Wall Street was founded on slavery

Photo Credit: Wikimedia Commons

Wall Street is a highly influential financial district but its history is rarely talked about. In order to understand the largesse of Wall Street and the system of global capitalism, it is crucial to know Wall Street’s history. Wall Street was founded on slavery and, to this day, it remains a key pillar in upholding racial inequality and economic oppression.

New York City was a Dutch settlement known as New Amsterdam in the Dutch colonial province called New Netherland during much of the 17th century. Through the Dutch West India Company, the Dutch utilized labor of enslaved Africans who were first brought to colony around 1627. The African slaves built the wall that gives Wall Street its name, forming the northern boundary of the colony and warded off resisting natives who wanted their land back. In addition, the slaves cleared the forests, built roads and buildings, and turned up the soil for farming. Slavery was not phenomenon limited to the southern American colonies. Northern colonies, such as Boston and New York, participated in the trans-Atlantic slave trade.

In 1664, control of the colony was handed over Britain and New Amsterdam was renamed New York in honor of James II, the Duke of York. The Royal African Company had a royal monopoly on the British slave trade and James II was a major shareholder. With the Dutch gone, the British maintained the system of slavery in New York. They immediately created a series of laws to protect it. In 1665, a law was passed that legalized slavery. In 1682, slave masters were given the power of life-and-death over their slaves. Twenty years later, in 1702, New York adopted its first comprehensive slave code and it equated slave status with being African. The entire system of slavery was justified by an ideology of white supremacy that considers black Africans inferior and white Europeans superior — an ideology that still exists.

Slavery became the backbone of New York’s economic prosperity in the 1700s. To normalize this massive trade in human beings, in 1711, New York officials established a slave market on Wall Street. Slave auctions were held at Wall Street selling African slaves as property to traders wanting to buy them. Between 1700 and 1722, over 5,000 African slaves entered New York, most of whom came directly from Africa, while the rest from British colonies in the Caribbean and southern colonies. Throughout the 17th and 18th centuries, as Phyllis Eckhaus points out, New York had “the largest urban slave population in mainland North America”. Therefore, New York was a crucial location in the trans-Atlantic slave trade, which established it as the world’s financial capital.

Many well-known companies and financial institutions benefitted from the trans-Atlantic slave trade. They include Lehman Brothers (which went bankrupt in 2008), J.P. Morgan Chase, Wachovia Bank of North Carolina, Aetna Insurance, Bank of America, and the Royal Bank of Scotland. Banks, such as Wachovia’s predecessors Bank of Charleston, South Carolina, and the Bank of North America, and J.P. Morgan Chase’s predecessor banks, made loans to slave owners and accepted slaves as “collateral”. When the slave owners defaulted on their loans, the banks became the new owners. The Lehman family members who established Lehman Brothers started their company to trade and invest in cotton, a cash crop produced by African slaves. Aetna sold insurance to slave owners who wanted to protect their investments in slaves aboard slave ships in case one of them died (this was a very common occurrence as millions of African slaves died on ships carrying them from Africa to the Americas). The insurance company’s policies compensated slave owners for the loss of people who were considered “property”. To this day, there are lawsuits against these corporations to seek reparations for their participation in the trans-Atlantic slave trade.

Photo Credit: Wikimedia Commons

The trans-Atlantic slave trade built the foundation for modern global capitalism. Millions of Africans (somewhere between 12 to 30 million or more) were ripped away from their homes in Africa to work as slaves in European colonies in North and South America and the Caribbean. Unlike native Americans and other white Europeans, free African labor was plentiful (if one died, they could be replaced with another from Africa), Africans had no connections to American lands, and they knew how to grow essential cash crops like cotton and sugar that grew in both Africa and the Caribbean and southeastern United States. These factors made Africans the perfect slave labor force for European colonial powers. The slaves, along with performing many other services, were used to produce commodities that were sold in international markets for a profit (a characteristic of modern capitalism). In addition, slaves, themselves, were considered property and sold on markets. The benefits of this went to slave owners and investors — not the slaves. As a result, wealth was transferred from black African slaves (and their descendants) to white European slave owners and other whites who benefitted from this system (this laid the foundation for current wealth inequality between whites and blacks). This ensured that blacks would remain socioeconomically subordinate to whites for generations to come. Slavery went on for nearly 300 years from the sixteenth century to the mid-nineteenth century when Britain, America, and other countries that participated in the trans-Atlantic slave trade abolished it. Even after it ended, the foundation of modern capitalism and racial inequality was already built.

The end of slavery brought new political rights for black people in America, such as the right to vote. However, these political rights were very limited, particularly under the Jim Crow system in the American South. This system barred blacks from voting, segregated them in inferior schools, confined them to low-paying jobs, discriminated against them in numerous areas of life, and perpetuated heinous acts of racist violence against black people, such as lynching. While northern states did not have a de jure system of racial discrimination, there was similar de facto racial discrimination in housing and employment. The civil rights movement of the 1950s and ’60s eliminated legalized racial discrimination with the Civil Rights Act of 1964 and Voting Rights Act of 1965, thereby dealing a deathblow to Jim Crow.

Despite the end of slavery and advancements of the civil rights movement, African-Americans remain socioeconomically oppressed. Black people disproportionately suffer more poverty, unemployment, and socioeconomic misery compared to whites and other ethnic groups. As of December 2011, unemployment for African-Americans is 15.8%, the same as it was at the beginning of 2011. While unemployment for whites is 7.5%, down from 8.5% at the beginning of the year. According to the Census Bureau’s Income, Poverty, and Health Insurance Coverage report for 2010, the poverty rate (defined as a family of four earning less than $22,314 a year) for African-Americans is 27.4%, while for whites it is 13% and 36.6% for Latinos.

