France (bashing?) in American Politics.

Political campaigns seem much more brutal in the U.S. than in France, even presidential primaries. One of the distinct features of American politics is negative campaigning - mostly TV ads showing the opponent in a negative light, something unheard of in France.

Despite the feeling that every year, lobbyists reach new lows, negative campaigns have always been part of American politics - since the Founding Fathers.  (Adams vs. Jefferson was so bad so bad that it almost “tore the Republic apart”, says one historian - see here too)

All sorts of themes can be exploited, including surprising ones.

In 2004, for instance, John Kerry, the Democratic candidate running against George W. Bush was portrayed as “being too French”.

(John Kerry) is said to betray a dubious fondness for things French, even the language. A recent comment from Commerce Secretary Don Evans that the Massachusetts Democrat is "of a different political stripe and looks French" was only the latest of several jibes, mainly from conservative talk-show hosts and columnists, that have included allusions to "Monsieur Kerry" and "Jean Chéri." (NYTimes)

France-bashing has often been a favorite of some Americans, usually Republicans, and its popularity took a new hit among pro-war conservatives in the months following 2003 when France opposed the war in Iraq at the UN Security Council. (Remember "freedom fries"?).

To the Republicans, France embodies everything they hate about Europe:
-a penchant for conciliatory resolutions,
-a centralized government,
-high taxation,
-elitism and intellectualism and,
-a more collective mentality.

But this year, the irony is that the two most serious contenders for the GOP presidential candidacy have had some unique exposition to French culture:

• Newt Gingrich - the favorite in the poll at this point - was partly raised in France, where his step-father was stationed. Gingrich had a sort of epiphany when he visited Verdun. (here and here) and he has compared himself to... De Gaulle in the past. He also likes to present himself as a professor of history (which he has been, despite his surprising comments on international affairs sometimes). Not exactly you’re anti-intellectual Republican. 

• As for Mitt Romney, (2nd in the polls), he not only spent time in France as a Mormon missionary,  - and not exactly the kind of frugal life he has tried to present. (see here or here) - but he even speaks French and has not tried to hide it. This, however, has not prevented him from making ridiculous statement on France such as the notion that marriage in France can be “contracted in renewable seven-year terms”. Unheard of in France!

Romney’s French connection was not missed on a pro-Obama SuperPAC (political action committee) called AmericanLP who produced this video to be aired on running on MSNBC, CNBC, and Bloomberg TV.
The clip shows Romney welcoming francophone volunteers to the Salt Lake City Olympics in 2002, and it is mock-subtitled with past comments of his that show he kept changing his mind (Romney is often accused of being a flip-flop).



According to the press release, it is “payback for Republicans mocking John Kerry for his French-speaking abilities in ads”.

“So our goal here is to remind GOP primary and caucus voters in Iowa, New Hampshire and South Carolina that Mitt Romney is a left wing radical who has, in all likelihood, hung out with socialistic, atheistic cheese-eaters like Jean Paul Sartre.” (here)

I personally think it is rather funny. If anything, it makes fun of France-bashing in some Republican circles.

To be fair, France can be the butt of jokes outside Republican circles:

• Comedians Conan O'Brian, Jay Leno, or David Letterman have often made a number of French jokes.

"A lot of folks are still demanding more evidence before they actually consider Iraq a threat. For example, France wants more evidence. And you know I'm thinking, the last time France wanted more evidence they rolled right through Paris with the German flag." —David Letterman

"American tourists in Paris are reported to being yelled at, spit upon, and attacked by the French. Thank God things are getting back to normal." —Jay Leno 

• The brand Subway in 2005 ran this campaign linking the French to chickens (a symbol of cowardice):

• or the derogatory term "cheese eating surrender monkeys",  coined by the writers of Simpson and later used by journalists and pundits. 

A number of reasons why France and the French are often the butt of jokes have been given over the years:

•  the power explanation: some say it's because there is no French lobby in the U.S. because French immigration to North America was more or less insignificant. (cf. Justin Vaisse)

• the Universalist explanation: others point out to the fact that both countries were born of revolutions, and claim for universalism (Bourdieu)

• the British explanation: as a follow up to the Romney ad last week, Slate had an article on where France-bashing may come from, and it may be mostly from the British. The title of their article is, however greatly misleading, I think: "Why do Americans Hate the French" is immensely exaggerated.

