David Bruce Allen

Barack Obama Meet Clint Eastwood

"Gran Torino" gives us Walt Kowalski, a sanitized version of Clint Eastwood's "Dirty Harry", the vigilante cop who frees the hippie-sogged, sexy streets of San Francisco from vermin (less politely called human scum) leaving the hippies free to do their dirty stuff -- and Harry Callahan free to get down and dirty, too. That's democracy, for you.

"Gran Torino" aims for higher truths than those of the groin and the guts. It's the wrong choice. In "Gran Torino", the Oscarized Clint Eastwood plays to his sensitive (insufferable) "Bridges of Madison County" persona, and we feel ripped off.

Let's face it, we should have never believed the adverts claiming that we were going to get the best of both Clints. We should hav been wary of the 90% of www.rottentomatos.com extolling Mr. Eastwood's development into a cinema auteur demi-god.

One should never forget that apotheosis is just one more step on the evolutionary road to boredom and B.S. But Eastwood is crafty, and like Woody Allen on the downhill, there's always reminders of a more glorious past. Your entire macho would have to be dead not to enjoy as Mr. Eastwood impishly pointing his finger at the enemy as if it were a gun. And then there's the high point of the entire movie, when Eastwood beats up a young bully three score years less than his four score years. There was so much macho macho juice on the screen that I forgot that Kowalski had been spitting up blood like a consumption victim in "Death in Venice".

Eastwood is as smart a filmmaker. He uses all that nifty foreplay to trick us into thinking that Walk Kowalski is going to give us a Hally Callahan catharsis made of pure adolescent male voyeurism ... But no! In the final act, Eastwood makes a last minute appeal for sainthood and he sends Kowalski down in a hail (shitstorm) of bullets. [I should be sorry to have ruined the ending for those who have yet to seen the flick... but I am not.]

This was more than some of my movie cronies could take. A rather mean-spirited, politically incorrect acquaintance of mine (certainly not a friend) insisted that it all makes sense because Harry Callahan is Irish and San Francisco is hot, white, and a paradise for straight males (all those women and so few real men), while Walt Kowalski is Polish and Detroit is cold, black, and a paradise for absolutely nothing except the depression of your choosing, be it psychological or financial.

A literary-minded acquaintance did a hermeneutic riff on this and stated that In our post-American, post-contemporary world in which national identity is dead and cities take on their own social structure and cultural identity sometimes known as neo-tribalism, San Francisco IS LOST IN TRANSLATION without the sex and Detroit IS TRANSFORMERS without the bateries..

This analysis was stupid, but it sounded good it at the time. Which is about the best I can say about "Gran Torino".

 "Gran Torino" is a simple, Frank Capra update about sacrifice and doing the right thing. Like Capra, and the Obama Administration, Eastwood offers his own impossible, "Mr. Smith Goes to Washington" blueprint for re-building America. In the best Hollywood-Washington tradition, "Gran Torino" wears its heart on its sleeve and asks us not us not that a movie make sense, but rather whether a movie can help us save do our duty to save our country.

"Gran Torino" is Clint Eastwood's plan to bail out Detroit. Following his wife's death, Walt Kowalski has nothing better to do than polish his Gran Torino and "bail out" the Hmong immigrant boy, Thao, who lives next store. Poor Thao. Not only does he get bossed around by his smart ass sister, he has no luck with the girls, and, to top it off, Thao is getting harrassed by a Hmong gang led by his bad, faux doppelgänger cousin who has given him an ultimatum: Join us, Momma's boy, or you're dead meat.

You see, the cops can't do anything about the gang because the gang has the neighborhood is terrorized and nobody will testify against them. So when gang forces Thao to try to steal Kowalski's Gran Torino, Thao can't say no. And to make a long story a bit less tedious, Kowalski will end up stepping in to save the "gouks" the "slopes", as he calls them, the same S.O.B.s he sliced and diced in Korea 50 years ago. He does it, we learn, because Thao's family has real family values, the one's Kowalski's own kids and grandchildren have lost.

For 90 odd minutes, Eastwood stacks up the events of America's decline until 80-year old Kowalski is all that is left between Thao getting his ass kicked forever, the end of America, anarchy and the demise of mankind.

It's a tough, convoluted sell. The whole, orchestrated point of "Gran Torino" is to get Walk Kowalski to the moment when he organizes his own death by gangland assassination in front of the entire hood so that there will be so many witnesses, this time, that the police can finally arrest the bad guys.

To make sure we get the point, Eastwood show us Kowalski riddled with bullets, the arrival en masse of the police, several takes of the handcuffed killers getting carted away, and we even hear the voice of authority intone, THIS TIME THERE ARE PEOPLE WHO WILL TESTIFY.

All of which means: for years the gangs have ruled the streets and only human sacrifice can put a stop to the violence and lawlessness. (By the way, just so we don't think Kowalski is a fool, we are led to believe earlier that he may be dying of an incurable disease and thus his act of heroism is more like euthanasia than suicde.)

Now that I have spoiled the plot of the movie for those of you who haven't seen it yet, let's turn to the slippery slope (Kowalski calls the Asians "slopes") of symbolism on which Gran Torino treads.

Setting: Detroit, working class neighborhood, Kowalski, disciplined craftsman who worked all his life in a car factory, now lives in a neighborhood "taken over" by immigrants, good and bad, who will either save the neighborhood or kill it. The "Gran Torino" is a Ford, Kowalski's baby. The Gran Torino, like the cars still built in Detroit, just sits there on the driveway, looking pretty, doing nothing. The Gran Torino is a plot device. The boy tries to steal it to impress his cousin, gets caught, his mother does the traditional thing, putting Thao at the service of Kowalski whom he has harmed, and Kowalski takes on the reformation of the boy, and in so doing, changes himself.

But if Kowalski can save his own soul, that does not mean for a minute that he can save the neighborhood, just as Obama has not chance of saving Detroit.

That's where the symbol of the The Gran Torino comes in. You can polish the damn thing until you are the Karate Kid, but the Gran Torino was always just a gas-guzzling hunk of metal, not even much good for stock car racing. It was third-rate even in its own class -- sometimes called "muscle car" -- because, it was supposed, you needed muscles not a brain to drive one. It was precisely one of the losers that Detroit turned out year after year. The lifetime of the Ford Torino, 1968-1976, dovetails with Vietnam (we got symbols upon symbols upon symbols in this movie), and with the successful incursion of Japanese cars into the U.S. market. It was the beginning of the end for Kowalski, Kowalski's neighborhood and American industry.

Ford phased out the Torino 1976, five years after the first DIrty Harry came out. It was now 1976. The VIetnam War had just ended, and the Hmong, whom the U.S. had recruited from Laos to fight on the losing side, were brutally persecuted and ended up seeking asylum in the U.S. This didn't go so well, at first, either, with entry restricted mostly to men who had fought with General Vang. The passage of the Refugee Act of 1980 permitted Hmong families to reunite. Eventually more than 270,000 emigrated to the United States.