The financial sector plays a substantial role in economically oppressing African-Americans. Racial segregation in housing long existed in the United States as a way to keep African-Americans living in separate, poorer neighborhoods away from whites. Redlining, which is the practice of denying or increasing the price of insurance and other financial services to certain neighborhoods based on race, contributed to racial segregation in America for much of the twentieth century. The practice began in the 1930s when the Home Owners’ Loan Corporation (HOLC), established to send loans to homeowners at risk of foreclosure, created a risk-rating system for communities to be used by mortgage lenders. The idea was to protect the long-term value of the property, which was undermined by the introduction of “undesirables” (usually blacks but also Latinos, Asians, and Jews) into a neighborhood.

Using real-estate maps, the HOLC developed a classification system for communities. There were four classifications. Type A areas, coded green, were affluent areas in the suburbs and the most desirable for investment. Type B areas, coded blue, were still desirable, fully developed, but less affluent. Type C, coded yellow, were older, declining areas. Type D areas, coded red, were those with low homeownership rates, poor housing conditions, were in older, inner-city neighborhoods heavily populated by black people. These areas were considered undesirable and too risky for investment — hence the term “redlining”. As a result, HOLC did not provide any loans for black people at risk of foreclosure during the 1930s. This created a system, perpetuated by the Federal Housing Administration (FHA), lending institutions, and insurance companies, that made it difficult for black people to own homes and accumulate wealth in their communities, thereby, entrenching racial segregation and inequality.

While redlining was outlawed by the Fair Housing Act of 1968 and Community Reinvestment Act of 1977, similar racial discriminatory practices continue and achieve the same effect as redlining — further racial segregation and inequality. One common practice is known as steering. Real estate agents will steer people to neighborhoods predominantly populated by people of similar ethnic background. Whites are steered to “better”, white neighborhoods, while blacks and Latinos are steered toward neighborhoods with more black and Latinos, which tend to be poorer.

Another racial discriminatory practice, which led to the financial crash and current depression, is predatory lending. Rather than deny financial services, financial institutions targeted the black community, and other nonwhite communities, to sell them risky, high-priced subprime mortgage loans. Because of this, the practice is also known as “reverse redlining”. Subprime loans are typically made to people with poor credit histories and, hence, come with higher interest rates. According to a 2009 NAACP “Discrimination and Mortgage Lending in America” report, “even when income and credit risk are equal, African Americans are up to 34 percent more likely to receive higher-rate and subprime loans” than whites. This predatory lending perpetuated a decade-long housing bubble from the late-1990s to late-2000s.

Wells Fargo is one of many financial institutions that engaged in predatory lending in black communities. As the New York Times reported in June 2009, Wells Fargo “saw the black community as fertile ground for subprime mortgages, as working-class blacks were hungry to be a part of the nation’s home-owning mania.” Revealing the big bank’s true racism, loan officers at Wells Fargo commonly referred to African-Americans as “mud people” and subprime loans as “ghetto loans”. Wells Fargo has been sued by individuals and groups, such as the NAACP, for its racial discriminatory practices.

In late-November 2011, a regretful former regional vice president of Chase Home Finance in southern Florida (a subsidiary of JP Morgan Chase, whose roots lie in slavery), James Theckston, admitted the predatory lending practices of big banks to New York Times columnist Nick Kristof. In fact, predatory lending was incentivized since lenders earned higher commissions from subprime loans than normal prime loans. In his column, Kristof notes:

“One memory particularly troubles Theckston. He says that some account executives earned a commission seven times higher from subprime loans, rather than prime mortgages. So they looked for less savvy borrowers — those with less education, without previous mortgage experience, or without fluent English — and nudged them toward subprime loans. 

These less savvy borrowers were disproportionately blacks and Latinos, he said, and they ended paying a higher rate so that they were more likely to lose their homes. Senior executives seemed aware of this racial mismatch, he recalled, and frantically tried to cover it up.”

So not only did big banks intentionally push black people and other people of color to buy subprime loans but they were well aware of the racism behind their actions. Moreover, the banks did not care if people lost their homes because of these risky, high-priced subprime mortgages.

The reason why subprime mortgage loans were aggressively pushed on to millions of people was so they could be bundled up into mortgage-backed securities. In 1999, the Glass-Steagall Act, which separated commercial from investment banking, was repealed under Clinton. This made it easier for subprime mortgage loans to be bundled into securities and sold on Wall Street for massive profits. When the housing bubble burst in 2007, that led to the financial crash in September 2008 and the current economic depression. Wall Street got bailed out but the people got stuck with massive poverty and unemployment. Millions of people lost their homes and many are on the edge of foreclosure.

Black and Latino households were hit the hardest. As the Center for Responsible Lending points out, around 25% of all black and Latino borrowers lost their home to foreclosure or are close to foreclosure, compared to under 12% of all white borrowers. Home equity makes up the largest portion of overall wealth in black and Latino communities. Because of the collapse of the housing bubble and resulting foreclosures, black and Latino communities have experienced a dramatic wealth decrease in their communities. According to a recent Pew Research Center report, in 2005, median net worth (or total household wealth) of white households was $134,992, for Latinos it was $18,359, and $12,124 for blacks. In 2009, median net worth for white households dropped 16% to $113,149, Latino households experienced a 66% drop to $6,325, while black households experienced a 53% drop to $5,677. Pew rightly attributes this drop to the bursting of the housing bubble and recession that followed from it.

