by Stephen Lendman
Global Research, June 27, 2009
Besides waging perpetual wars, nothing better reveals America's imperial agenda than its hundreds of global bases - for offense, not defense at a time the US hasn't had an enemy since the Japanese surrendered in August 1945.
So when they don't exist, they're invented as former US ambassador to Saudi Arabia, Charles W. Freeman, Jr., suggested in a May 24, 2007 speech to the Washington Institute of Foreign Affairs:
"When our descendants look back on the end of the 20th century and the beginning of this one, they will be puzzled. The end of the Cold War relieved Americans of almost all international anxieties." As the world's sole remaining superpower, "We did not rise to the occasion."
"We are engaged in a war, a global war on terror, a long war, we are told....How can a war with no defined ends beyond the avoidance of retreat ever reach a convenient stopping point? How can we win (any war let alone the hearts and minds of millions) with an enemy so ill-understood that we must invent a nonexistent ideology" for justification.
In his 2006 book, "Nemesis: The Last Days of the American Republic," Chalmers Johnson discussed the known number of foreign US bases by size and branch of service. According to the Department of Defense's Base Structure Report (BSR) through 2005, it totaled 737 but likely exceeds 1000 today with so many new ones built since then - some known, others secret and always others planned.
Johnson also highlighted the fallout - unacceptable noise, pollution, environmental destruction, expropriation of valuable public and private land, and drunken, disorderly, and abusive soldiers committing crimes that include rape and murder that often go unpunished under provisions in US-imposed Status of Forces Agreements (SOFAs).
An excerpt from his book reads:
"Once upon a time, you could trace the spread of imperialism by counting up colonies. America's version of the colony is the military base; and by following the changing politics of global basing, one can learn much about our ever more all-encompassing imperial footprint and the militarism that grows with it....even more than in past empires, a well-entrenched militarism (lies) at the heart of our imperial adventures." To such an extreme that "each year we spend more on our armed forces than all others nations on Earth combined" to garrison troops "in more than 130 countries."
The Pentagon lists them in its annual Base Structure Report, but "its official count of between 737 and 860 overseas installations is incomplete" because excluded are numerous secret ones - for espionage, unofficially shared with host countries, or other reasons not disclosed.
The bases reflect "force projection" for global dominance and are positioned to strike any nation that might challenge it, friend or foe. But they come at a great cost - well over $1 trillion annually with all homeland, foreign, and other budget categories included. According to Johnson, a far greater one as well, the same dynamic that doomed past empires unwilling to change - "isolation, overstretch, the uniting of local and global forces opposed to imperialism, and in the end bankruptcy" as well as the end of democracy, loss of personal freedoms, and tyranny.
During WW II, Brits complained that GIs were "overpaid, overfed, oversexed, and over here." Despite the war, some called it the US "occupation," and UK historian David Reynolds discussed it in his book, "Rich Relations: The American Occupation of Britain, 1942-1945." He borrowed the word from George Orwell's December 1943 comment that "It is difficult to go anywhere in London without having the feeling that Britain is now Occupied Territory."
Today, millions in countries globally feel the same, and with good reason. Even at peace, America's presence is intrusive, hostile, and at the expense of the host country populations.
A new book is now out titled "The Bases of Empire: The Global Struggle against US Military Posts," a collection of important articles on America's worldwide empire and military presence that enforces it.
It's edited by Catherine Lutz, Brown University Professor in the Department of Anthropology, Watson Institute for International Studies with a forward by Cynthia Enloe, Clark University Research Professor, Department of International Development, Community and Environment and Women's Studies.
Enloe dispels some common myths in her forward:
-- about Americans believing that foreign bases benefit the host country populations;
-- the notion that other countries request our presence;
-- that the US military is the most "civilized" in the world, and
-- their presence is for other nations' security "in an age of an allegedly diffuse (and ill-defined) 'global terror,' (that) trumps any other 'lesser' concerns."
Contributors to "The Bases of Empire" reflect a powerfully opposite point of view as well as Enloe in her forward and Lutz in her detailed introduction, discussed below.