I believe the explanations are numerous and complex and they are based on cross-cultural differences which are both subtle and deeply embedded in our views of the world and ourselves. It is the ongoing exploration of these differences which has motivated this blog.  It is fascinating when current events give us an opportunity to reflect on these differences and misunderstandings.

That being said, the whole topic of "France bashing" should probably not be taken too seriously. As a French man who has been to the U.S. many times over the last 25 years, I have never personally experienced negative bias for being French, and I have always been very welcome. If anything, being French has helped me a great deal. 

The paradox is that the French may be the stinky Pepe Le Pew to some, yet, French perfume and clothing are among the most popular; France may be a socialist country, but a lot of Americans dream of visiting Paris (and a lot of them do). These apparent paradoxes and my own experience makes me believe that there is no  much harm done, and I strongly disagree with that "Americans hate the French".

Last, but not least, some comedians are also great defenders of France :

Obama's New Nationalism.

Last week, Barack Obama gave one of his most radical speeches (YouTube video)as of yet on the economy which may very well serve as a founding theme for his campaign.

The president’s  main topic was economic regulation and his role model was Roosevelt, not Franklin Delano but Theodore, the Progressive Republican president who attacked big business and asked for more government regulation.

President Obama symbolically gave his speech in Osawatomie, Kansas, the small town where Theodore Roosevelt gave his New Nationalism speech over a hundred years ago.
Invoking a Republican president was a clever move - it adds credibility to his claim of rising above partisan politics. (The Economist).

The most interesting part, however, was not the symbolic historical context but the crafting of the speech itself.

First, it conveyed a classic opposition between BIG (banks, factories, monopolies) and SMALL (farmers, children, innocent, hard-working Americans, women / unemployed / elderly / people with disabilities), and between the FEW (wealthy, greed, 1%) and the MANY (the middle-class). Such a systematic opposition would not fly well in American discourse for its smacks of class warfare - which the president denied doing - if it was not framed in a way that can be accepted by an American audience.  So at the core of the president’s speech lie some distinct traditional American core beliefs: the American Dream, American Exceptionalism and a strong sense of community spirit.

In order to achieve this successfully, the speech relied on two powerful metaphors often used in political rhetoric: a BUILDING and a GAME metaphor.
The main advantage of these metaphors is that they imply the participation of several people (a community) and work nicely for a good understanding of national unity for a common purpose. It also conveys the need for rules (i.e. regulation) in a non threatening way by emphasizing on the notion of fairness and justice. You need order and rules to pay a game and you need a blueprint to build something.

THE BUILDING METAPHOR
-The BUILDING metaphor can be used for positive or negative assessments depending on whether the foundations are morally good or bad. The economy can be “a house of cards”, a “business model built on breaking the law, cheating customers, and making risky bets” or on bubbles and financial speculation, or it can be “built to last”, “on the idea of broad-based prosperity, of strong consumers all across the country.”.  It can apply for the middle-class (“rebuilding the middle class “), or for the entire nation (“how America was built”, “investments that built this country”). It can also be used literally to talk about the nation’s infrastructure (“investments that built this country”).

THE GAME METAPHOR
In a similar way, the GAME metaphor is used for positive or negative evaluation: the system in Washington “can be rigged” or used by “the highest bidder”, but everyone knows that it is morally wrong “when everybody is left to fend for themselves and play by their own rules.”. So what naturally follows is the need for rules (i.e. regulation) so that “everyone plays by the same rules.” because rules are morally good ("They want to have rules in place that don't put them at a disadvantage for doing the right thing",). A game can also be inclusive when “the playing field is larger”; “everyone plays by the same rules, from Wall Street to Main Street.”)
The GAME metaphor is thus closely associated to the idea of FAIRNESS and JUSTICE, with the underlying image of BALANCE. This allows Obama to take a moral stance on inequality and unfairness. The GAME metaphor also plays well with the American belief that LIFE IS A RACE. (“The race we want to win, the race we can win is a race”). But here too, it is not any race, it is the “race to the top”, as opposed to “the race to the bottom” (a race for lower wages for instance) since good is UP and bad is DOWN (see conceptual metaphor theory, Lakoff). This fist well the classical social ladder metaphor (“the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk”).This is even more clearly illustrated by the final sentence of the speech : "I believe America is on the way up."