Therefore, Wall Street, since its founding as a slave market, continues to play a substantial role in oppressing African-Americans and other working-class people. To fully understand racial inequality, it is important to know Wall Street’s historical roots in the trans-Atlantic slave trade. With this knowledge, we can combat the oppression of African-Americans by challenging the greed and oligarchy of Wall Street. Fortunately, there is already a movement doing just that — Occupy Wall Street.

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Historical sources:

• David McNally, Another World Is Possible: Globalization & Anti-Capitalism, (Winnipeg: Arbeiter Ring Publishing, 2006), Ch. 4, pp. 137 – 204
• Howard Zinn, A People’s History of the United States: 1492 – Present, (New York: HarperCollins Publishers Inc., 2003), Ch, 2, pp. 23 – 39
• Lerone Bennett, Jr., Before the Mayflower: A History of Black America, (New York: Johnson Publishing Company, Inc., 1982)
• James W. Loewen, Lies My Teacher Told Me: Everything Your American History Textbook Got Wrong, (New York: Simon & Schuster Inc., 1995)
• See also Douglas Massey & Nancy Denton, American Apartheid: Segregation and the Making of the Underclass (Harvard University Press, 1993) for history of racial segregation in the U.S.

Santorum — An Ally of the Rich, Not the Poor (my opinion piece in TurnstyleNews)

About two weeks ago, I wrote an opinion piece for turnstylenews.com, which is a great website powered by young (18-34) producers, reporters, and writers. I re-posted it on my blog here.

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Despite his reputation, in some quarters, as a friend of the downtrodden, former U.S. Senator from Pennsylvania and current presidential candidate, Rick Santorum, is an ally of Wall Street and Corporate America.

Last week, Santorum made a racially charged comment that garnered a lot of criticism. Speaking to Republicans in Iowa, Santorum said his administration would cut welfare programs because they make people “dependent” on the government for help. His full statement was: “I don’t want to make black people’s lives better by giving them other people’s money. I want to give them the opportunity to go out and earn their money and provide for themselves and their families. The best way to do that is to get the manufacturing sector of the economy rolling.”

This statement was fallacious and offensive. One, it relied on the false assumption that most or all welfare recipients are black. This is not the case. Most welfare recipients are white, mainly because whites make up the majority of the American population. Two, it perpetuates the racist stereotype that black people are lazy people who look for hand-outs.

And the last sentence of Santorum’s statement, advocating revitalization of the manufacturing sector, highlights how Santorum is trying to portray himself in the Republican primary. In a time of economic depression, massive unemployment, and poverty, Santorum is touting himself as a man who can jumpstart the American economy. He claims he can do this with massive tax cuts, particularly for the rich and corporations, cutting government spending (except the military), and eliminating various government regulations. In his eyes, these policies will make it easier for businesses to create jobs in America.

However, these are bad policies. Tax cuts for the rich, spending cuts, and less government regulations spur very little job growth and only help the rich. Since government creates jobs in the public sector, such as teachers in education, tax cuts and spending cuts would harm job growth, particularly during a recession. In fact, public sector job cuts have already hit African-Americans the hardest; Santorum’s policies would exacerbate that. The best ways to spur job growth are through increasing consumer demand and creating job programs, which Santorum would not do.

Santorum, and others, have sought to frame his legislative record as one that’s been concerned with the issues of underprivileged people, citing things such as homeowner tax credits and savings accounts for poor children. In addition, Santorum cites his strong advocacy for stable families as the core of his welfare policies.

In fact, however, Santorum has long history of supporting legislation that benefits powerful corporate and financial interests and hurt poor and working people. For example, he helped draft the Welfare Reform Act of 1996, which nearly gutted welfare for low-income families. He voted in favor of the 2005 bankruptcy reform bill that made it harder for people to declare bankruptcy. This helped credit card companies but harmed ordinary people. In 1999, Santorum voted in favor of Financial Services Modernization Act, which repealed the Glass-Steagall rule separating commercial banks from investment banks. This laid the groundwork for the 2008 financial crash and present economic depression by creating banks that are “too big to fail”. In addition, most of Santorum’s campaign funding comes from the financial, insurance, and real estate sectors. His top contributor is the health insurance company Blue Shield.

No matter how much Santorum wants to portray himself as an advocate of the poor, his track record and policy ideas reveal something different. Rick Santorum, like nearly every other politician, is a loyal servant of the very rich.

Originally appeared in turnstylesnew.com on January 9, 2012.

Occupy Wall Street: a movement against oligarchy

Photo Credit: Wikimedia Commons

It has been three months since the Occupy Wall Street movement began on September 17, 2011. For the first few days, the movement was largely ignored by the mainstream media. Now it has gotten to the point where it cannot be ignored. The movement has spread to over one thousand cities across the United States and around the world. Occupy Wall Street does not have a clear set of demands nor is there an easily identifiable leadership. Yet, it is united by the economic suffering shared by millions of people. The movement’s lack of clear demands is the most persistent criticism people (both detractors and supporters) make against Occupy Wall Street. While demands are important, this criticism misses what the movement is really about.

Most political movements focus on a single issue and make demands accordingly. The civil rights movement demanded an end to legalized racial segregation in the United States and advocated for civil rights for black people and other nonwhites. The antiwar movement in the 1960s demanded an immediate end to the U.S. war in Vietnam. While many of these struggles continued, there have been other movements, such as the environmentalist movement calling for measures to halt climate change. All these movements are undoubtedly important, however, these movements tend to focus solely on individual issues with little cross-pollination with other struggles. Nor has there been a centralized focus on systemic forces that unite these struggles.