Introduction - Bases, Empire, and Global Response
Lutz cites the "unprecedented....global omnipresence and unparalleled lethality of the US military, and the ambition with which it is being deployed around the world." Its presence shows that America stands "able and willing to control events in other regions militarily" and proves it through numerous foreign wars and other hostile interventions, directly or through proxies.
Citing data from DOD's 2007 Base Structure Report (BSR), she states:
"Officially, over 190,000 troops and 115,000 civilian employees are massed in 909 military facilities in 46 countries and territories. There, the US military owns or rents 795,000 acres of land, and 26,000 buildings and structures valued at $146 billion."
However, the numbers are misleading as they exclude the massive base and troop presence in Iraq, Afghanistan, former Soviet republics, and Warsaw Pact countries as well as unknown numbers of secret facilities in numerous other nations. They consist of three types:
-- Main Operating Bases (MOBs) like the Iraq Balad Air Base housing 30,000 troops, 10,000 contractors, and covering 16 square miles plus another 12-square mile "security perimeter." MOBs are large and permanent, have extensive infrastructure, command and control headquarters, accommodations for families in non-war zones, hospitals, schools, recreational facilities, and nearly anything available in a typical US city.
-- Forward Operation Sites (FOSs) that are also major installations but are smaller than MOBs, and
-- Cooperative Security Locations (CLSs) that are small, austere, called 'lily pads," - to preposition weapons, munitions, and modest numbers of troops.
Lutz highlights the fallout:
"The environmental, political, and economic impact of these bases is enormous and, despite Pentagon claims that the bases simply provide security to the regions they are in, most of the world's people feel (not at all) reassured by (their) global reach," and with good reason.
Farm and public land is expropriated for their use. Toxic pollution is enormous as well as extensive environmental damage. Noise levels from round-the-clock aircraft are intolerable, and around numerous bases America is at war. It also imprisons and tortures thousands, props up despotic rulers for its own advantage, and virtually holds the entire planet hostage to its extremist agenda.
Lutz says this book describes US militarism globally and campaigns to hold America accountable for the "damage and to reorient (host) countries' security policies in other, more human, and truly secure directions."
For its part, America occupies the world, reflects a hostile presence, trains about 100,000 local forces in 180 countries as partners, and turns a blind eye to human rights abuses, by its own troops and those of host nations.
Besides its presence in fixed bases, the Pentagon is involved in "jungle, urban, desert, maritime, and polar training exercises across wide swathes of landscape" - always intrusive and often provocative as in the Philippines. After it was forced to give up its bases in 1992, US troops remained in the country despite strong popular opposition and the Philippine constitution prohibiting the basing of foreign forces. No matter, US military and civilian personnel lobby to change local laws to accommodate America's access.
Laws are there for legitimate reasons, one of which is the focus of this book - the impact and costs that a foreign presence has on host countries' people. Lutz explores why it's there, how it's configured, popular myths, and "the global movement to push back or expel (it) altogether."
The Purpose of US Bases
They reflect empire, an aim to dominate everywhere, a sense of "racial, cultural, or social superiority," and a success when "wealth is extracted from peripheral areas and redistributed to the imperial center."
The Pentagon claims they're in place to:
-- defend the homeland with a forward or global presence; and
-- provide other nations with security.
In fact, they're to control trade, resources, local supplies of cheap labor, and political, economic, and social life of host countries. They also force them to support American imperialism, including foreign wars despite harmful fallout to local populations.
