agricultural scientist David Lobell of Stanford University's Woods Institute for the Environment, who led the analysis published in the May 6 issue of Science. "Those changes are big enough to sum up to pretty big losses for wheat and corn."

Using U.N. Food and Agriculture Organization data going back to 1980 for crop yields in all major crop-growing regions of the world, and pairing that with temperature and precipitation data for their growing seasons, Lobell and his colleagues found that warming temperatures were reducing yields—although changes in precipitation did not appear to be having an effect, yet.

Those temperature changes are the result of increasing concentrations of atmospheric greenhouse gases, such as carbon dioxide (CO2), largely as a result of burning fossil fuels and agricultural practices. But CO2 also helps rice, soybeans and wheat grow. In fact, the researchers suggest the extra CO2 boosted yields for these crops by roughly 3 percent during the period studied. Unfortunately, in the case of wheat, that wasn't enough to overcome the loss in yields resulting from warming temperatures. "Temperature effects are already overriding CO2 effects," Lobell notes. more

Arrogance cubed

Ah the Predators--certainly have an interesting way of viewing the world.

How it works

Elevator Speech #8--The role of regulation

After each round of recent economic deregulation, there has been some form of catastrophe.  While regulations in general are often annoying and counter-productive, it is obvious after 35 years of economic deregulation that the folks who wrote the original regulations were on to something.  The ultimate proof that the economy needs regulating came in 2008 when the richest firms on Wall Street became the biggest national social welfare cases.  $Trillions had to be pumped into a system that had destroyed itself playing games with electronic money.

On the other hand, our government which cannot prosecute some of the most evil people to have ever walked planet earth can find the time and budgets to incarcerate hundreds of thousand of people for the "crime" of smoking pot.

Our government, for whatever reasons, has it completely backward.  The crimes that should have the highest priority are the ones that affect the greatest number. Crashing the economy on 2008 through naked and systemic fraud is certainly more important than finding a more peaceful way to get high.

The principle is simple.  A good government regulates the behavior of those whose actions affect many, while allowing almost complete freedom in personal matters such as sex and drugs.  Big=regulate. Small=deregulate.

Any financial institution that has economic backing from government agencies should be regulated like a public utility.  This is the absolute minimum requirement for a prospering real economy.  Any institution considered "too big to fail" has met all the reasonable definitions of a monopoly and must be regulated as a monopoly or broken up.

Remember when there were sane Republicans?

Once upon a time, there were Republicans who actually represented the Producing Classes.  For example, in Ayn Rand's 1957 libertarian classic Atlas Shrugged, the hero gets frustrated because his plans to build a better railroad are thwarted.  In USA today by contrast, the numbers of Republicans trying to get better railroads built can be counted on one hand and Rand's followers are usually shameless Predators like Alan Greenspan.

German Producer Class environmentalism means that the world's most effective environmentalists are often conservative folks with engineering degrees.  Just by sheer statistical accident, one would expect a USA Republican to stumble onto their example that there are environmental strategies that mesh with the old principles of industrial capitalism.  You know, the idea that a conservative could be for conservation.  Well according to Spiegel, there is such a Republican!

The problems of Greece haven't gone away

Debts that cannot be repaid--will not be repaid.  But that certainly does not mean that the debt collectors won't try to squeeze some blood out of a stone.

At the behest of the money-changers, the Greek government tried to impose austerity measures that mostly fell on the weak.  But the weak have fought back because MOST of the debts that have ruined their lives were not incurred by them.  Athens has been rocked by almost daily riots for months.  The government has lost whatever legitimacy it once had.

On Friday, a rumor surfaced in Germany that the Greek government was going to leave the Euro.  This would prove catastrophic for the various creditors so the day was spent trying to stuff that rumor back into whatever container could be found.

The economy really sucks this spring

The signs of an economic slowdown were on prominent display my whole trip.  Attendance and spending was way down at the NAMES show.  Tony's brother claimed the food business in Chicago was a disaster as suppliers tried to raise prices to cover their increasing costs only to meet savage price resistance from consumers who will now only buy if something is on sale.  Municipalities trying to close budgetary shortfalls had dispatched every available patrolman to catch the almost non-existent speeders---cops were just everywhere.

The main driver of the economic problems--high petroleum prices--had signs perched on seemingly every available pole reminding everyone how bad the pain would be.  I saw unleaded regular going for $4.79 a gallon at one Chicago station.  While that probably sounds like an incredible bargain to a Dutchman paying over $7.00 a gallon, it is a disaster in someplace like Chicago with vast urban sprawl and virtually no transportation alternatives to the private automobile.

I'm baaack

Had a good road trip.  No breakdowns or even near misses.  It was cloudy and chilly but I didn't drive in rain.  Gas prices are keeping many off the road--cars are unusually rare on the freeways.  I am still learning my GPS.  It is a remarkable invention.  Imagine telling the guys who figured out the sextant and chronometer that one day, there would be a navigation device that knew what lane you needed to be in while moving at 70 mph.  They would have wept in sheer joy at the prospect.

Saw a lot of interesting things.  Last year, I tried to be useful around Tony's booth. This year, I was a bum who spent most of the time wandering around with a video camera listening to the purest Producer types explain their thought processes while making things.  My favorite was the guy who has discovered the definitive history of the USS Monitor by constructing a scale model from designer John Ericsson's drawings and making it run.  He is a perfect example of how Producers uncover facts and how tenaciously they will defend those facts when proven by experimental means.

Got a tour of the back operations of Ford Museum and Greenfield Village.  Last was there the summer I turned 14.  It was a peak experience then so it was extra fun to meet some of the folks who make the place work.  Visited the shop where the 26 Model Ts that are driven around the Village are perfectly maintained in like-new condition.  It's an amazing world when funds are found for maintenance.

I got quite a bit of video and will soon see what I have actually captured.  It's really hard to mike up anyone under casual situations so I just got the camera as close to the speaker as I could and still get a video shot.  I am sure I got something.  I am just as sure it won't win any awards for excellence in videography.

It was a good time to be away from what passes for news.  Between the modern Tories going "Goo" over the British Royals and the wargasm over the Bin Laden assassination, the reminders that the pirates are still firmly in charge of the agenda were all over the place.  We couldn't have a serious discussion of energy or climate change, you know.  I mean, the implications of $5 gasoline or the largest outbreak of tornados in history are so ugly compared to Will and Kate and the Navy Seals.