Occupy Wall Street is different. While its focus is primarily economic, there are a slew of grievances behind it, such as unemployment, inequality, student debt, poverty, and human suffering from the crash of the global economy. Most movements would have focused on one of those grievances, such as a movement for a jobs program, a movement to end student debt, or a movement for economic equality. Rather than focus on one grievance, Occupy Wall Street unites them and attacks the system itself. As OccupyWallSt.org, the movement’s unofficial de facto website, says:

“#ows [Twitter hash-tag for Occupy Wall Street] is fighting back against the corrosive power of major banks and multinational corporations over the democratic process, and the role of Wall Street in creating an economic collapse that has caused the greatest recession in generations. The movement is inspired by the popular uprisings in Egypt and Tunisia, and aims to fight back against the richest 1% of people that are writing the rules of an unfair global economy that is foreclosing on our future.” [brackets mine]

In essence, Occupy Wall Street is an anti-systemic, populist movement against oligarchy and is actively creating a radical form of grassroots democracy.

Oligarchy

In order to understand an anti-systemic movement, it’s important to understand the nature of the system it’s up against. The political-economic system in America is not democratic — it’s oligarchic. Considering how much America touts itself as a “liberal democracy” and “beacon of freedom” to its citizens and around the world, calling America an oligarchy would understandably strike most people as odd. After all, how could a country with a constitution, bill of rights, and free elections be an oligarchy?

It’s important to keep in mind that the United States of America was founded as a republic, not a democracy. In a republic, people elect officials to the government and those officials are trusted to make decisions that benefit the country. The Founders did this because they distrusted democracy, particularly direct democracy where people actually make the decisions themselves. They didn’t believe the common person was capable of making important decisions for the country so they entrusted that power to themselves — rich, white male elites who saw themselves as wise men. More importantly, they wanted a system that protected their power and privilege. That’s why the only people who could vote, initially, were white men who owned property, which meant poor people, black people (slaves and free people), American Indians, and women could not vote. However, thanks to social movements throughout history, all U.S. citizens can vote. While many things have changed since 1776, political power in America has always rested in the hands of a rich and privileged class of people. This is what makes America an oligarchy.

In general, an oligarchy, as first defined by Plato, is a form of government where the richest citizens (in terms of wealth, family ties, royalty, etc.) are the rulers. Oligarchs, who are always a minority, “command or control massive concentrations of wealth…which can be readily deployed for political purposes”, as Jeffrey A. Winters and Benjamin I. Page explain in their study “Oligarchy in the United States?”. Oligarchy does not always have to be a tyrannical system. As Aristotle observed in Politics, IV, viii and Winters and Page say in their study, it can hide itself within constitutional governments. But there is a trade-off. Oligarchs say the masses, “As long as we control all the money and wealth, you poor masses can do whatever you want. Want freedom of religion? Go ahead. The right to vote? Fine. Just don’t touch our wealth.” If the underprivileged masses rise up and demand distributive reforms that threaten the oligarch’s wealth, such as taxing the rich, the oligarchs use the government to prevent that from happening. In the end, democracy becomes a sham. There are differences and occasional infighting within the oligarchic class, such as competition between different rival corporations. However, as Winters and Page point out, the oligarchs share common interests, namely protecting their wealth, acquiring more, ensuring its use for whatever purpose. In America, oligarchy is the power behind the throne of the constitutional-republic.

Oligarchy and inequality in America and around the world

Material resources bring political power to those who own them. In his study, “Who Rules America”, G. William Domhoff provides a great analysis of political power in the United States and how wealth and income are sources of power. As his study points out, when looking at inequality, it is important to distinguish between income and wealth. Income is what people earn working but also includes “dividends, interest, and any rents or royalties that are paid to them on properties they own”. On the other hand, wealth is what a person or family owns minus what they owe (debts). A person could be rich, in terms of income, but if they have a lot of debt then they are not very wealthy. What a person owns is measured by marketable assets, such as real estate (homes, property), stocks, and bonds, but this doesn’t include consumer goods, such as cars, because they can’t be converted into cash. Add up all marketable assets, subtract debts (mortgages, credit card payments, etc.), and you get net worth. There is also non-home wealth called “financial wealth”, which Domhoff defines as “net worth minus net equity in owner-occupied housing”. Winters and Page rightly point out that most people use their homes as places to live and their home equity for personal consumption and home improvement. Owner-occupying homes are rarely used a resource for political power. Therefore, when analyzing political power, it is better to look at financial wealth.

America’s massive economic inequality is a qualifying feature of oligarchy. According to Domhoff’s study, the richest 1% of the population (those who make $380,000 a year or more) own 35% of the country’s total wealth, the next 4% own 27%, the next 5% own 11%, while the bottom 80% own 15%. In addition, the top 1% own 43% of the country’s financial wealth (which is important for political power), the next 4% own 29%, the next 5% own 11%, while the bottom 80% own just 7%. In 2006, the top 1% earned 21.3% of all income, up from 17% in 2003, while the bottom 80% earned 38.6%, down from 42.2% in 2003. This occurred even as workers’ productivity rose but workers’ income remains stagnant for over 30 years. As Domhoff points out, “Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America” [emphasis mine].