In 1971, when "Dirty Harry" came out, Americans worried mostly about drugs and crime. We were flush, fighting the war in Vietnam was good for the economy. Besides only "expendibles" went to Vietnam -- blacks and poor whites. We didn't say poor blacks, back then, because black meant poor. I saw "Dirty Harry" in a theatre in Syracuse, New York. The audience was mostly Walt Kowalski types, but my age, and they howled every time Dirty Harry mowed down one of the dirty slime that were making our streets unsafe. The critics called the movie sick, fascist, but it was brilliant, honest, deplorable movie-making.

In 1976 the that last Torino came off the assembly line, Gerald Ford was President.and the sexual revolution was now part of popular culture. Now it wasn't just hippies and "Dirty Harry" having a good time. It was everyone. Though there were some rumblings about those Japanese cars taking over the market, no in Detroit was much worried about the car business -- except, apparently, Walt Kowalski. Only Walt knew that that the Gran Torino would sit in his driveway three decades later all dressed up with nowhere to go. That is, until Thao showed up and a needed a car to go out on a date. Only it wasn't that easy. For Thao to get any, Walt would have to get himself killed and leave the Gran Torino to Thao in his will so his stupid niece didn't get her hands on it and ruin it, the same way America had ruined her.

That's the story of "Gran Torino". Eastwood leaves us feeling good that Kowalski died in peace. You walk out the theatre thinking, "There's a real man. Those Hmong ain't so bad. Maybe there is hope for America."

But then you start thinking. There are more bad guys like that Hmong gang and now there's no Kowalski to fight against them. And poor Thao. He got stuck with the Gran Torino, living in a neighborhood where there's no work and no more Kowalskis to die so he can live in peace. No one expect Thao to become the next Kowalski, do they?

Suddenly, you don't feel so good. And starting thinking about Obama. Poor Obama. He's got to save Thao, the Gran Torino, the automobilie industry, Detroit, and the rest of America. And he's got to do without Kowalski. Maybe Clint Eastwood should have killed off the old guy so fast.

I posted a comment

I did it. I promised never to. I just posted a comment on Paul Krugman's column. It is simple and direct, a concession to newspaper readers who probably aren't interested in reading what I have to say and open Krugman's column to read Krugman (or on his blog) -- which is the reason, of course, why I don't post comments on other people's columns, much less a man who walks around with a Nobel Prize taped to his forehead.

And so in order to justify to myself what I have done and to avoid a punishment of 300 hours of community service, I am recycling the commment here in my blog. This will also save you from having to click through to Krugman's column, though of course you may want to know what a Nobel prize-winner had to say himself.

Dear Prof. Krugman,

Your analysis is right, but you don't provide solutions. Here goes.

The first step is to reinstitute the key previsions of Glass-Steagall separating investment banking from commercial and retail banking and to regulate (perhaps prohibit) the securitization of home mortgages.

Only through legal and regulatory restrictions will it be possible to reduce the destructive effects of an overblown financial services sector. Yet while regulatory reform can help fix some of the worst practices of the financial services industry, modifying self-destructive consumer behavior is much more difficult. You correctly cite the damage done by credit card debt. The extraordinarily high interest rates charged by banks on credit card debt is an institutionalized system of taxation on the unsophisticated. This noxious system is maintained by aggressive marketing that legitimizes self-destructive behavior.

What's the solution? The quickest way is to apply interest rate laws (usury laws) already on the books in most states in the United States. These rates are mostly between 5% - 15%; some states use a Federal Reserve rate plus scheme. Unfortunately, banks are permitted to sign private contracts setting higher interest rates.

If we take these measures, we can begin to reduce the size of the financial services industry in the economy, and we might even bring back the days when banks did banking and the real economy grew at reasonable, healthy clip.

No doubt, none of the measures I am suggesting will be taken.

David Bruce Allen

It's a dog's life

With my kids, I been singing a silly little ditty that goes,

O Obama ... now don't you cry for me ... Instead of 20 in the slammer, I got millions from AIG.

"Populist backlash." That's what they are calling it -- all those angry Americans venting and venting, in need of anger control therapy.

The problem has been around for a long time. Clint Eastwood did some venting in Dirty Harry (1971). Then there was Howard Beale in Network (1976). Remember Albert Finney and his huge, tortured face screaming at the cameraI don't want you to protest. I don't want you to riot. I don't want you to write to your Congressman, because I wouldn't know what to tell you to write. I don't know what to do about the depression and the inflation and the Russians and the crime in the street. All I know is that first, you've got to get mad. You've gotta say, "I'm a human being, goddammit! My life has value!"  So, I want you to get up now. I want all of you to get up out of your chairs. I want you to get up right now and go to the window, open it, and stick your head out and yell,

"I'm as mad as hell, and I'm not going to take this anymore!!"

30 plus years later, Americans are still mad, are lame protesters, and hardly ever get up out their chairs. Since the Vietnam War, one administration after another has flubbed the opportunity to use the great wealth of America to build a better and more just society. It feels awful to say, but the last President with the brains and gumption actually do something was that crafty puller of dogs' ears Lyndon Johnson. Nixon spent all his vulgar energy on foreign policy (the Democratic Party was on the list of foreign enemies), then along came Jimmy Carter who seemed like a nice guy but turned out to be clueness, which brought us Ronald Reagan.  Reagan ushered in three decades dedicated to building the economic pie. The pie got bigger and bigger, and as it did we got 50 million without health insurance, a third-rate education system that consigns the poor to ignorance, the largest prison population in the world, global warming, terrorisim, endless wars ... and a severe recession that melted the pie that paid for the loan that paid for the house that Jack built ... and lived in ... and went bankrupt in ...

No wonder those bitter folk in Pennsylvania cleave to their guns and their religion.

Obama promised to fix everything -- even the recession if we just gave him enough time. He got off to a pretty good start -- bye bye Guantánomo, a little house-cleaning at Justice, an improvised $115 billion education rescue, a Presidential order banning torture, D.O.D. contracting reform, Hillary Clinton sanitizing America's reputation. There's even a national service bill working its way through Congress, and promises of immigration reform. It all sounds good.

And yet the people are mad.

Yesterday, March 23rd, Geithner presented his new improved toxic asset buy back; two ex-Clinton policy wogs were appointed to top posts, Neal S. Wolin to be Mr. Geithner’s deputy Treasury secretary, and Lael Brainard to be under secretary for international affairs. The Dow Jones rebounded to 7,775.

And yet the people are mad.

But the Clinton clan is happy as a clam. They are proud of themselves. They work 15 hours a day to bravely provide the American people with liberal politics and liberal programs everyone can feel good about.

And yet the people are mad.

Don't get me wrong, the Clinton clan is smart and the programs are worthy. My problem is that their strategic objectives are restoring America to what it was before Bush and then strutting around Washington. That's not quite what we're looking for.