COMMUNITY
The emphasis on community is further exemplified by a call for bipartisanship (“a vision that's been embraced in the past by people of both parties for more than 200 years“), through the evocation of historical political figures from both parties - not only Theodore Roosevelt, but also F.D. Roosevelt and Dwight Eisenhower. A sense of national unity is also rendered by trying to 'bridge the gap' between “Main Street and Wall Street” by using positive image of wealthy figures  (Henry ford, Warren Buffet or “Andy Grove, the legendary former CEO of Intel”) as well as corporations praised for their responsible attitude (‘Big Three auto companies”) or by linking CEOs to local communities, particularly small Town America:
“For the CEO of Marvin's, it's about the community. He said: ‘These are people we went to school with. We go to church with them. We see them in the same restaurants. Indeed, a lot of us have married local girls and boys’.”

Obama frames the argument by appealing to American pragmatism, claiming that the trickle-down theory has been tried before but history shows “It has never worked”. Yet, at the same time, he acknowledges that “rugged individualism” and “healthy skepticism of too much government “  is part America’s ‘natural’ identity, making it even part of “America’s DNA”. One might draw from this an opposition between nature and culture. But more importantly, it implies some (protestant) belief in the deterministic nature of the American identity. It is something determined by nature, or determined by logic. The rationale for regulation is not simply that it is morally right, but it is also (and foremost) that it makes economic sense: “That is not politics. That's just math”. Henry Ford is praised for his pragmatic approach: “Henry Ford made it his mission to pay his workers enough so that they could buy the cars he made”

THE AMERICAN DREAM
In the same way way, the reality of the American Dream is made evident by a traditional pragmatic argument - the very fact that “immigrants from around the world historically have flocked to our shores” is proof that the promise that “even if you're born with nothing, work hard and you can get into the middle class” is real.
The expression The American Dream itself is never used in the speech but the narrative is - “that this is a place where you can make it if you try.” is believed to be “at the very heart of America”. Even if it has been said before that Obama himself may be the embodiment of the American Dream, he cleverly uses another a personal personal and  highly symbolic illustration - the very story of his grandmother who “started as a secretary, ended up being a vice president of a bank”, which means that Obama himself cannot be biased against banks on principle. Unfortunately, this is a reality of the past and now “the basic bargain that made this country great has eroded” because “hard work stopped paying off for too many people”.
The solution lies in the community because MANY is better than A FEW and “we’re greater together than we are on our own”. This is an effective way to provide a positive backdrop for his political solutions:  more progressive taxes, and universal health insurance, which are based on the idea of an entire community sharing the burden.

AMERICAN EXCEPTIONALISM.
The other uniquely American narrative is American Exceptionalism: if LIFE IS A RACE and if UP IS GOOD, then America must be at the top. Here again, Obama takes for granted the narrative of American Exceptionalism by presenting a series of superlatives and comparatives:
“the largest middle class and the strongest economy that the world has ever known;
the most productive workers;
the most innovative companies turned out the best products on Earth.”
And this is not just a thing of the past, it is still true today:
“still home to the world's most productive workers.
still home to the world's most innovative companies.
prosperity and a standard of living unmatched by the rest of the world.
nobody does innovation better than America. Nobody does it better. No one has better colleges. Nobody has better universities. Nobody has a greater diversity of talent”
If nothing else, the logical conclusion to this series of superlative can only be “That's why we're the greatest nation on Earth. That's what our greatest companies understand.”.
One of goals is of course to boost confidence in America in these times of crisis and renew a value highly praised in American credo: optimism.

OBAMA & ROOSEVELT.
President Obama treats Theodore Roosevelt as a prophet with "a vision" who "took the same message across the country". But if Obama gave one of his most radical speeches, it is still rather consensual and tells a very conservative national narrative if you compare it to Theodore Roosevelt’s speech in 1910:

It has become entirely clear that we must have government supervision of the capitalization, not only of public-service corporations, including, particularly, railways, but of all corporations doing an interstate business.One of the chief factors in progress is the destruction of special privilege. The essence of any struggle for healthy liberty has always been, and must always be, to take from some one man or class of men the right to enjoy power, or wealth, or position, or immunity, which has not been earned by service to his or their fellows.

Quoting Lincoln, Roosevelt also said:

“Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration”.

Of course, this sort of strong radical rhetoric would be unthinkable in today’s American political discourse especially from a former or current president, let alone a Republican. In fact, president Obama is careful to say that “This isn't about class warfare. This is about the Nation's welfare.” (notice the nice parallelism and the alliteration) thus not only raising the stakes but also making it a question of patriotism.
In fine, the parallelism between 1910 now implied by Obama’s choice of venue and references is a smart move as it also demonstrates how different the Republican party has become. (Washington Post). This will undoubtedly be a theme used by democrats in the presidential campaign.