While the top 1% own a large portion of the country’s wealth, at 3 million people, they are too large to constitute an oligarchic elite. The top 1% also includes many upper middle class managers and professionals, many of whom are actually subservient to the real oligarchs. There are those within the top 1% who are significantly wealthier and more powerful than others. Millionaires and billionaires are more well-off than most doctors and lawyers but they’re all included in the top 1%. Collectively, the top 1% own an average wealth of $3.3 million. The top tenth of 1% (.1%), on the other hand, own an average wealth of $14 million, while the top hundredth of 1% (.01%) own an average wealth of nearly $66.6 million. For the Forbes 400 list, the average wealth is well into the billions. Considering the differences and collective problems within the top 1% or even top 10%, Winters and Page consider the top tenth of 1% to be the oligarchs. Whatever the empirical measure, at the end of the day, the oligarchs are a small but extremely wealthy group of people.

Global wealth inequality shows that oligarchy extends across the world. According to a study done on global wealth distribution, the richest 1% of adults in the world own 40% of global household wealth. The richest 2% own more than half, the richest 10% own 85%, while the bottom half own 1% of global wealth. The study also points out that nearly all of the world’s wealthiest individuals live in “North America, Europe, and rich Asia-Pacific countries” with 37% of the richest 1% living in the United States. China is in the “middle third of global wealth distribution, while India, Africa, and low-income Asian countries dominate the bottom third”.

A great piece of evidence for global oligarchy is a study called “The Network of Global Corporate Control” done by Swiss researchers. Using network control theory (explained well in layman’s terms here), the study maps out global market networks from a database of 43,060 transnational corporations (TNCs) and about 30 million economic actors (individuals and firms). In concludes that “737 top holders [top 2%] control accumulate 80% of the control over the value of all TNCs” [brackets mine]. Moreover, the top 10 firms (top .02%) control 19.45% and the top 50 firms (top .1%) control about 40% of the global financial network — and most of these firms belong to the financial sector. There are criticisms of the study’s methodology, mainly over what the study counts as ownership and control. Despite those criticisms, the basic point remains clear: the global economy is controlled by a small group of interconnected firms — a global oligarchy.

This study also says something about capitalism — it’s an oligarchic economic system. Under capitalism, the means of production in an economy are owned and managed by private individuals and corporations. As Karl Marx observed, those owners rely upon the labor power of their workers to produce goods and services, and then sell those goods and services for profit. The benefits of profit go primarily to the owners, while the workers are given wages for meager subsistence. Even if workers are more productive, they don’t always reap the benefits, which is evidenced by the fact that wages have stagnated for over 30 years, while workers’ productivity increased. In 1949, Albert Einstein, the famous physicist, made an astute observation about capitalism:

“Private capital tends to become concentrated in few hands, partly because of competition among the capitalists, and partly because technological development and the increasing division of labor encourage the formation of larger units of production at the expense of smaller ones. The result of these developments is an oligarchy of private capital the enormous power of which cannot be effectively checked by even a democratically organized political society.”

Not only does oligarchy hide itself within democratic political systems, it is also a fundamental underpinning of capitalism as an economic system. Therefore, the oligarchs of the modern era are super-rich individuals, large multinational corporations, and big financial institutions like Goldman Sachs.

How oligarchs rule

Oligarchs rule in various ways to maintain and acquire more wealth and power. These include lobbying for bills in Congress and donating large sums of money to politicians. During the debate over healthcare reform, for example, a majority of Americans wanted a publicly-funded healthcare option to compete with and would be cheaper than private health insurance. However, the health insurance industry aggressively lobbied to remove this from the final bill, knowing it would harm their industry. In the end, they got what they wanted. In his 2008 presidential campaign, Barack Obama gained most of his campaign funding from the financial sector. For his 2012 reelection campaign, President Obama is still getting large sums of money from the financial industry — more so than all of the Republican presidential candidates combined. Obviously, oligarchs who donate large sums of money to politicians want something in return, which are policies that favor them.

Lobbying and financial donations are the most well-known ways oligarchs maintain their rule. However, there are numerous subtle ways oligarchs use, as well. These include creating think-tanks, such as the Heritage Foundation, that do policy research which influence politicians’ decisions on key issues, such as tax reform. There is also the revolving door between government and the private sector. This works in two ways: people work in private industries, particularly large corporations and financial institutions, usually lobbying for them, then leave and wind up working in government positions, such as Congressional staffers who help draft legislation and then vice versa, working for the government and then lobbying for private industry in government. People working in private industry wind up lobbying the federal government they used to work in or vice versa. According to OpenSecrets.org, several industries, such as the financial industry, defense companies, and telecommunications, employ lobbyists who used work in government. As a result, not only do big business and big banks pressure politicians through campaign contributions but they play an important role in drafting legislation designed to regulate their behavior. That allows them to water down regulations and draft legislation to get what they want.

The 2008-2009 financial crash is a good recent example of this. During the 1930s’ Great Depression, the Glass-Steagall Act of 1933 was passed to create a firewall between commercial banking, which everyone uses to hold deposits and take loans, and investment banking, which involves more risks and doesn’t hold deposits. For years, the financial industry tried to weaken and eliminate this bill. In 1999, they got what they wanted in the Gramm-Leach-Bliley Act which repealed Glass-Steagall. The next year, in 2000, the financial industry received another victory with the Commodity Futures Modernization Act which ensured the deregulation of complex financial instruments, such as derivatives and credit-default swaps. This made it easier for the financial sector to speculate on people’s (many of whom were poor and nonwhite) subprime mortgage loans (due to the housing bubble) and turn them into risky financial instruments, such as derivatives and credit-default swaps for profit. This led to the financial crash of 2008-2009, which devastated the global economy and created economic misery for millions of people — hence the anger of Occupy Wall Street at the financial industry.