The purpose of Geithner's financial rescue package is to restore Wall Street to what it was, what Don DeLillo so incisively described in Cosmopolis. The Clinton clan who run the Obama Administration are happy ambling down the same short, windy, winding streets home to Robert Rubin, John Thain, Abe Greenburg, Edward Lilly and several thousand other Wall Street moguls and hedge fund whizzes whose extraordinary wealth is proof to them that the system works. Some are Republicans, a good many are Democrats; in either case, they pay for the election campaigns. Some, the Republicans, are social Darwinists; for them, the losers are simply losers, and the system doesn't make mistakes. The many are Democrats, willing and able to help those with less. They support liberal social polities; they give much to charity; they hold dinners to honor themselves and other like themselves who help make the world a better place.

For lots of us, the Republican litany is a bit hard to take. The Democrats at least profess to wanting to make sure all children have health care coverage, whatever the sins of their parents. The differences  between the two parties do matter. Even so, they share a big piece of our ideology: the rich know better and they decide policy.

They used to call it noblesse noblige.  We bless, you please. You spend, we squeeze. The trick is to pretend that we and you is the same. Get on message: WE, the rich, and WE, the people, are in this together.

Understand the social contract. We, the rich, make the rules that keep us rich, but we promise not to make we, the people, more miserable. On the liberal side of the Wall Street sidewalk the message has not changed since Merrill Lynch got bullish on America and Smith Barney stopped making money the old-fashioned way and between this takeover and that takeover ended up as a piece of Citibank where they helped melt the pie. The medium, the money, is always on message.

And I'm mad. I admit that the Clinton Democrats throw serious money at social ills, but they are not committed to addressing the fundamental problems of social structure and institutionalized legal corruption that have prevented us from fulfilling the promise of America.

I believe Obama truly wants to attack poverty, provide health care, fix education, but that won't happen as long as he is tied to the Clinton clan. It won't happen without campaign finance reform and Congressional reform, without assisting Mexico to remove the drug mafia from power (the Mexican border is our Afghanistan), without national prison reform, without education and health care reform that guarantees every child's right to achieve his or her potential. The obstacles to each are great. If Obama can't even keep his promise to campaign on public funds or to stop earmarks, it is hard to be optomistic.

No doubt, we will take small steps forward, we will work on education, energy, regulatory reform. It will be intense, bills will be passed and money spent and some good will be done. But little will change. It makes you want to sit Obama down with season 1 and 2 of The West Wing and explain to him how a bunch of very smart, well-intention (and also sexy) people can get nowhere. Is there any better description of the Clinton clan?

The Obama of these first two months is not what, we, the people, voted for.  We elected Obama, hoping against hope that he was sane, honest, independent, and would get us out of this mess. We voted for Obama because he was not John McCain. We voted for Obama and against an incompetent candidate running in the shadow of the worst President in the history of the United States. And we did not ask Obama to load up his administration with Clinton retreads and Wall Streeters, like Tim Geithner and Larry Summers. We simply don't trust those people. We threw them out of office eight years ago.

And still we want to believe in Obama.

At least I did, and then Jay Leno came along to take away from me the Obama I had invented in Iowa last year. Jay Leno took Obama on one of his famous Jay-walking tours during which he asks inane questions to ordinary men and women and getting seriously inane answers back. Obama's people had set it up perfectly. Leno asked about the feckless Wall Street monsters who had gotten us into the trouble, and Obama told us that the worst, most evil part of it was what that the crimes were "legal" and that it would take a long time to undo the damage. Obama told us that he, too, had been stunned by the AIG bonuses, that he, too, like us, was angry.

Jay, regular guy, was helping us to get to know Barack Obama, regular guy. Except, we did not vote for Barack Obama, regular guy. We had 16 years of regular guys, one a smart smart ass the other a not so smart smart ass. One peeking under skirts under desks, the other peeking under desks for missing WMD.  We voted for Obama because he wasn't part of that ugly White House. We voted for someone who could make a speech, loft up an ideal in his hands. We voted someone who did not need us to love or like him, but someone we can trust to do what needs being done and then take the heat.

That's not the Obama I saw on Jay Leno. As the interview wound down, Leno, as scripted, tried to help us to see the human side of our President . Leno asked about the yet to be acquired White House dog. Obama bantered. It was cute. Obama said the dog was a campaign promise. The audience laughed. The laugh was phony, desperate, false. It's awful learning things about the President we don't need to know. It's like those bad joke where the patient goes to psychiatrist and helps the psychiatrist with his problems. It was painful, awkward, un-Presidential. And then, suddenly, chatting about the dog, President Obama made his only useful policy statement of night. He said,

"You know, they say in Washington that if you want a friend, get a dog."

Maybe it's not too late. If that dog is smart enough ...

... And the people shouted "Death to AIG"

As small but angry crowds of Americans hit the streets in nearly 100 cities to protest against the $165 million in bonuses to AIG,it is the perfect moment to reaffirm why I have insisted that AIG should have entered bankruptcy months ago. Bankruptcy is the normal course of events when a firm can't pay its debts and its debtors "demand satisfaction". Instead, the government stepped in to prevent what we were told would be chaos in the financial markets.

Unfortunately, first the Bush Administration and now the Obama Administration have made a mess, leaving us with bankruptcy as the only option for AIG.

Businesses are supposed to die when they fail. That's how it works. Wisely, we have built the institution of bankruptycy to make failure as orderly as possible. Accordingly, we have bankruptcy law and bankruptcy courts. Bankruptcy is a complex institution that requires other institutions to function properly. We must have a regulatory system that prevents business firms from putting the entire economy at risk. This is the purpose of competitive policy -- the prohibiliton of monopolies, collusion, dumping, etc. Governments set the rules of the game. The current crisis and severe recession is a result of regulatory failure. When AIG went bust, we were told that the economic system was threatened, which eliminated bankruptcy as an option. Now, we, the people, own 80% of a company that is nothing more than financial market detritus.

Was the government right to rule out bankruptcy?

We all know that firms only should exist when they can make a profit, or, can be reorganized, often via bankruptcy. to make a profit. Eliminating insolvent firms is good for us. We create greater social welfare if inefficient firms are weeded out. The process is not painless. In normal economic conditions, we take care of employees who lose their jobs via unemployment insurance and a healthy job market. In a severe recession, additional measures are taken to assist the unemployed including extended benefits, re-training, increased government spending on infrastructure, etc. It's social democracy, and it works better than anything else we have come up with. (By the way, social democracy includes free health care for everyone under 18 and over 65 and guaranteed low-cost health care for everyone else. We are working on that.)

Returning to the issue at hand. In a financial crisis, which is preferable, intervention or bankruptcy?