Even if Obama’s speech in Osawatomie was cleverly crafted, one may deplore that his argumentation which, while being pragmatic, only relies on economics. As Jedediah Purdy reminds us, Roosevelt “put citizenship -- civic and political engagement -- at the heart of the good life he wanted for Americans." In Obama’s speech, “even education, that most civic of public investments, is just about economic opportunity.”
That being said, different times, different words, and Obama’s speech probably reflects quite well the priorities of today’s world in which well-being and happiness must be measured in material terms.

The Threat of the (Prussian) Spiked Helmet Resurrected in France.

Old habits die hard, they say, but so do old-time prejudices, even when you think they are done and over with.

As much as you would expect the French (far-right) National Front to be prejudiced against anything non-French, including other Europeans -it is after all their raison d’être - and indeed they are, it was much more surprising, and even quite shocking to hear members of the French socialist party fall into the trap of anti-German sentiment.

Last week, a rising star but a maverick in the Socialist Party (PS), Arnaud Montebourg compared Angela Merkel to Bismarck.

"La question du nationalisme allemand est en train de resurgir au travers de la politique à la Bismarck de Mme Merkel"  (« The question of German nationalism has re-emerged through Mrs Merkel’s Bismarckian policy»). (Le Figaro)  

For those of you who might not know, Otto von Bismarck was the leader of Prussia in the late 19^th century and, more interestingly, he won the war against France in 1870. In other words, Montebourg has hereby resurrected an old French figure of national humiliation - the Prussian spiked helmet. It is also a relevant metaphor for the left, as the 1871 defeat saw a surge in left-wing anti-german nationalism, during the Paris Commune that followed. 

It may also not be surprising that these remarks should have been made by a rather young politician born some 20 years after WWII, free of the taboo regarding Germany.

Worse however, another (but less prominent) member of the PS compared Sarkozy with Daladier, (Le Monde) the weak French Prime Minister (called President du Conseil back then) who negotiated the Munich Accords with Hitler in 1938, thus making an implied comparison between Mrs Merkel and Hitler. (see Wikipedia for details)

I understand that the German-driven austerity measures have upset a lot of people in Europe, among whom the Greeks have been the most vocal in their Germanophobia (see here). But that the French should fall into that trap is something unheard of since the end of World War II. Not only are these remarks ridiculous but as such they have (and as could be expected), caused great controversy France (TF1).

Arthur Goldhammer rightfully commented that this “has broken the taboo, which has largely held since World War II, against attributing policy differences to national character and ulterior designs rather than to identifiable interests.” and I also agree with his political analysis that this serves the National Front rather than the Socialist Party, which he claims to support.

The popular Franco-German green politician Daniel Cohn-Bendit accused Montebourg of bad patriotism and using Left-wing National Front words. (“C'est du mauvais cocorico. Il fait du Front national à gauche" TF1)

This of course has been seized by the right-wing majority party to accuse the opposition socialistrs of resurrecting the “old demons of Germanophobia” (TF1).

Meanwhile, there is great embarrassment on the left and in the PS, especially for its Presidential candidate François Hollande who is expected in Germany next week. Even though he has personally made no comment, his campaign director Pierre Moscovici warned the left against anti-german sentiments (RTL).

This is a very unusual development as nationalist sentiments have been traditionally used by the French right to gain support of their electorate, at least since the 1930s. 

The main question is whether this is simple (bad) anti-Sarkozy political strategy or if it is the sign of a new left-wing nationalism? Might anti-german rhetoric appeal to the electorate in these times of great uncertainty and confunsion? I doubt it. 

That being said, a lot of people are angry at the idea that national budgets should be overseen by European institutions, as Markel suggested. This idea is indeed a blow to national sovereignty, which could mean the end of the socialisme à la française. Maybe not all a bad thing.

NOTE: During a debate on French TV last night on this topic, a former French president advisor, Marie-France Garaud reminded the audience that Bismarck is actually a popular figure in Germany because he unified the country for the first time. Indeed, contrary to France which has been more or less the same unified country since 843, Germany consisted of hundreds of small principalities, duchies and counties during the Holy Empire up until 1871. So what sounds like an insult in France, simply because Bismarck represents the enemy that defeated the French, is nothing of the sort to the Germans. Phew!
One last point: we should all appreciate that the name "France" is derived from that of Germanic tribes, the Franks who basically invaded most of northern France. In effect, we're all Germans!