A Short History of US Bases
-- they go back to colonial America, then grew to a "frontier project" to remove Native Indians for a new nation with European settlers;
-- in 1938, 14 foreign bases existed; post-WW II "an astounding 30,000 (large and small) installations" were in about 100 countries; by 1948, it was 2000;
-- besides creating America coast-to-coast and the 1846 - 48 Mexican war, US history reflects three imperial periods:
(1) the 1898 Spanish-American war conquest and occupation of foreign territory and acquisition of bases in them;
(2) World War II and its Cold War aftermath established the "bulk of the US basing system;" even so, from 1947 - 1990, America was asked to leave France, Yugoslavia, Iran, Ethiopia, Libya, Sudan, Saudi Arabia, Tunisia, Algeria, Vietnam, Indonesia, Peru, Mexico, and Venezuela; in the 1990s and later, the Pentagon was forced out of the Philippines, Panama, Saudi Arabia, Puerto Rico's island-municipality Vieques, Uzbekistan, and Ecuador, and decided voluntarily to leave elsewhere;
(3) post-9/11 militarism under George Bush neocons advanced the goal of "full spectrum dominance" over all land, surface and sub-surface sea, air, space, electromagnetic spectrum and information systems with enough overwhelming power to fight and win global wars against any adversary, including with nuclear weapons preemptively.
Common Myths about US Foreign Bases
Why do sovereign nations and the US public tolerate them? One explanation is that "the bases are naturalized or normalized, meaning that they are thought of as unremarkable, inevitable, and legitimate," and militarism supports these notions as the way to bring order to a dangerous world.
The Pentagon argues their legitimacy on these grounds:
-- "utilitarianism and realism" as follows:
(1) to secure America by deterring attacks and preventing or removing military challenges;
(2) overseas forces represent America's first line of defense; and
(3) "potential security challenges in Asia" require American intervention to prevent or intervene to "restore order."
Strategic language justifies them to project power anywhere in the world and "contend with (any) uncertainty (regarding America's) security challenges."
Bases also "serve the national economic interests of the United States, ensuring access to markets and commodities needed to maintain the American standard of living...." Also to react to any threat, maintain trade, keep commerce routes open, and assure the dollar remains the world's dominant reserve currency. In a word, to have America's footprint everywhere with a military presence for enforcement.
US forces are a "visible expression of the extent of America's status as a superpower" and its goal to keep it that way unchallenged. It suggests that more bases are better and a way to project a visible presence everywhere or close by.
A second argument "sees them as positive expressions of American character, and particularly its humanitarian ethos." The Pentagon portrays itself as a benefactor, a liberator, and helper on the scene at times of natural or other disasters. We claim bases are "gifts to other nations, both as defense sites and as wealth generators. They represent American altruism and sacrifice" when, in fact, they're for hardline dominance intolerant of opposition, national sovereignty, democratic freedoms, and social justice.
They also fail on their own terms. Instead of providing safety and security, they incite antagonism, opposition and blowback against an American occupier and enemy. Yet they proliferate on the notion that "humans are naturally violent and that war can be a glorious and good venture." It's also hugely profitable for the defense establishment and related industries, energy and technology to name two.
The World Responds
"Social movements have proliferated around the world in response to the empire of US bases." For some, just their presence is an affront to national sovereignty and pride. Others reject their purpose - aggressive wars, continued violence, and all the other above-cited fallout wherever they're located. Globally, these bases "represent a massive injustice" to host nations and communities where they're located.
Despite providing jobs for local workers, wages are poor, benefits few if any, and most Pentagon dollars flow to large military contractors, other major US corporations, and selected local business elites. Ordinary people are exploited and entirely left out, especially in developing countries, hence their opposition to militarism and foreign occupation.
"With the end of the Cold War, the central pretext for most US bases evaporated, and calls for their return were renewed." In 1991, a successful Philippine movement ousted them with a post-Ferdinand Marcos constitution declaring:
"foreign military bases, troops or facilities shall not be allowed in the Philippines except under a treaty duly concurred in by the Senate and, when the Congress so requires, ratified by a majority of the votes cast by the people in a national referendum held for that purpose."
In 2003, sustained direct action campaigns and political lobbying also succeeded in Vieques, Puerto Rico, in part because naval activities caused environmental and health damage - a core issue wherever US bases are located.
"The Bases of Empire includes 10 articles by different writers, divided in two parts: Mapping US Power and Global Resistance.
Part I includes:
-- Joseph Gerson's "US Foreign Military Bases and Military Colonialism: Personal and Analytical Perspectives;"
-- John Lindsay-Poland's "US Military Bases in Latin America and the Caribbean;"
-- David Heller and Hans Lammerant's "US Nuclear Weapons Bases in Europe;" and
-- Tom Englehardt's "Iraq as a Pentagon Construction Site."