The easy answer: it depends. The problem with intervention is that it is very difficult to get right. It is customary at this juncture in the discussion to point to Sweden. Sweden's intervention in the 1990s did not include saving banks where there was no value to be rescued. Instead the shareholders of dead banks were wiped out, the economic clock was turned back to zero, and the state took over. The employees kept working at their jobs. The liabilities and assets were taken over, but the banks died. The old owners were replaced by a new owner and a new firm was born. When those banks could turn a profit, the owner put them up for sale and pocketed the profit. Chapeau.

To be fair,the Swedish government did buy toxic assets from banks, and bad banks were set up to take on the bad assets. Yes, it was all a bit messy, as these things are. The big difference between the Swedish and American interventions was that Sweden acted to protect its citizens and the financial system rather than the bank and its shareholders, while in the U.S. we have acted to save the banks and their shareholders believing that this would save the financial system which would somehow save our citizens.

The Swedes were right. They would have killed AIG. AIG is worth nothing; the brand name is worth less than nothing. Foolishly, the U.S. government took 80% of nothing. With close to $200 billion sunk into AIG, as of today, March 21st 2009, the firm has a market capitalization of $3,4 billion. The $3.4 billion is a gift to AIG investors. And as the U.S. government continues to pump in money, these shareholders stand to profit from the investment of we, the people, in a "private" company whose managers, incidentally, haven't figured out yet that they work for a state-owned company. No wonder people are confused and angry.

Why did the U.S. government get this wrong? Our problem is that we can't fathom why a government would want to own a business. And so, Barack Obama insists on telling us that the government is not interested in owning banks, though since we did invest in AIG we have a right to "claw back" the $165 million in bonuses to the bad bad people who got us into this bad bad mess.

The really bad news is that we do own AIG, but since won't admit it, we can't even begin to figure out how to run it. The only solution is to let AIG go into bankruptcy where the sum total of its parts will mercifully be valued at nothing, and the company will effectively die. We can hope that when whatever new company (companies) emerge from the salvagable parts the new owners will be smart enough not to call it AIG.

The Obama Administration readily admits that the investment in AIG had nothing to do with the value of AIG assets, and all to do with trying to prevent AIG's diseased parts from infecting other parts of the financial system and the economy as a whole. Unfortunately, the government "investment" strategy in AIG was a failure from the start, as was the other "investments" in banks and toxic assets and the rest of the grabbag of measures. Unhappily, the financial system freezed up and we have the severest recession since the Depression.

From the beginning, there were only two legitimate choices AIG and the rest of dead banks. One, wipe out the shareholders and turn them and their horrifying balances into state-owned enterprises. Two, send them to bankruptcy court. The Barack Administration swore that bankruptcy would mean chaos. Afraid to take outright ownership, the Adminstration chose "investment". The goverment invested nearly $200 billion in AIG and then handed the hot potato over Mr. Liddy, and now an outraged citizenry is in the streets protesting.

Bankruptcy and chaos sounds like a pretty good deal.

Bailing out on the bailouts

 

 

Nice, nice, very nice;

Nice, Nice, very nice;

Nice, nice, very nice --

So many different people

In the same device.

 

-- Kurt Vonnegut

 

 

BACKGROUND

 

There are lots of smart people describing the mess we are in. I read The New York Times and The New Yorker mostly, where professional journalists have incomparable access to the world’s most important decision-makers and our best minds. These journalists, the media elite, work hard to do their job monitoring the elites of the other estates.

 

Thomas Friedman, of the flat world, is fixated on our collapsing infrastructure, fractured educational system, and inane business culture. His articles detail failure upon failure made palatable by a dash of optimism and a catchy title like "Time to Reboot America".

 

He and his colleagues, in an attempt to veil despair, regularly finish up their missives with a plea to the Office of the President-Elect to save our skins. Paul Krugman is a pro at it (see "Barack be good"). Though as a Nobel-prize winner he is smart enough to have figured out that Obama ain’t off to such a great start, vacationing in a luxury beach home, taking the Clintons and most of their team on board in this winter of discontent, and signing  up Rick Warren to inject a dose of insipid truth in our inaugural prayer.

 

We, the people, would like, and deserve, something better from our elites. For if the economy is in recession, we the people have fallen into depression. In the traditional season of religious celebration, American Christians try to cope with having supported a Christian government that abandoned the poor and justified torture; American Jews reel at the sins of Bernard Madoff and a Wall Street where too many Jews participated in the pillage; and American Muslims try to understand why in mosques around the world intolerance and terrorism are glorified.

 

[I have just portrayed Americans as caring and concerned. Some will find this absurd, or, perhaps, even disingenuous. But I assure you that the ¾’s of Americans who think the country is going in the wrong direction are not just concerned about money. They want peace, justice, and fairness, and still believe, wisely, that religious faith is a private matter. As I travelled in American east this summer and talked to people, what they were most tired of was the unbridled arrogance of the elites, their abuse for power and refusal to take responsibility for their actions. Sadly, Americans do not expect that things will improve, even with Obama.]

 

Yes, this is an unhappy season in America, and we are hurt and confused by the social, economic, and moral catastrophes of Iraq and Katrina, and the disaster waiting to happen in Afghanistan. And we fear that the bailouts will only help to keep the fools and knaves responsible in power.

 

 

THE RIGHT INFORMATION, THE WRONG STORY

 

In a fortnight, the bailouts have lost most support. The word coming out of Washington seems to be "what in God's name was Hank Paulsen thinking". Suddenly, everyone has figured out that putting money into third-rate automobile companies is an investment in widgets. The newspapers and blogs are split between liberals and conservatives complaining about the lack of controls, and liberals and conservatives bemoaning perennial government incompetence. And yet, the litany remains the same:  The bailouts are necessary... a necessary evil... better than... we would be worse off...

 

In print, on television, on talk radio, in the internet, the news and commentary is a non-biodegrable downer, the same story over and over and over, a Clockwork Orange remake.

 

The news is that President Bush, not content with destroying the American military, debasing the American legal system, plunged head-first into "saving the sinking system”. To make sure it went right, that the bailouts were "nonpartisan", he appointed Henry Paulsen, a seasoned veteran of the same corrupt crowd that got us into the mess, financial crisis czar. To make sure were not confused by a new style of government we got Katrina-inspired improvising, right down to the single entry creative accounting: Jot down on a restaurant napkin to whom the money was sent; the rest will take care of itself.

 

Nice nice very nice. It allows us, Obama supporters, to feel superior to the Bush republicans. But, alas, feeling high and mighty is just a second-hand emotion (my apologies to Tina Turner). The story leaves out most of the cast. The American Disaster Actors' Guild includes Democrats, Republicans, and Independents. Its members embrace all religious and economic faiths. They are financiers and lobbyists, lawyers and judges, filmmakers and fashion designers, politicians and professors, and not just two of every kind but enough to fill up the ballrooms of political party fundraisers and the client list of private offshore banks. Aboard the Ship of Fools, we find elites of every estate, who found in the economics of Friedman and Schumpeter the explanation of privilege as the necessary and just consequence of the system.