The deregulation of the financial industry occurred through aggressive lobbying, lavish political donations, and the fact that members of the financial industry served in Bill Clinton’s administration. Robert Rubin, who worked at Goldman Sachs for 26 years, served four years as Clinton’s Treasury Secretary, while Lawrence Summers served four years as Deputy Treasury Secretary and took over as Treasury Secretary when Rubin left in 1999. Both Rubin and Summers played a role in advising Clinton to adopt neoliberal policies, such as deregulating the financial industry. Even after the crash, the financial industry continues to weaken legislation, such as the Dodd-Frank bill, that regulate their greedy and risky behavior, and received massive bailouts ($7.7 trillion) from the Federal Reserve.

Another subtle way oligarchs rule is through controlling the media and influencing political discourse. Six large media corporations own the mass media (television networks, cable channels, movie studios, magazines, newspapers, publishing houses, music labels, etc.). They are Time Warner, Walt Disney, Viacom, Rupert Murdoch’s News Corp., CBS Corporation, and NBC Universal. In addition, Clear Channel owns over 1,000 radio stations in the United States, while Google, Yahoo, and Microsoft own many websites throughout the Internet. As a result, media corporations will tailor their content to please advertisers in order to generate profit. The end product is information that inevitably reflects the ideological viewpoint of the media’s owners or does not present any views that harm the economic interests of big business.

In addition, news outlets rely on sources within business and government for information. If a news outlet publishes anything too critical of business or government, it loses access to those sources. This entices media outlets to appease political and economic elites by not publishing anything critical of them. Oftentimes, the media will repeat elite talking points without fact-checking or critical analysis, which occurred during the run-up to the war in Iraq. Noam Chomsky and Edward Harman make these points about corporate control of mass media in their book Manufacturing Consent: The Political Economy of the Mass Media, which later became a documentary based on the book.

These are the key ways oligarchs rule: lobbying government, lavish political donations to politicians, the revolving door between government and the private sector, and corporate ownership of mass media. In addition, laws and the Constitution are interpreted to favor the interests of economic elites. The notion of corporate personhood, established by Supreme Court decisions Dartmouth v. Woodward (1819) and Santa Clara Count v. Souther Pacific Railroad (1886), grants corporations the same rights and responsibilities as natural persons under the U.S. Constitution. This makes it easy (even easier, thanks to the Citizens United case) for corporations to donate large sums of money to politicians with very little restrictions.

Occupy Wall Street challenging oligarchy

Since the nation’s founding, oligarchy in America existed to preserve the power of the elites at the expense of the citizenry. This is where Occupy Wall Street comes in. In targeting the power of Wall Street and the 1% over the political system, Occupy Wall Street challenges oligarchy in America. Therefore, it is more than just a protest for short-term reforms; it is an anti-systemic movement.

In three months, Occupy Wall Street dramatically changed the national dialogue. Before the movement, the country and media focused on cutting the national debt. Since the movement, the country’s attention shifted toward inequality, corporate corruption, jobs, and unemployment. In addition, 650,000 Americans joined credit unions in October, which is more than all of 2010. This signals a shift in the country’s political consciousness. More people are realizing that big banks are not their friends. This shift in consciousness is due to the power of the Occupy Wall Street movement.

Criticisms for Occupy Wall Street’s lack of demands miss the character of the movement. If one talks to people at an occupy encampment or reads the Declaration of the Occupation of New York City, it’s fairly easy to extrapolate what the demands are: raise taxes on the rich, end of corporate personhood, student debt forgiveness, end to home foreclosures, campaign finance reform, equitable wealth distribution, measures to halt climate change, and many others. Within the movement, there are multiple ideas for policy changes and they’re constantly discussed. What’s unique about Occupy Wall Street is that it unites these disparate grievances into a movement that challenges the system as a whole.

Rather than appealing to the system to make reforms so that the protesters will go away, Occupy Wall Street sets up a model of a better society in the present to protest the unjust nature of the current system. As David Graeber, an American anthropology professor at Goldsmiths, University of London, an anarchist, and early organizer of Occupy Wall Street points out:

“You’re creating a vision of the sort of society you want to have in miniature. And it’s a way of juxtaposing yourself against these powerful, undemocratic forces you’re protesting. If you make demands, you’re saying, in a way, that you’re asking the people in power and the existing institutions to do something different. And one reason people have been hesitant to do that is they see these institutions as the problem.”

At occupy encampments around the country, people collectively make decisions by consensus at general assemblies. There are also working groups set up to deal with each issue impacting the community, such as legal, media, food, housing, and education. There are no established hierarchical structures or official leaders. Everyone is a leader. More importantly, basic resources, such as food and housing, are provided to everyone for free. These amenities also help nearby homeless people, foster youth, poor people, and others who have been shunned out of society. This brings to light the fact that many people have suffered under poverty and inequality long before the 2008 financial crash hit.

In recent weeks, many occupy encampments, particularly those in major cities, such as New York City, San Francisco, and Boston, have been evicted by police. The people who called those encampments their homes are now back on the streets. This encouraged the movement to enter a new phase: occupying foreclosed homes. Occupy Our Homes is a new movement in solidarity with Occupy Wall Street protesting home foreclosures by putting people back in their homes or preventing imminent foreclosures. To do this, Occupy Our Homes is partnering with grassroots organizations that have experience dealing with housing rights. This is prescient since millions of people lost or on the verge of losing their homes as a result of the bursted housing bubble. More importantly, it accomplishes something that directly impacts people who are suffering.