Empire consisted of hundreds of smaller sub-units,principalities, duchies, counties,

Banks Sued: Too big to Fail but Big Enough to Pay!

Last week's news that the State of Massachussetts is suing the four major US banks - Bank of America,, JPMorgan, Chase, Wells Fargo & Citigroup.- and one financial company, GMAC for "unfair and deceptive practices" (including 'robot signing' - see our post) is great news and a good sign that some things are finally about to change for many Americans. (NYTimes)

As the Attorney General, Ms. Coakley said in her statement:

“This is the first comprehensive lawsuit seeking to obtain accountability.(…/…) The banks may think they are too big to fail or too big to care about the impact of their actions, but we believe they are not too big to have to obey the law."

Visit msnbc.com for breaking news, world news, and news about the economy

This is interesting because, as often, real change in America starts at the state level. 
When many state prosecutors are trying to come to a deal with the banks for a cash settlement ‘for faulty foreclosure practices and possibly reforms to foreclosure practices’, other state prosecutors have rejected deals and have sued banks – 'Nevada sued Bank of America in September, New York has launched a broad investigation into a dozen financial institutions' (FT) and California announced it would not agree to a settlement over foreclosure abuses that state and federal officials have been working on for more than a year (The Californian.com).

No doubt that this is the indirect result of the different protests and sit-ins, and other Occupy Movements which have demonstrated people’s anger over Wall Street. It seems that the ability for states to go after the banks is also the result of the Dodd-Frank legislation which restricted the ability of federal authorities to bar states from acting in such cases. (Too bad Frank Dodds is retiring!).

One of the reasons for the current crisis, as you can see in the following graph, is that banks have indeed become so big that they have no accountability.

Too big to fail indeed:

The big argument from the banks in the '90s was that without deregulation, they would lose out to foreign banks. This is an argument that all the banks in the world used to justify their mergers. So with the complicity of governments, they have become too big to fail….but not too big to pay. No doubt they will use this recession to scare people into thinking that the entire financial system may be at risk if they are asked to pay too much.

Then what? Then, they should be split up. 
Even conservatives agree:

Big banks are bad for free markets. Far from being engines of free enterprise, they are conducive to what might be called “crony capitalism,” (National Review, cited in MSN Money)

Indeed, if you believe in free enterprise, split up the banks. 

My first American Protest.

For the first time in my 25 some years of regular visits to the U.S. I have finally seen a massive demonstration in the States. It was not a Tea Party demonstration (those are essentially over anyway, and probably no one will remember them except for the fact the GOP has adopted their motto). It was not even one of the “Occupy movements” that are going on across the country these days. It was in too small a city for any of those.

Well, Madison, Wisconsin may be small but it has a history of protests going back to the 60s. Not only is it the state capital; it is also a college town where students are known to be very active with a campus that gained a reputation for one of the most radical campuses in the nation during the Vietnam war (here). 

Some historians believe we may be witnessing the biggest surge in campus activism since the 60s which is in part inspired by the Occupy movement (here). This may indeed be the beginning of a new era if the economic situation does not improve and the financial and banking systems remain unaccountable. Not only, is there is a lot of anger and hopelessness out there, but if the national consensus around the belief in the American Dream continues to erode, people will start revolting somehow. (The "We are the 99%" slogan used in the protest to refer to the discrepancies in income between the elite and the remaining of the population can only undermine the narrative of the American Dream). 

The protest last week gathered about 30,000 people, and not just students. It may be small by comparison to French (and Parisian) protests, but it was impressive enough. Until then, I had only witnessed a few small scale protests, something like a dozen of people picketing and protesting, with signs walking in circle. I have always found this form of picketing a bit strange, not quite sure how efficient it might be.

Essentially though, the protest in Madison consisted of the same thing but on a larger scale. The main differences with European demonstration is that people held individual signs and not large banners as in Europe (see picture on the left), and the protest did not go from point A to point B, as it is typically done in Europe, but it consisted in walking in circle around the capitol.

Unlike the “Occupy movement”, they had a very specific demand: the recall of Governor ScottWalker. A “recall” is a legal procedure by which voters can remove an elected official from office. In order for new elections to take place though, they need enough signatures within a certain time limit.