 

They are good people. They give much in charity, the Gateses and the Madoffs and Saudi “royal” family, the monopolists, the Wall Street insiders, the legitimate rulers of countries and the imperial CEOs. The richer they are, the more they give to those who have less and less. The more they give, the more they are honored by each other at gala charity events where they take pleasure in knowing that they have done well. And they bemoan that there are so many in need.

 

Starting with themselves, of course. They need the bailout. Not to save their businesses, but to save their souls... and their skins. They have done the math. They know that bailout is chicken feed alongside the trillions of wealth that these same honest men (and some women) generated buying and selling companies and swapping futures (our future). This while Americans got the lie of cheap home loans and overpriced credit cards and were asked at the same time to thank the people who it did to them for building a system that would allow any man or woman of talent to reach his or full potential.

 

It was a whopper of a lie, an economic Elmer Gantry of a lie, and anyone who could look at the numbers knew it. While rich got richer, the poor got poorer, their schools worsened, their health care worsened, and when Obama got caught off-camera explaining to a young campaign worker that those who had gotten the short of the stick take refuge in the guns and religion, the privileged elite and their victims both cried foul. Talk about a case of the Stockholm syndrome.

 

Well, the sad truth is that Obama was right and no one wants to know how bad things really are. The toxic assets have hit the fan, the detritus is spread around us, and all the elites have to offer is an Rumsfeldian “stuff happens” and a couple of bogus bailouts.

 

Stuff happens all right. Over the past quarter-century in America, the elites have promulgated 3 basic ideas or rules for living. First, risk is good. Those who take risk prosper. Let creative destruction live! Second, the "system" can handle any shock, any amount of chaos – the law of the market and meritocracy will keep us on course. The system, they say, is bigger than greed, stupidity and corruption. The system is a self-regulatory marvel, as irrefutable as St Anseln's ontological proof of the existence of the God. Third, the output of rules 1 and 2 is that those who end up with the biggest pieces of the pie obviously deserves to have them, while the poor shlubs who go bankrupt deserve to have to pay back what they owe the rest of their lives.

 

The system failed. Now what?

 

The answer proposed by the elites is bailouts and government stimulus packages. I say, NO, to the first and maybe to the second. The bailouts are a masterfully perverse way to maintain power. Please, don't be taken in. Neither the financial crisis nor the demise of the automobile industry was a case of a bizarre outlier bursting onto the statistical grid. As I have argued before, no black swan alighted on the entire financial grid and brought it down. No, this financial crisis is an old-fashioned Newtonian bubble that has gone bust in real not Einsteinian time. We have long understand how and why financial systems fail, just as we know that the automobile companies failed by making crappy cars. We also know how societies fail. To this we turn.

 

 

HOW SOCIETIES FAIL

 

"A society," Jared Diamond wrote, "contains a built-in blueprint for failure if the ELITE isolates itself from the consequences of its actions". [(emphasis mine) Diamond won the 1998 Pulitzer Prize in general nonfiction for "Guns, Germs and Steel: The Fates of Human Societies," and in 2005 published "Collapse: How Societies Choose or Fail to Succeed."]

 

Diamond's work has sought to explain the factors that cause successful societies to hit the skids. He has his big 5: self-inflicted environmental disaster, climate change, fearsome enemies, lost trade, the sins of elites. The Big 5 frequently interact, customarily with significant multiplier effects.

 

On the first four factors, Jared Diamond is brilliant. However, on the subject of elites and the various sins they inflict on the citizenry, he is, as we are, pretty much in the dark. Elites lose their way, and though we can explain what went wrong and how they screwed up, often it is hard to explain the enabling why. Cognitive psychology, following the failure of ego psychology to explain much of anything, has tried. It has not done very well either. Neuroscience would like to explain, but has not gotten very far. Philosophers I admire, e.g., John Searle, hope that neuroscience can someday help us figure it out, but I have strong doubts.

 

My aim is far more modest. I would be happy to find some relationships between causes (incentives) and outcomes and try to change the incentives, and together we may be able reinstitute the necessary checks and balances to constrain the behavior of the powerful as we seek to reinstill civic society values. In the tradition of American pragmatism – James, Dewey, Rorty – I seek to restore civil society to its lead role, assuring that government does it job making the rules that keep the playing field as close to level as possible. This means getting government back into regulation and restoring the checks and balances that might have prevented the privatization of war and prisons.

 

I would like to be hopeful. But I am afraid, however, that even Obama does not get it. By calling on the old Clinton team, he is depending on some of the same crew that got us into trouble. Though not in same league of bunglers and crooks as the Bush team, the Clintonians are still an arrogant bunch who believes that they deserve to lead. They lack humility, and even worse, they are short on ideas.

 

When the lucky ones among us – a.k.a. elites – believe that they merit power, and that their exercise of power is in the best interest of everyone, then the rest of us are almost certain to get the same bad old deal – more corruption, more failure, and…bailouts. The bailouts are to the American democracy what rigged elections are to dictatorships. We hear the ancient refrain of the powerful, the professional abuser stroking the hand the injured hand of the abused: “Stuff happens, I am sorry I hurt you, but you need me.”

 

The elites would like us to forget that the bailouts are the work of precisely those who shouted most loudly that market meritocracy is the best and fairest mechanism for distributing power and wealth. These are the same elites who assented when the personal bankruptcy laws were stiffened, who stood by when the rules of the game were rigged to allow banks to raise credit card interest rates at will, who dined with the lobbyists, who left government and to become consultants and write the government contracts; these are the wise guys who bought and sold the loans and derivatives that are all part of the same device.

 

Nice nice very nice. I began this post with a silly piece of verse from Kurt Vonnegut’s Cat’s Cradle. In Cat’s Cradle, Vonnegut invents a simple religion, Bokononism, based on an openly agreed to game of deceit in which everyone is willingly trapped because there is no other option. The end, inevitable, is an indifferent though good-natured goodbye to civilization. We know how societies fail.

Please do NOT Save: Why GM, Ford and Chrysler should not get our money

For years I believed that managerial incompetence in the U.S. automobile industry had no limits. I was right. But that was only part of the story. Now these giants of industry and their million lobbyistreplicant march on Washington is on the cusp of a monster bailout that promises to suck $15 - $25 billipn out of the American taxpayer in the first tranche. (This is peanuts, of course, compared to what was wasted on AIG, but I have already exhaled sufficient spleen on that topic.)

The three big automakers are singly and collectively underserving of a red cent, but the most undeserving of all is Cerberus, the savior of Chrysler. Cerberus is run by Stephen Feinberg, who by all accounts is smart and, by the standards of superrich hedge fund moguls, modest in his impudent arrogance.

Feinberg is said to run Cerberus like Jack Welch did G.E., driving his team of gifted super-managers in a never-ending quest for superior resource allocation and asset leveraging, squeezing value out of every activity. Mr. Feinberg apparently had worked magic since launching Cerberus in 1992 .. until he bumped up against the machinery of Detroit.