Part II includes:
-- Roland Simbulan's "People's Movement Response to Evolving US Military Activities in the Philippines;"
-- Katherine McCaffrey's "Environmental Struggle after the Cold War: New Forms of Resistance to the US Military in Vieques, Puerto Rico;"
-- Ayse Gil Altinay and Amy Holmes "Opposition to the US Military Presence in Turkey in the Context of the Iraq War;"
-- Kyle Kajihiro's "Resisting Militarism in Hawaii;" and two other articles discussed below.
David Vine and Laura Jeffrey's "Give Us Back Diego Garcia: Unity and Division among Activists in the Indian Ocean."
Diego Garcia is an 84-square mile British-controlled Indian Ocean island in the Chagos archipelago, lying strategically half way between Asia and Africa, and the reason the Pentagon wants it.
It was home to indigenous Chagossians, British citizens, before being expelled between 1967 - 1973 to let America have their island-state as a military base. In flagrant denial of their human rights, they were mass-exiled to Mauritius and Seychelles, 1300 miles away, where they remain in abject poverty and despair. The population had no say, and those who objected were lied to and told they had no choice because their removal was "legal" under colonial rule.
In their new home, life was hellish. They were consigned to a society foreign to their simple ways and weren't able to adjust. On Diego Garcia, they had their own home, grew their own food, fished, and worked on plantations. In exile, they needed jobs to survive but couldn't get them. By the mid-1970s, most were unemployed, impoverished and began to die, but the British Foreign Office and High Commission told them to let the Mauritius and Seychelles governments handle it.
Chagossians are UK citizens entitled to the same rights as other Brits, but all they got was 1000 pounds (around $1600 today) in exchange for renouncing their right to return, agreed to on a document they couldn't read.
The history of this episode was hidden until the 1990s when declassified documents were found in the National Archives at Kew in London. They proved a conspiracy between Britain and America that the International Criminal Court's (ICC) Article 7 calls a "deportation or forcible transfer of a population (and) and crime against humanity."
Britain's action also violated the UN Charter's Article 73 that obliges a colonial government to obey its "sacred trust" to protect the human rights of its people. Instead, America and the UK engaged in cover-up and deception that continued for a decade and went to the highest levels of both governments. Involved were prime minister Harold Wilson and Queen Elizabeth along with presidents Johnson, Nixon and others.
Everything was hidden, including financial kickbacks Washington made that were concealed from Congress and Parliament. That changed once the truth came out. On November 3, 2000, the British High Court stunned the government, cited the Magna Carta, annulled the original deportation order, and effectively ruled that British subjects were entitled to go home. However, the victory was short-lived as a year later Chagossians were back in the High Court seeking compensation for their ordeal.
This time a hostile judge called their case "unmeritorious" and denied their claim. Three months later, the Foreign Office minister responsible for Chagos sent an "order-in-council" to the Queen for her automatic approval that overturned the High Court 2000 victory, banning Chagossians from ever returning home.
Nonetheless, they pursued their case, again before the High Court. On May 11, 2006, a damning verdict condemned the expulsion order as "repugnant" and overturned the Blair government's "order-in-council." Thus far to no avail, yet Chagossians still fight for their right of return and an end to their decades-long plight.
They held an April 18, 2009 meeting, met with the Royal Commonwealth Society in late May, made their case, but it remains unresolved. The UK Chagos Support Association said at the time:
"the original people of Chagos are dying of broken hearts and spirit. They are still waiting for justice to be done and it seems like this is dragging until all the people who really have the right to fight for the cause no longer have a voice. It has been 45 years and we believe it is time that justice is done and peace is found." Thus far, Britain and Washington won't agree. Imperial considerations take precedence over all else.
Kozue Akibayashi and Suzuyo Takazato's "Okinawa; Women's Struggle for Demilitarization."