Basically, what is at stake here is union rights. Scott Walker has taken some heat mostly from the left for trying to do away with union collective bargaining, which would essentially strip off the unions of their power to bargain with employers, mostly in the public sector. (see Mother Jones' article for more details).

I’m not necessarily a big fan of how unions operate, either here in the U.S. or in France. They are usually seniority based, which means that advancement is not based on performance but on age and time on the job. And worse still, in the U.S. union membership can sometimes be a condition of your employment in state and government jobs. (this does not seem to be the case in the private sector).

That being said, unions are a necessary force for countervailing the power of employers and management, ensuring fairer wages, workplace safety and the enforcement of Labor laws.  

Howard Zinn’s “A People’s History of the United States”is a good reminder of the necessity of unions in the past, and if history can teach us a lesson in this respect, it is likely that unions will be necessary in the future, particularly in this current economic crisis and in this political context when, for example, a popular Republican presidential candidate calls child labor laws “stupid”. So maybe instead of throwing the baby with the water, we should acknowledge what needs to be changed and aim for reform of how unions operate both in France and in the United States. Wishful thinking? Maybe this global economic crisis will offer new opportunities for change, but those may not happen without a fight of some kind. 

Wealth Distribution in the U.S. and the End of the American Dream.

As I was listening to NPR over the week-end, I heard even more disturbing numbers coming from the Congressional Budget Office, which is anything but partisan and proves, once again, the failure of the  trickle-down economic theory.

Between 1979 and 2007, INCOME grew by:

• 275 % for the top 1% of households,
• 65 % for the next 19 %
• Just under 40 % for the next 60 %, and
• 18 % for the bottom 20 %

The share of income going to higher-income households rose, while the share going to lower-income households fell.The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.

Most of that growth went to the top 1 % of the population.All other groups saw their shares decline by 2 to 3 percentage points.

More concentrated sources of income (such as business income and capital gains) grew faster than less concentrated sources (such as labor income).

GOVERNMENT TRANSFERS AND FEDERAL TAXES BECAME LESS REDISTRIBUTIVE

Government transfers and federal taxes both help to even out the income distribution. Transfers boost income the most for lower-income households, while taxes claim a larger share of income as people's income rises. In 2007, federal taxes and transfers reduced the dispersion of income by 20 %, but that equalizing effect was larger in 1979.The share of transfer payments to the lowest-income households declined.

The overall average federal tax rate fell.

These numbers show that the American Dream is definitely over. And while the "Occupy Wall Street"  makes plenty of sense, the "Tea-Party" movement against taxation is not just economically wrong, it is a moral outrage, and the Republican ideology of tax-cuts for the rich is not only bad for the Americans, it is also un-American.

As James Fallows commented, "the result has been a more polarized American income distribution than any time in modern American history."

Why Regulate the Banking and Financial System.

Last week, we saw something unheard of: the French President and the German Chancellor spending most of the night trying to make deals with private banks over the debt of a European country. In exchange of writing off 50% of the Greek debt, the banks (which would have lost 100% of their money otherwise, since Greece would default anyway), were promised €35 billion in "credit enhancement" to mitigate losses they might suffer. (NYTimes, Bloomberg)

Evidently, the stakes were high – no less than saving the Euro, they said. OK. Maybe so. But there is still something extremely disturbing, even eerie in seeing our representatives so dependent on the will of private banks and credit rating agencies. You can probably blame it on the debt, yes, but maybe also blame on the banks themselves.

This week, Rachel Maddow offered a great reminder of the role of the banks in the current financial crisis. And boy, do we easily forget...! Once you start piling up all the scandals and frauds, there's plenty of reason to get angry and feel for the "Occupy Wall street" protest, considering the dire consequences we all have to pay.

After all, the SUBPRIME CRISIS of which the banks are responsible triggered this whole mess, including the current European crisis.

Justa quick reminder of what the sub-prime crisis really is (you can also look here, here or here and here) :

The banks relaxed their mortgage standards so that people with higher risk if default than prime borrowers (hence the word ‘sub-prime’) could buy a house, using their homes as collateral. This created a bubble.

When home values fell, those borrowers could not afford the adjustable rate mortgage payment and had to default.

But the best part is that the lenders did not even bear the credit risk in the mortgages they issued as they transferred the risks to third-party investors, including shadow banks (through a complex process called “securitization”), by slicing and dicing the mortgages.