Since July, 2007, when Daimler handed Chrysler over to Cerebus for free, grateful to having the lemon off its hands, Mr. Feinberg’s men have managed to lose sales even faster than they cut costs. And now, having failed, Cerebus’s has become just another supplicant in Washington, spending millions on lobbyists, among them former V.P. Daniel Quayle, Cerebus’s “chairman of global investments”-

For the past several months, Cerberus has been marketing a  GM - Chrysler merger, despite resistance from management at both automakers. The principal beneficiary of the merger would be Cerebus, which would get itself off the hook on the simple (and correct) assumption that Congress is afraid to let GM enter bankruptcy.  

Curiously, Cerberus executives insist that money is not the issue. It is about what is best for Chrysler and best for America. As if they knew.

Like most Americans who are convinced that the executives who run American companies have no idea what is best either for their companies (which they should) nor for American (which is not their job), I cringe whenever CEOs start talking about selflessness and their contribution to society.

According to the polls, most Americans had a bad feeling about the bank bailout, and they don’t feel much better about the car bailout. Some, like me, especially dislike bailing out Cerberus, a privately-held company that has approximately 15 times the resources it has invested in Chrysler. It's hard to see any justification in not asking Cerberus to pay for its mistakes. I have not forgotten that Cerberus lobbied hard to undermine fuel efficiency regulations that were good for America, but that Cerberus believed were bad for Chrysler. Why should we now have to swallow nonsense about what Cerberus tells us is good for America?

Of course, my being annoyed at Cerberus is not an argument against the bailout. The bailout idea stinks on its own merit.

First, automobile industry executives from all the big three have demonstrated that they are incompetent and will not spend bail out money wisely. Second, Henry Paulsen’s crew is not of much use either; if they handle this as well as they handled the bank bailout, we can expect several rounds of the Big Three coming back to feed at the trough. Third, if Paulsen’s crew is incompetent, don’t expect Congressional oversight to be any better. Fourth, if Cerberus, GM, and Ford have collectively spent over $10 million lobbying for the bailout, we have every reason to assume that they will spend whatever else they need to “convince” Congress of lots of other bad ideas, including industry “self-regulation”.

With these considerations in mind, Let’s look at our options.

1.

Do what the car companies ask for. In the best case scenario, the American taxpayer hands over the $15-25 billion they want, negotiating all sorts of restrictions on executive pay and tight Congressional oversight. Even so, we would still then have to watch the same losers who got into this mess play at corporate reorganization. We end wincing and whining and whinging as we wait for the three-headed motorized monster to ask us for more money. It is hard to imagine a worse scenario. To be fair, there is an upside. Congress might call fomer V.P. Daniel Quayle, a top executive at Cerebus, as an expert witness at Congressional hearings that would be broadcast on C-span for all of us to watch. Perhaps , Quayle could debate Al Gore on carbon emissions.

2.

Take care of the auto workers. We could pay approximately 200,000 automobile workers currently employed at the big bad three $50,000 a year for 5 years  (cost: $50 billion) and send them out into the wild in search of life’s meaning.

Unfortunately, this would be considered a failure. It would be an admission of defeat, like pulling out of Iraq.  Surely, the unions would protest, and we would be told that life would lose its meaning for the now unemployed, but finally well-off, autoworkers. I am reminded of what happened in Great Britain when they closed down the coal mines and the poor coal miners were deprived of the opportunity to die from lung disease. Perhaps we can invent a fate for our autoworkers in which they do not lament the loss of spending the day working on an assembly line.

We would also have to deal with the 100,000s of other workers whose jobs depend directly and indirectly on the auto industry. Perhaps we could re-use, re-tool, re-invent, do some re-creative destruction. There is no easy way to calculate what would happen if we reinvented our energy and transportation industries. Could the same workers be put to building high speed trains, electric cars? Could they learn something new and useful? How long would the transition take, how painful would it be economically and socially?

3.

One possible answer to some of the questions raised is to have the U.S. government (or the Bill and Melinda Gates Foundation) invest $25 - 50 billion in a brand new automobile company with the mission to build fuel efficient, ecological cars people might actually want to buy. And given that government makes regulatory policy, we could hope for new highly restrictive environmental regulations that would just happen to favor our own new American car company. In the old days, this was called industrial policy. Sadly, though it sounds great, it usually fails. That’s because governments tend to screw this kind of thing up in the long run. (Japan made it work for a while.)  Though governments tend not to care about such things, most of our trade agreements prohibit such action.

4.

Now to my proposed option. BANKRUPTCY. This would require them to reorganize under the supervision of the courts, rather than under the supervision of a government guided by the insights of corporate lobbyists. Bankruptcy would cost the taxpayers nothing -- at least directly -- though it could result in serious ugliness, economic and social. Bankruptcy could turn out badly, though I hope not quite as badly as bailing out the car companies. It also means we can spend the money on something else.

5.

Finally, one more option. We could give all three car companies to Cerberus for nothing, taking them all private, with the condition that they hire Henry Paulsen tomorrow. We promise to give Cerebus 50% of the opportunity benefit of not having Paulsen spend U.S. taxpayer money from here to January 20th. 

Please let me know which option you prefer. Of course, if you have your own better option, let me know as well. Enjoy the show.

No car industry bailout ... unless they do it my way

On October 13th I gave my remedy for the car industry, ("GM and Chrysler: How the U.S. Chose to Fail"). My plan was probably over the top, but nothing I have heard or read since sounds even close to right. In fact, what I read and hear is so wrong-headed that I want to up the ante on my original plan. Here it goes.

In exchange for the taxpayers bailing out Detroit, we the people propose:

1. GM and Ford will promise even better fuel efficiency than we asked for before. 40 MPG by 2011 and 50 MPG by 2015. All models including SUVs. No nonsense about fleet averages!

2. Chrysler will be spared and be rechristened, Phoenix Motors. Phoenix will not make cars, rather the bailout money will go to developing technology for clean energy engines and systems. One big project ought to be refitting cars and buses for fuel efficiency and reduced CO2. Another ought to be developing high speed trains (target 300 MPG) as we spend billions on transportation. The train unit will be headquartered in New York City and staffed by hedge fund billionaires who agree to take 0 pay in service to their country.

3. No executive will make more than $500.000/yr., including performance-based pay. Designers and engineers who come up with real innovations will be rewarded accordingly -- as if they were the athletes who win the world championships in the big three sports.

I have lots more hare-brained ideas that could save the industry. I think them up as I type. And in the meantime, Washington and Detroit get nowhere because they refuse to accept that Detroit makes lousy cars and management stinks. To reinvent this business we need to kill it and then fumigate.

And one final key measure: Any and all ideas proposed (or supported) by Henry "Hank" Paulsen will be rejected out of hand.

