Vampire Squid Watch: 4 Scary Economic Trends for 2012
December 29, 2011
Top economic thinkers explain why 2012 will be a year of continued – and escalating – predation by financiers.
Vampire Squid Watch: 4 Scary Economic Trends for 2012
Nearby photo: Delmar catches a medium-sized Humboldt Squid, also known as the Red Devil or Diablo Rojo.
Having been seen to twitch – ever so slightly – in 2011 as global protests erupted, the vampire squid is stirring in its evil lair. Reports of sucking noises and new tentacles sprouting in every direction tell us that the global financial monster is poised to steal yet more wealth and resources from the public in the coming year. Top economic thinkers have shared their forecasts with AlterNet, and the focus is clear: 2012 will be a year of continued – and escalating – predation by financiers. Their influence over political, financial, and economic activity is likely to grow – along with potential for harm.
1. Back-door Bailout of the Eurozone
Would you like more of your hard-earned money to flow to fatcats? Wish granted! Attorney Walker Todd, who spent two decades in the legal departments of the Federal Reserve Banks of New York and Cleveland, names the back-door bailout of the eurozone banking system by our very own Federal Reserve as the top economic story of the upcoming year – or, at least one of the most outrageous. In a nutshell, the Fed is helping European banks by opening up the short-term ‘emergency’ lending pipeline, which means that U.S. taxpayers are indirectly bailing out private European capitalists. This is being done through a bit of financial hocus pocus called “swaps” – essentially the trading of dollars for euros. Such a maneuver allows the Fed to prop up European banks while claiming that it is not ‘technically’ directly lending. In other words, swaps are an attempt to hide the truth from the public.
As Gerald O’Driscoll put it in the Wall Street Journal: “This Byzantine financial arrangement could hardly be better designed to confuse observers, and it has largely succeeded on this side of the Atlantic, where press coverage has been light.” O’Driscoll observes that the Fed has no authority to bail out European banks and warns of what economists call “moral hazard” – the nasty habit of banks to engage in even riskier behavior when they get bailed out.
Why is this happening? Well, because the squid is strangling morality, democracy, and the rule of law. We pay, they play. “This is an attempt by our own governing elites to maintain a false vision of how the world works, or how ‘we’ think it should work,” Todd told AlterNet. “This comes at the expense of many people who never will go to Europe, who know no European bankers, and who have no European bank accounts.”
You may not know a European banker, but you can be sure that one is just now raising a glass of bubbly in your honor. After all, you paid for it.
2. Record-breaking Political Finance
What does corporate dough buy? Newspapers and elections and presidents, oh my!
Thomas Ferguson of the University of Massachusetts, Boston and the Institute for New Economic Thinking suggested that next year’s very biggest stories could well be about corporate money influencing politics. He told AlterNet he saw a real possibility that a serious third party candidate for president might emerge; if one does, it will be bankrolled from the right while promoted in public as representing the political “center.” And it will also be designed to give corporate America many of the policies it has long sought, such a trimming Social Security and eviscerating the social safety net. “People are going to be astonished at how lethal the combination of secret money and corporate mass media will be to the public’s interest,” said Ferguson.
Ferguson was confident that the 2012 elections would break all records for political finance, but he did add a sobering qualification. He thought there was an outside chance that the world economic slowdown would provoke really serious unrest in China or Europe on a scale that would put American developments in the shade.
3. Executive Pay Explosion
Since the Great Recession of 2008-2009, the prime beneficiaries of the sluggish recovery have been…you guessed it!….top corporate executives. And it looks like the good times will keep rolling – for them. William Lazonick, professor of economics at the University of Massachusetts, Lowell, predicts an escalation of the harmful practice of corporate stock buybacks, which produces the explosion in executive pay.
As Lazonick explained to AlterNet, corporate honchos have enjoyed a windfall as they have cashed in their stock options in a generally rising stock market. This kind of thing does absolutely zilch for the economy. But here’s what it does do: spending on buybacks makes executives rich and results in manipulative boosts to stock prices in the short-term at the cost of investments in innovation and job creation. “Look for buybacks to continue to increase in 2012, perhaps surpassing the record $600 billion done by S&P 500 companies in 2007,” predicted Lazonick.
What to do? Maybe it’s time for Congress to confront the reality of that predatory monster, the financialized business corporation. Lazonick suggests that a ban on buybacks (which is already in the purview of the Securities Exchange Act) would be a good start. Unfortunately this idea is at odds with prediction #2.
4. Pathological Corporate Leadership
Jamie Dimon never seems to seize an opportunity to keep his mouth shut. JP Morgan’s CEO, who happens to be the highest-paid chief executive officer among the six biggest U.S. banks, has consequently regaled us with his worldview, in which bank regulations are “anti-American” and ordinary folks have no right to be mad at rich people. He has become the poster-boy for Wall Street greed and has earned the especial ire of the Occupy movement, which recently marched to his digs on Park Avenue to offer to help him pack his bags and go wreak havoc somewhere else. In his universe, defrauding investors, spreading lies to manipulate markets, and foreclosing on military families are all part of a good day’s work.
Dimon is a particularly nasty customer, but he is part of a new breed of sociopathic financiers. And his kind of distorted ‘vision’ has harmed the country’s prospects and created a gap in America between the richest and the poorest that puts us in close range of Rwanda and Serbia.
When those at the top of the corporate pyramid are this tone-deaf and lacking in any sense of public responsibility, we are in treacherous waters.
“The biggest danger to America is that the people in the financial sector and corporate leadership convey no awareness of what is needed to create a coherent and prosperous society,” economist Rob Johnson, head of the Institute for New Economic Thinking, told AlterNet. “Leadership is not simply about how much money one makes.”
Many dollars. Very little sense. Ultimately, hoarding everything at the top is not sustainable, and bankers like Dimon will end up destroying the very society that makes their enormous wealth possible. If we let them.
And that, Reader, is what’s on the horizon. As a friend of mine is fond of saying, if you want a happy ending, see a Disney movie.
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