Occupy Our Homes is an example of Occupy Wall Street’s horizontal organizational structure in action. J.A. Myerson, an independent journalist involved with Occupy Wall Street’s Media and Labor Outreach committees, explains it well here:

“There are already organizations who have issued [demands], and they all know that, in the current moment in the history of struggling for justice and equality, Occupy Wall Street is the rising tide that will lift all boats. It is the force that will shape what the country votes on and how it votes on those, that will shape what candidates will feel pressured to campaign on…Let the organizations already fighting for these demands fight for these demands. Occupy Wall Street’s assistance will come in the creation of political culture that includes protesting corporate control of the country without interruption every day and every night in hundreds of cities and towns.”

Occupy Wall Street has been able to unite people from various political persuasions, from mainstream liberals to socialists, anarchists, to even free-market libertarians, and various movements, such as labor and antiwar, under an anti-oligarchy, anti-corporatist umbrella. From there, people can continue working on their various agendas. Occupy Wall Street, on the other hand, provides solidarity and additional resistance. In the case of Occupy Our Homes, Occupy Wall Street provides national attention and additional support for grassroots organizations that have been working on housing rights for a long time. Occupy the Hood and Occupy Colleges are examples of Occupy Wall Street extending its support for movements working on issues impacting poor, nonwhite communities and students respectively.

Eliminating a deeply-entrenched oligarchic system is no easy task. While Occupy Wall Street has accomplished a lot within three months, it has a long way to go. It still needs to address other issues, such as racism, sexism, and Western imperialism. More importantly, it needs to build a brand new world, from the ground up, that is free of injustice and oppression in order to undermine the current oppressive oligarchic system. How to achieve this is very difficult and, at some point, will involve participation in the formal political system. There are no easy answers to these problems. On the bright side, Occupy Wall Street is a movement where the 99% can address these problems and work toward building a better world.

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UPDATE (1/1/2012): This article was republished on Collateral Damage Magazine, which is an online magazine. You can read it here and I encourage you to read the other material on the site. It’s very progressive and informative.

Trader tells truth to BBC…”Goldman Sachs rules the world”

This video has been sparking a lot of controversy on the Internet and the media — and for good reason. In a shocking display of honesty, independent trader, Alessio Rastani, openly said:

“For most traders, we don’t really care that much how they’re going to fix the economy, how they’re going to fix the whole situation. Our job is to make money from it. And personally, I’ve been dreaming of this moment for three years. I have a confession, which is, I go to bed every night, I dream another recession, I dream of another moment like this. Why? Because people don’t seem to remember but the ’30s depression wasn’t just about a market crash. There were some people who were prepared to make money from that crash. And I think anybody can do that. It isn’t just for some people in the elite. Anybody can actually make money, it’s an opportunity. When the market crashes, when the Euro and the big stock markets crash, if you know what to do, if you have the right plan set up, you can make a lot of money from this.“ 

That evoked a collective jaw-drop from BBC reporters. Rastani continued by bluntly saying:

“This economic crisis is like a cancer, if you just wait and wait hoping it is going to go away, just like a cancer, it is going to grow and it will be too late…This is not a time [for] wishful thinking that government is going to sort things out. The governments don’t rule the world, Goldman Sachs rules the world. Goldman Sachs does not care about this rescue package, neither [do] the big funds.”

He then suggests that people prepare by protecting their assets because “in less than 12 months, my prediction is, the savings of millions of people [are] going to vanish.”

Because of Rastani’s rare and shocking analysis of our economic crisis, people thought he was hoax or part of the Yes Men. BBC and NPR confirmed, however, that this guy is a real trader and not a hoax.

What Rastani said is, for the most part, correct. While it may be hyperbole to say that “Goldman Sachs rules the world” (other elements of the power system, such as the Pentagon and multinational corporations, are highly influential in world affairs, too), Goldman Sachs, along with other major banks and multinational corporations, has significant influence in policymaking. This relationship ensures that governments work to protect the interests of business and financial elites at the expense of millions of ordinary people. As a result, politics becomes, as John Dewey said, “the shadow cast over society by big business.” It is also true that traders and financial elites look at economic crises as opportunities to make money. For example, as I wrote before, Goldman Sachs bet that the housing bubble (which it helped create) would crash and made lots of money as a result. Unfortunately, this meant that millions of people lost their homes. And Rastani is correct to point out that this crisis is like a cancer and will continue to grow, if nothing serious is done about it.

While much of what Rastani said was true, his comments caught people by surprise because you normally don’t hear that sort of honesty on a mainstream media network. Not to mention his assessment was very grim and looking at recessions as an opportunity to make money, rather than fix the economy, is pretty callous and cynical, given how many people are suffering. Yet, to seriously deal with the economic crisis, this is the sort of honesty we need.

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UPDATE (10/18/2011): Alessio Rastani was on Al-Jazeera’s Inside Story a few days ago talking about Occupy Wall Street. Interestingly enough, he sympathizes with the protesters. The discussion is worth listening to (click here to watch).

Our deep economic crisis and the inadequacy of Obama’s jobs plan

The state of the economy remains one of the top issues in the media and in people’s minds. And rightly so. Last week, the Labor Department released a report stating that no new jobs were created in the month of August. Official unemployment remains at 9.1% at the end of August, which is up from 8.8% at the end of July, according to Gallup. This dismal jobs situation put pressure on Obama to create a jobs bill, which he outlined in a speech to a joint-session of Congress yesterday evening (which I’ll come back to later on). Given the coverage and obvious importance of the current economic situation, I decided to show some useful statistics that portray the depth of this crisis and show, in my opinion, that things are actually worse than the media says it is.