Getting "hot" over greed: Defining the financial crisis

A Dear Reader of my recent post "CEOs and greed: tell me something I don't know" asked me why I left out the AIG story, the one where the managers go and spend millions at a spa just after the government has ponied up a $85 billion bailout. My reader wondered why I did not explain in detail what they drank, what they ate, the tab for champagne, and who knows, maybe they even got in a little lap dancing. My Dear Reader wanted me to crank up the energy and get readers on board.

My Dear Reader is right that I would get more attention if I spelled out gory details of the mind-boggling AIG greed. We, the people, have been "educated" to get hot (stimulated, titilated, and angry) over this stuff. But I resist, I refuse, I object. It's a prurient high I don't want to offer up to My Dear Readers nor to myself. It's the American Puritan tradition in me that resists inauthentic joy.

This goes for watching T.V. news. as well. I am appalled, horrified, embittered by t.v. news. As soon as I hear the word "accident" or "terrorist attack", I know I am going to get an object lesson in the importance of having a strong stomach and how to identify detached body parts. I remember, as you do, the incessant replays of 9-11, the planes crashing over and over into the Twin Towers and us with our eyelids stuck open a la Malcolm McDowell in Clockwork Orange .. without the Beethovan. Yes, we were sickened; yes, we wanted to respond. But all we got operant conditioning outcomes: numbing impotence and sleepless anxiety.

Of course, the networks did not do anything illegal; we were being "informed". And if in the process, our hearts and minds were damaged, whose fault is that? If we had been stronger, we would have shut off the television, closed the "Department of Homeland Security" (a Soviet-style sound-bite ministry of fear) and turned out in mass demonstrations against the war in Iraq and the crime of torturing prisoners. We would have elected John Kerry, no savior of course, but at least not four more years of Bush incompetence and corruption.

Not that we weren't angry, of course. We just could not overcome the feelings of impotence and anxiety. And though the saner, authentic part of us yearned for public dialog about the horrors of Iraq and the decline of America, we watched on television the death and destruction and we did precious little about it.

I deeply dislike t.v. news -- all of it from Fox to CNN. I dislike pornography for similar reasons. Both damage our innate authentic response to experience.

As I have commented elsewhere, if you are watching pornography and not doing "it", that's pretty bad because that ought to make you wonder why that you're watching it and not doing it; if you are watching it because you need it in order to do it, that's not so great either. What happened to passionate, joyful sex between consenting adults who found sufficient material in their own bodies to work with?

So there we have it. None news news and none sex sex. Non news news inures us to the issues that matter and to the hurts and problems we can do something about. And as for sex, which ought to be the source of our greatest physical joys is just another commodity. Woody Allen was wrong when he said that When sex is good it's good and when it's bad it's still good. Bad sex is bad for us just as violence masquerading as news is bad for us.

When we are battered with violent images and when we participate in gratuitous sexual acts, we lose our ability to recognize and engage in authentic information and experience. In effect, we sacrifice our freedom of will.

My argument may sound a bit "touchy feely" for some of you; I recognize that the reductionist categorization of complex human experience. In particular, I realize that sexuality is unfriendly to moralizing. And yet, I believe that the argument is mostly right.

If I am right, where does this message lead us? In America, experience as greed became the substitute for what the great Greek philosophers called "happiness" and the American Declaration of Independence wisely termed our "inalienable right ... to the pursuit of happiness". Happiness is an outcome, not a feeling. Greed is a feeling, a superficial response to experience that only offers temporary satisfaction, like pornography. Greed has no long-term objective, and as such worries little about who losses out as greed has its way.

When there are enough powerful people whose brains are wired so that they confuse Greed with Happiness, we the people get screwed. As the financial crisis unfolds, the daily news now brings us the spectacle of the powerful getting "hot" as they see the great unwashed "deservedly" go down the tubes.

This is my definition of the financial crisis.

Sarkozy's American Strategy: Why France and the U.S. Need Each Other

Once upon a time, France was the most-populous, most-envied nation in Europe; once upon a time my U.S. passport was in English and French. But alas, France never quite got to be Europe's most powerful nation. Napoleon almost got there, but his adventure bumped up against the Russians and that was it.

Like the Spanish and British, the French aspired to be Empire builders. Alas, as colonizers, they sold America for a bowl of porridge and got stuck making a mess of themselves and Africa (see Tavernier's magnificient "Coup de Torchon"); they did slightly better in French Indochina before ceremoniously dumping the whole thing on the remarkably foolish Americans who apparently had learned nothing from Korea.

Today, post-colonial France is a country that tries to play itself as friend to both Muslims and Jews, selling arms and doing what they can to make money in the oil business. (By the way, the Spanish are pretty good at the bait and switch game as well, though they try to focus on South America and sucking money out of South American socialists. The English and Germans do their part as well, all of whom, up to now, have depended on the United States to keep the business going and the Euro in the clouds.

France, Germany and Great Britain would all be happy to run the world, and I have no problem with any of the European democracies individually, or as a group, taking over from the U.S. as the world's superpower so long as that means we don't have to put up with a world run by the Chinese or the Russians. My reason is simple: in democracies the people still have some chance, however remote, of reigning in the stupidity of their leaders. And frankly, if I had to pick a European nation to be the boss, I would take the French, whose food, wine and movies we need to make the world a bearable place to live in. (I will spare you my possible objections to the British and the Germans; the Spaniards and the Italians are not in the running.)

However, as we know none of the European nations, individually, are in a position to run the world, and so we are left with two reasonable choices in sorting out power on planet Earth: 1) Accept the Americans as the Big Enchalada with the usual British, French and German support; or 2) Go back to a balance of power scheme. (Forget about an option 3, a UN utopia with no world superpowers, it ain't gonna happen.)

Option 1 we are all familiar with and understand the pluses and minuses. Option 2 means two or more countries or blocks of countries struggling for economic (and perhaps military) supremacy. Option 2 is a real possibility given how the Americans have screwed things up. Unfortunately Option 2 brings with it many uncertainties, most of them pretty bad as the Chinese arm themselves, the Japanese rearm, and the Iranians actively seeking to become the Muslim world leader.

And so, as the world power structure threatens to come undone, Western Europe finds itself in a bizarre tightrope walk between the EU crashing into pieces and consolidating its status as an economic power that depends on U.S. military power. There is, unfortunately, no real chance of putting together a European military and foreign policy, which means that the Europeans need the Americans.

Sarkozy, the immigrant pragmatist instinctively understands this and has decided to go all out for Option 1 with a reinvigorated role for France as America's interlocuter. Sarkozy, even in 2,000 Euro suits, even with 2 very French wives plus affairs, is still the pushy immigrant, a street fighter who sees things in black and white, and has decided to gamble on the Americans, not because he really believes that they will win, but because the alternative is so bad.