But as if this were not enough, the subprime crisis was soon followed by a FORECLOSURE CRISIS. (here)

The homeowners who had to refinance ended up being evicted from their homes without knowing whom to turn to litigate their rights. Why? Because there is no way to tell who owns your mortgage and thus who the true owner of your home is.

And to make matter worse, there is no official guaranteed record of rights and ownership of mortgage loans because that has been privatized - it is now in the hands of a the holding company called MERS,  and currently sued by the state of Delaware. 

Worse still, if you can believe it, as a result of ‘bad paperwork’, banks even evicted people erroneously by providing false documents (called robo-signed documents - see here) in court – including people who duly paid their mortgage or – believe it or not- even people who did not have a mortgage at all. (Florida is a good case in point)

The scandal was so great that last year the major banks (including Bank of America, JP Morgan, Wells Fargo, and Citigroup) had to temporarily halt their foreclosure proceeding. (MSNBC)

Not only did banks screw up the little guys, they even purposely misled their customers and investors into buying shares of companies they knew were failing - Merrill Lynch  (see here) and Infospace  or goto.com,  Citigroup and Worldcom (here) or Goldman Sachs and Timberwolf (here or more recently here and here).

THE EUROPEAN CONNECTION

You might not see the connection with Europe… unless you are Greek.

Goldman Sachs is actually a name well-known in Greece or even in well-informed circles in Europe. It is one of the banks – JP Morgan & Chase is another - that helped the Greeks mask their true debt while betting defaults on the very debt they helped hide by acquiring credit protection on the cheap and eventually selling the swaps to the Bank of Greece. (NYTimes, Spiegel, but also here, here, here, and here)

As a result, of course unlike most European banks - the suckers in the game - neither Goldman Sachs nor JPMorgan has net exposure on Greek debt. Beautiful!

Essentially, it is all the same story. Whether it is subprime mortgages or debt obligations, the same scheme: making money by swapping the risk to third parties and betting against the investment the banks sold to their own clients while making huge benefits in the process.

This has been happening in the last decade and it is a well-established fact.

ACCOUNTABILITY?

So what have been the consequences for these banks? Well, they have either lobbied politicians or scared them into thinking they, like Lehman Brothers, are too big to fail.

The result? Hardly a slap on the wrist: they have either accused low-level employees or made sweet deals with the SEC (Securities and Exchange Commission) in charge of the little regulation there is left. (Reuters, Propublica, also here), even if more it is not completely over yet.

“No major investment banker has been brought up on criminal charges stemming from the financial crisis. (…/…) Goldman, JPMorgan and Citigroup were all able to settle without admitting or denying anything, which, of course, is part of the problem. (…/…). Neither the Citigroup settlement nor any of the others come close to matching the profits and bonuses that these banks generated in making these deals.”. (Propublica)

POLITICAL FALLOUT

This is all very important to understand because in this global economy it affects all of us, in America as well as in Europe (USAToday). At the core of the problem is the deregulation of the financial market and the banking system, which allowed banks to take unreasonable risk without taking the responsibility for it.

For this, we can thank both Republicans and Democrats who passed a law repealing Glass–Steagall Act in 1999, signed by Bill Clinton, which essentially removed the separation between investment banking and commercial banks as well as conflict of interest prohibitions between investment bankers serving as officers of commercial banks.

The result: too big to fail, they say.  Well, then, maybe they should be split up. The US has started implementing financial regulatory reform with the Dodd–Frank Wall Street Reform and Consumer Protection Act but more needs to be done.

Unfortunately, already the Republican candidates, including the most serious one, Mitt Romney, want to repeal Dodd-Franck and “deregulate Wall Street”. (Washington Post)

This is why the “Occupy Wall street” makes so much sense to the 99% of us who have to pay for this mess one way or another. 

Iraq War 2009-2012: Lessons to Learn.

Last Friday, president Obama announced the withdrawal of the remaining US troops inIraq by the end of the year, thus giving an end date to the war in Iraq, which will have lasted 9 years – 2003-2012.

You might have thought this would make the headlines in the US, but not really, the economy (understandably) or even Albert Pujols’ three impressive home runs got more coverage (really ?).

This may be because, unlike the wat in Vietnam and its draft, the American people are not really personally connected to the war in Iraq.

« You have to knock on something like a 150 doors today before you’ll find a household from which somebody is serving » said an analyst on NBC evening news last night.