The 9.1% number that the media touts as the unemployment rate is very misleading. That number is based on the number of unemployed persons (14 million) divided by the total labor force (153.6 million in August). So when you divide 14 million by 153.6 million, you get 9.1% and that’s how “official” unemployment is calculated by the U.S. Bureau of Labor Statistics. However, this number does not reflect “real” unemployment. It leaves out those who want to work full-time but can only find part-time work (which is of concern because part-time workers earn less, have fewer benefits, and are less able to support themselves than full-time workers) and those who give up looking for work (in the BLS’s eyes, they’ve dropped out of the labor force so they’re not counted in the unemployment rate). So it’s very possible for “official” unemployment to go down because people give up looking for work rather than finding new jobs.

Real unemployment is much higher. According to Mother Jones, the total number who are truly unemployed (people who are out of work, want to work full-time but forced to work part-time, and people who give up looking for work) is 25.3 million, which puts the real unemployment rate to around 16%, nearly double the official figure. Gallup’s numbers, however, are slightly higher. Their number for “underemployed”, which includes those who are unemployed or want to work full-time but can only find part-time work, is around 18%. If you add discouraged workers to that number, real unemployment could be much higher. However, because Gallup’s numbers are not seasonally adjusted and count workers who are 18 and older (compared to 16 and older in BLS numbers), as their site points out, their numbers are not directly comparable to the U.S. Bureau of Labor Statistics’ numbers. Despite the slight difference between Mother Jones’ and Gallup’s numbers, it is quite clear that real unemployment in America is much higher than the 9.1% touted in the media. The real level of unemployment is in the high-teens or close to 20%, which is staggering.

There is also a big gap between the number of available job openings and the number of people who are unemployed. As Mother Jones also points out, there are 6.9 million fewer jobs today than there were in December 2007 and there are 0.22 job openings for each unemployed worker. In order to meet its 11.3 million-job deficit by mid-2016, the American economy needs to add 280,000 jobs each month. In the past three months, however, an average of 35,000 jobs were created each month.

This graph below (done by Calculated Risk) is particularly revealing.

Source: http://www.calculatedriskblog.com/

It shows how quickly each recession since World War II regained the jobs lost since the beginning of each recession. With the exception of the 1990 and 2001 recessions, most recessions took around 2 years or less to regain their job losses. While the 1990 (black line) and 2001 (brown line) recessions took longer to regain jobs, the depth of their job losses were not that severe. The 1948 recession saw a very sharp decline in jobs but quickly bounced back within less than a year. The current recession, which began in 2007 (red line), has seen the worst employment decline in post-World War II history. And, as this graph shows, we are yet to recover from it, even though it’s been almost four years. Unless some miracle occurs that brings backs American jobs (with fair wages and decent benefits) within a short time, it will probably take years until the unemployment crisis fully recovers.

Which brings me to Obama’s recently-announced jobs plan, titled “The American Jobs Act”. While there are some decent elements of this plan, overall, I’m very skeptical about its merits. On the bright side, the plan proposes investment in infrastructure, modernizing 35,000 public schools, preventing teacher layoffs, extending unemployment insurance, encouraging businesses to hire veterans and long-term unemployed, and expanding job opportunities for low-income youth and adults. These are definitely steps in the right direction.

However, the plan is very tax-cut heavy. The plan totals $450 billion, of which $250 billion is in tax cuts. Most of the cuts are in payroll taxes, which funds Social Security. Small businesses and workers will see their payroll taxes cut in half. By cutting payroll taxes, Obama’s plan takes money out of a popular and necessary social safety-net for retired workers that pay into it in order to stimulate job growth. However, tax cuts are not the best stimulant for job growth. As Eliot Spitzer and Jeff Madrick pointed out on Countdown with Keith Olbermann, companies that receive tax cuts don’t always use them to hire new workers. Companies that receive tax cuts often save that extra money and don’t put it back into the economy. During recessions, if businesses don’t spend and consumers don’t spend then the only option left is for the government to spend in order to stimulate demand and put the economy back on track. That’s how America got out of the Great Depression and the same thing needs to happen now. Obama’s tax-cut-heavy jobs plan won’t do that. More importantly, it isn’t fair to cut Social Security to alleviate the unemployment crisis. Social Security expenditures is not related to the jobs crisis. The recession and related unemployment crisis were caused by a bursted housing bubble and Wall Street gambling with people’s mortgages — Social Security played no role in that. Social Security is a vital social safety-net that protects the elderly from poverty and it’s been working well since its creation. Putting Social Security on the chopping block makes no sense.

Overall, I am very skeptical that Obama’s jobs plan will improve the country’s economic situation. It is certainly better than nothing and there are good things in this plan. However, the tax cuts will not do much to stimulate the economy. Cutting payroll taxes, thereby defunding Social Security, is a terrible and unnecessary idea (this was probably tacked on to please Republicans). Plus, this could complicate the work of the deficit-reduction “super committee” that was created by the atrocious debt deal passed last month. So any benefit that could come from this plan will be offset by the cuts to Social Security and the damage done by the debt deal and “super committee”.

Moreover, as the facts I presented show, the nation’s economic crisis is very deep and systemic. It will take a long time for this country to recover from the damage done by neoliberal economic policies. Much more needs to be done in order to not only recover lost jobs but also ensure that those jobs provide people with a decent standard of living and retirement benefits. In addition, it is vital that this nation reduce the substantial economic inequality that currently exists. The few, very rich individuals and corporations are living lavishly, while the rest of the country suffers. So even if Obama’s jobs plan passes, we have to follow up with more progressive policies to ensure economic stability and justice.