Sarkozy has stuck his neck out. He will need a post-Bush administration that understands that without contintental Europe, in particular France, the United States has no chance of engaging the world diplomatically and will have to rely on an over-extended military guided by an incompetent administration to fight against Chinese domination. Retired Lt. General Ricardo Sanchez's condemnation of the management of Iraq War is just the latest in a seemingly endless outpouring of regret over how we have debilitated ourselves in a terrible "nightmare". We need time to recover and Sarkozy wants to help us get it.

Sarkozy wants to bring France back to the world stage, but he needs a strong U.S. to do it. This is self-interest in its best guise. I am afraid, however, that the next American President won't appreciate what Sarkozy is offering to us and will do something stupid that will oblige Sarkozy to renounce his American strategy.

It is a shame that Sarkozy can not run for President of the United States. But even if he were a naturalized citizen, it would be unconstitutional. It is odd that the only two other politicians who have an idea of what needs doing are an Austrian weightlifter and a black guy with a Kenyan father and a name that wouldn't get him elected dog catcher.

Legal Corruption

There was a 30-year period following World War II in the United States when we made an effort to put our values into practice. It was not just the Marshall Plan or "imposing" democracy in Japan. We did away with segregation laws; we provided housing and education for our veterans; we founded the Peace Corps, the Fulbright Program, the Food Stamp Program. For most Americans life improved, and despite being the most powerful nation in the world, we managed not to be hated. Of course, there were important failures, including McCarthyism and Vietnam and a Latin American foreign policy blind to dictatorship and corruption, but on balance the American Empire was the most gentle in the history of the world.

But since the election of Ronald Reagan, we have been headed in the wrong direction. Not a single American President, Democrat nor Republican, has had a program that would inspire a young person to do anything other than seek wealth. The result has been the institutionalization of legal corruption.

Of course, I realize that the alleged cause-effect relationship claim is almost impossible to prove. How can I demonstrate that the worst part our complex and wonderful national character has been ascendent for more than a quarter-century with disastrous consequences? How do I demonstrate that the self-dependence praised by Thoreau has given way to self-serving with guile, leaving us with little more than self-destructive incompetence?

The best evidence for my argument lies in the layers and layers of legal corruption that we have built into American life for the quater-century. Though the Bush Administration has perfected legal corruption cynically using 9-11 to chisel away at legal protections, they did not begin the process. They are not to blame for the complicity of the Democrats and the American people. We have done as little to stop legal corruption as we have to stop the war in Iraq. Though there are voices constantly telling us what's gone wrong, we seem not to listen and they seem to have no power to change anything.

The Blackwater scandal to illustrates my point. The use of mercenaries was legal, part of a systematic privatization of government. Privatization in itself is not bad, of course. The problem arises only when a decision regarding government policy is reduced to a make or buy decision. Governments are not firms. Only government have a right to send soldiers into battle. Blackwater never should have been in a position to kill Iraqi citizens. The use of mercenaries is anti-democratic. The use of legal mercenaries in a foreign country is a corruption of the system. Yet Blackwater will continue to work in Iraq, and the measures taken to control Blackwater do not fix the problem. Using mercenaries is "un-American".

So did Americans permit the government to use mercenaries? Why are we willing to let life go on as normal in the United States while our soldiers die in battle in a foreign country? Why do we seem not to care about the Iraqis despite President Bush's protests to the contrary?

Perhaps the answers lie in the web of meaning constructed by the conservative movement in the United States that divides the world into have and have-nots, into those with rights and those without. In a divided world of the deserving and the non-deserving, there is always over-determined reasons for doing what the deserving want. This is the basis of legal corruption. It works in China, it works in Putin's Russia, it works in the United States.

It works everywhere; it always has. We invented the democratic social contract to fight this corruption by building a society of laws and not of men. By creating a system that makes it difficult for the bad guys to win.

We know all about this in business. Capitalism was designed to try to overcome some of this behavior. Oliver Williamson, the Berkeley transaction cost economist, describes the behavior of the bad guys as "self-servingwith guile". We expect some individuals to be self-servers and work in their interest and not the shareholders. Corporate goverance is supposed to protect shareholders from these people. But what happens when the self-servers with guile get there hands on the corporate governance? What happens if they get their hands on government and make their self-selving with guile the law of the land?

Blackwater was made possible because of dozens of legal corruptions, large and small. The "small" ones include hedge fund and private equity partners paying capital gains rather income tax on earnings; the automobile industry lobbying against energy standards, pharmaceutical companies paying for FDA studies. These small corruptions cost billions. The truly large corruptions cost thousands of lives. The truly large corruptions include a multi-billion dollar government contracting system riddled with chronyism that buys us private jails and torture. It bought us Blackwater.

... And it was legal. And it is defended as necessary and good by those who benefit day after day.

The underlying "principle" holding together this socio-economic network of self-interest with guile is quite clear: interest group wealth creation is now a legitimate aim. And irony of ironies: our individualistic, meritocratic neo-conservative movement has given us collectivistic self-protection scheme designed to keep the rich rich.

Now you thought that conservatives believed in individualist meritocracy. You were wrong. If they did, they would not struggle so hard against efforts to provide the poor with opportunities to grow up one day and compete with the rich. One of my favorite examples was the Repulbican assault on estate taxes, built around a not-so-clever Frank Luntz campaign to rename the estate tax "The Death Tax". Never mind that Luntz and friends undid a key part of our Rooseveltian social contract: "avoid concentration of wealth and the creation of dynasties."

Political operatives like Karl Rove and Frank Luntz understand that legal corruption is the way to go and that it can be achieved with the consent of the governed. Their strategy is divide and conquer by finding some common ground, no matter how vulgar or cruel, that convinces the losers that they are actually winners. With their help, we have achieved a society divided between haves and have-nots that has convinced itself that the have-nots have exactly what they merit. The self-servers with guile have convinced the have-nots that they too can some day be rich self-servers with guile.

When I was young, I  believed we were committed to building a society that could be based on opportunity and merit. It was about the time that John Rawls' "A Theory of Justice" set out the basic ideas of how to get this done. Hope was in the air and I believed. Why not? We had antibiotics and birth control pills. We had infectious disease under control and sex was good and safe. It was the best of all possible worlds.

Thirty years later, we have AIDS, fundamentalist terrorism and women in full burkas. We have George Bush in the name of The Haves claiming that there's no health care problem in America because The Have-Nots can always go to an emergency room.

I was wrong about the America we were going to have. We do not have a more fair and more just America precisely because we consider the legal rights of privileged interest groups more important than true meritocracy and opportunity. We were lied to by self-servers with guile and we were stupid enough to believe them. We are dismantling the entitlements of the poor and middle-class on the grounds that these entitlements are inefficient and ineffective. (Tell that to my parents who went to City College of New York for free and bought their first house with Veterans Administration home loan.)

In the name of individualism and meritocracy, we have turned our back on the Have-Nots and we have given free reign to legal corruption. Perhaps there is a connection between the two.