This piece of news should be an opportunity for assessing the achievement of the war. Lester Holt asked the only important question : WAS IT WORTH IT?

• 4,469 US troops killed
• 32,213 wounded
• $700 billion

It might also be argued that the mess in Afghanistan is a result of too much manpower devoted to another war.

Words like « useless », « endless », « pointless », « questionably costly » were used in the NBC evening news presentation and it seems that the American media at least are beginning to look back and focus on the controversy of it all.

Toppling a brutal dictator like Saddam Hussein may have been the best thing that happened to Iraq but did the war have to last 9 years to have at the end of the war still a very fragile Iraqi government and terrorist attacks on a regular basis?

It might be worth remembering that the reason for going to Iraq was 9/11, with very early after the attack the notion that Saddam Hussein may have been somewhat linked to 9/11 and when that was debunked, the idea that Hussein had Weapons of Mass Destruction that constituted a threat to the US. Of course, the WMD, it turned out, did not exist.

What lessons to learn ?

Maybe the Bush administration really believed there were WMD and simply decided to sexy it up for argument’s sake, and maybe Saddam Hussein himself believe he had WMD. After all his behavior during the standoff in 2003 showed he was out of touch with reality.

But 9 years later, Bush’s  « MissionAccomplished » speech on the aircraft carrier USS Abraham Lincoln sounds like a cruel reminder of his incredible hubris. It is often said that Americans are good at winning wars but bad at winning the peace. There’s some truth in this, at least in most wars since WWII, and certainly in the wars of Afghanistan and Iraq.

Winning a war with a country that has a incredibly weaker army is easy, making the nation building efforts necessary to win the peace is much more difficult. It

requires the sort of man power that the US did not have. (some estimates say that between 250,000 to 450,000 troops were needed rather than the actual176,000 at its peak).

The US should have worked harder on convincing the UN to support the war and send troops to secure the ensued peace. But, to be fair, this is where I also blame French President Jacques Chirac for not allowing the vote for a new resolution that would have given Iraq a deadline for complying with the inspectors’ demands. (after all, the French intelligence alos believed he might have WMDs).
France’s foreign minister De Villepin (who was then deemed as a hero in France) was right when he said : “the option of war might seem a priori to be the swiftest, but let us not forget that having won the war, one has to build peace” (here) but it is precisely that veto that made the peace impossible to win. 

The lesson to learn is one of humility for both France and the US.

France should have let the democratic process of the UN vote take place and not play the “deal breaker”.  Even more importantly, the lesson is for the US - despite its might, and wealth, it could not afford a do-it-alone war in Iraq, unless it instituted a draft, which would have been political suicide.  

The nation cannot base its foreign policy and war decision on a mythical view of self as a lone rider with a few loyal men. What Bush failed to see is that even in the Frontier myth, the hero must respond to the demand of the community for cooperation to civilize and settle the Wild West. The result is that chaos is likely to remain in both Iraq and Afghanistan for a long time. 

Deregulation, Not State Intervention Caused Economic Meltdown.

The Economist is a great magazine with often very good analysis, but certainly not when they imply that the entire financial meltdown is the fault of the state. 

In this week's issue "Rage against the machine, Capitalism and its Critics", they conclude : 

"It is worth remembering that the epicentre of the 2008 disaster was American property, hardly a free market undistorted by government."

Seriously? And no mention of the deregulation of the banking system that caused the subprime crisis? It is rather ironic to say that "state interference" should be the root cause of the problem. If anything, it is de-regulation that created the mess and the repeal of Glass-Steagal to control speculation from the 1980 to 1999. 

For capitalism to work, it needs a market with rules that guarantee the fairness of the game. The problem is that the free market was turned into a free-for-all in the last 30 years. 

Yes, politicians have been lazy by sustaining a system of debt that was more dangerous than they understood (and the Greeks were the worst among them) but the banks share the greatest responsibility.

Look at Goldman Sachs - it is not just that they helped the Greek mask its true debt, (whose blame should lie on the Greeks) but they also bet defaults on the very debt they helped hide by acquiring credit protection on the cheap and eventually selling the swaps to the Bank of Greece. (see NYTimes or even FT)

A system that makes it legal for a bank to lie and cheat needs to be changed, especially if they are « too big to fail ». The risks the banks take have been transfered to the states. As it has been said, you privatize the benefits, and nationalize the losses. What a bonanza for the banks !