Okinawa is Japan's southern-most and poorest prefecture. It's also home to dozens of US military bases since 1945. In his book "Nemesis," Chalmers Johnson cited a history of abuse - from 1998 - 2004 alone, 2024 reported crimes and accidents in which US forces were involved. Only one led to a court-martial, 318 others to administrative discipline, and the rest were absolved, yet they involved robberies, assaults, rapes and reckless homicides. Okinawa's women and girls suffered most.
Akibayashi is a researcher at the Institute for Gender Studies at Toyko's Ochanomizu University. Takazato is an activist fighter for women's rights, especially against the threat of US military personnel-committed rape and sexual assaults. She's also a City Council member of Okinawa's capital, Naha, and helped found Okinawa Women Act Against Military Violence and the Rape Emergency Intervention Counseling Center of Okinawa, established after three US Marines gang-raped a 12-year old girl on September 4, 1995.
After Japan surrendered in 1945, America wrote its constitution, and occupied the country ever since, now with 88 bases in a nation smaller than California. Thirty-seven are on Okinawa, a tiny sliver of land about the size of a large US city, so it's easy to understand why its people are long-suffering and justifiably angry.
They've been practically pushed into the Pacific to accommodate America's occupation, forced to relinquish their most valued real estate, and put up with over six decades of all the above-cited abuses. Their greatest outrage is over the SOFA's article 17 covering criminal justice. It states:
"The custody of an accused member of the United States armed forces or the civilian component (shall) remain with the United States until he is charged."
It means when US personnel commit crimes, including rape and murder, Japanese investigative authorities have no exclusive access to suspects until they're indicted in court. That alone hamstrings investigations enough to make prosecutors reluctant to press charges because they can't get enough evidence for trials. Further, the longer things drag out, the easier it is for the Pentagon to whitewash crimes and transfer guilty parties to new locations, far removed from Okinawa.
The most serious incident was the above-cited 1995 rape. The 12-year old girl involved was also beaten, then left on a beach after which the three Marines returned to their base in a rented car. In October, 85,000 Okinawans protested. They demanded Japanese and American authorities address the issue after the Pentagon initially refused to hand over suspects to Japanese police. Usually they never do anywhere, but this case was an exception. Because of political pressure, the Marines were arrested, tried in a Japanese court, convicted and sentenced to prison terms for their crime - seven years for two of them and six and a half for the other.
This case highlights what Okinawans and other people have endured for decades. SOFAs let the Pentagon run its affairs unaccountable to host country laws, including on Okinawa. The result everywhere is that US personnel get away with rapes, drunken brawling, muggings, drug violations, reckless driving and related accidents, arson, and criminal homicide, especially in host countries with non-white populations - abuses unchanged for decades on Okinawa.
As a result, Akibayashi and Takazato concluded:
-- "Integral elements of misogyny infect military training....The military is a violence-producing institution to which sexual and gender violence are intrinsic....The essence of military forces is their pervasive, deep-rooted contempt for women, which can be seen in military training that completely denies femininity and praises hegemonic masculinity," and
-- "The OWAAMV (Okinawa Women Act Against Military Violence) movement illustrates from a gender perspective that 'the protected,' who are structurally deprived of political power, are in fact not protected by the militarized security policies; rather their livelihoods are made insecure by these very policies." Gated bases don't deter violence outside them and result in local populations being oppressed and denied their rights when it happens.
America's "Bases of Empire" menace world societies. Okinawan women and young girls bear testimony to how grievously.
A blog which is dedicated to the use of Traditional (Aristotelian/Thomistic) moral reasoning in the analysis of current events. Readers are challenged to reject the Hegelian Dialectic and go beyond the customary Left/Right, Liberal/Conservative One--Dimensional Divide. This site is not-for-profit. The information contained here-in is for educational and personal enrichment purposes only. Please generously share all material with others. --Dr. J. P. Hubert
Saturday, June 27, 2009
Wednesday, June 24, 2009
Why America is a Bank-owned State
By Samah El-Shahat
June 23, 2009 "Al Jazeera" -- June 12, 2009 - In my last column I introduced the idea that America's handling of the financial crisis, and in particular the way it has refused to deal with the banks, is more in keeping with how an "emerging" economy might behave and act.
So this week, I will say that America has become a bank-owned state, allowing its banking oligarchs to suffocate the economy so they can survive at any price.
As a development economist, what always made developing and poorer countries stand out was the level of inequality between individuals.
That is, the difference between how a small percentage, usually the country's capitalists, oligarchs and those close to people in power, were overdosing on wealth as the rest struggled to make ends meet, or even survive.
Everyone in the country knew it, from the poorest farmer on the street to the richest oligarch. It was in your face, unashamed, unabated and highly discomforting.
Discomforting because it made all of us who witnessed it feel crippled at the power of the status quo, ruing the unfairness of life when merit always comes last, relative to who you know and who you are.
We took some relief from believing that this only happens because these countries were authoritarian, and not so accountable to their electorate.
Yet, if we look closer at the leading capitalist economies such as those of America and the UK, we will find that inequity raises its ugly head equally, and as starkly, when you look at the numbers.
Kept in the dark
Here too, a small percentage have the lion's share of national income in their hands, while the rest of the population experience stagnant incomes, all within a democratic, rather than an authoritarian, political regime.
Yet the real difference here is that, away from the numbers, the wider population and the electorate were mostly kept in the dark about this.
In 2006, the top one per cent of American households' share of all disposable income amounted to almost a quarter of all households' disposable income, according to Robert Hunter Wade, professor of political economy at the London School of Economics.
In crude terms, one per cent of the population have a quarter of all the wealth.
Moreover, Wade found the average income of the bottom 90 per cent of the population remained almost stagnant after 1980, although consumption kept rising thanks to the build-up of private debt.
This means that 90 per cent of the American economy were financing their American dream on debt.
In the UK, Wade found the pay gap between the highest and average earners had widened alarmingly.
Back in 1989, chief executives pocketed 17 times more than average earners.
By 2007, those same "captains of industry" were earning 75 times more than the average worker.
That is one enormous leap and I wouldn't mind that happening to my salary!
What's good for Wall Street ...
Warning signs that the financial crisis would become the great recession were there for all to see for a long time.
But where were the alarms in the system itself to say that these countries and the individuals in them were pursuing an unsustainable way of life?
Where were the signs that things were going to end disastrously and, worse still, that the most vulnerable might end up paying the heftiest and most disproportionate price than anyone else?
I believe the status quo was allowed to go unquestioned because banks were benefiting obscenely from the interest on our debt, and governments were in cahoots with these banks. Let's not forget that governments conveniently moved away from the provision of affordable healthcare, free university education and affordable housing while the banks entered our lives, aggressively, to fill that void.
In addition, I think that this warped and unjust way of operating was not questioned because the electorate was kept in the dark in the most subtle way possible.
The whole issue was made invisible. It was kept off the radar screens of electoral politics.
The American electorate were made accomplice to this because they were convinced that what was good for Wall Street, was good for America as a whole.
It was a political sleight of hand of the highest order. And this explains the bipartisan agreement to the ill-designed deregulation of the finance sector that we have seen over the years.
America has become a bank-owned state.
Ann Pettifor, a fellow development economist who works for the New Economics Foundation, says the US administration has been hijacked, and democracy has been pushed aside in favour of what is good for the bankers, by what Abraham Lincoln called "the money power".
And how right she is. The way the banks are being bailed out is a clear example of this political edifice.
Sucking the life out of tax-payers
The fact some of these failing banks have been thrown a lifeline is a testament to the hold they have over Barack Obama's administration.
Some of the banks should be allowed to die because they are so insolvent and holding so much in toxic assets that they will forever need to be on taxpayer-funded life support.
The problem is, this life support is sucking the life out of the taxpayer in the process, as it weighs them down with ever-increasing debt.
On top of that, the money could be used to restructure the economy in a way that is less reliant on the financial sector.
Underlying this refusal to kill those banks in poor health is a faulty and, dare I say, convenient assumption, that is not backed up by reality or fact, that the banks are facing a liquidity crisis as opposed to them facing a solvency crisis.
A liquidity crisis means the banks are facing a credit shortage, and once that is sorted, all will be well. A solvency crisis means that the assets of many banks, firms and households are worth less than their debt.
And this means that these banks have to be completely nationalised.
Which leads us to Timothy Geithner, the US treasury secretary, and his "stress tests".
The tests were meant to give a clear and final assessment of these banks' balance sheets, telling us which were healthy and which would not be able to survive and would need more cash if the recession deepens.
As in any induced test, like the ones we undergo when we have our hearts tested, the "stress tests" were meant to simulate worse-case scenarios. Well, that was the promise at least.
The hope was that some would be declared so bad, they would have to go under once and for all.
Unfortunately, the tests turned out peculiarly lacking in stress.
Nouriel Roubini, professor at the Stern School of Business at New York University, says: "The government used assumptions for the macro variables in 2009 and 2010 that are so optimistic that the actual data for 2009 are already worse than the adverse scenario."
"As for some crucial variables, such as the unemployment rate – key to proper estimates of default and recovery rates for residential mortages ... and other bank loans – the current trend shows that by the end of 2009 the unemployment rate will be higher than the average unemployment rate assumed in the more adverse scenario for 2010, not for 2009."
The unemployment rate used in the worse-case scenario was assumed to average 8.9 per cent in 2009 and 10.3 per cent in 2010. But unemployment has already reached 9.4 per cent this year, and looks likely to overtake 10.3 per cent by next year.
So, there is nothing really challenging about these worse case scenarios at all.
Next week, I'll write about Timothy Geithner's plan to wipe toxic assets off the banks' balance sheets without getting rid of one single bank ... and how long before we say ENOUGH and really do something about it.
June 23, 2009 "Al Jazeera" -- June 12, 2009 - In my last column I introduced the idea that America's handling of the financial crisis, and in particular the way it has refused to deal with the banks, is more in keeping with how an "emerging" economy might behave and act.
So this week, I will say that America has become a bank-owned state, allowing its banking oligarchs to suffocate the economy so they can survive at any price.
As a development economist, what always made developing and poorer countries stand out was the level of inequality between individuals.
That is, the difference between how a small percentage, usually the country's capitalists, oligarchs and those close to people in power, were overdosing on wealth as the rest struggled to make ends meet, or even survive.
Everyone in the country knew it, from the poorest farmer on the street to the richest oligarch. It was in your face, unashamed, unabated and highly discomforting.
Discomforting because it made all of us who witnessed it feel crippled at the power of the status quo, ruing the unfairness of life when merit always comes last, relative to who you know and who you are.
We took some relief from believing that this only happens because these countries were authoritarian, and not so accountable to their electorate.
Yet, if we look closer at the leading capitalist economies such as those of America and the UK, we will find that inequity raises its ugly head equally, and as starkly, when you look at the numbers.
Kept in the dark
Here too, a small percentage have the lion's share of national income in their hands, while the rest of the population experience stagnant incomes, all within a democratic, rather than an authoritarian, political regime.
Yet the real difference here is that, away from the numbers, the wider population and the electorate were mostly kept in the dark about this.
In 2006, the top one per cent of American households' share of all disposable income amounted to almost a quarter of all households' disposable income, according to Robert Hunter Wade, professor of political economy at the London School of Economics.
In crude terms, one per cent of the population have a quarter of all the wealth.
Moreover, Wade found the average income of the bottom 90 per cent of the population remained almost stagnant after 1980, although consumption kept rising thanks to the build-up of private debt.
This means that 90 per cent of the American economy were financing their American dream on debt.
In the UK, Wade found the pay gap between the highest and average earners had widened alarmingly.
Back in 1989, chief executives pocketed 17 times more than average earners.
By 2007, those same "captains of industry" were earning 75 times more than the average worker.
That is one enormous leap and I wouldn't mind that happening to my salary!
What's good for Wall Street ...
Warning signs that the financial crisis would become the great recession were there for all to see for a long time.
But where were the alarms in the system itself to say that these countries and the individuals in them were pursuing an unsustainable way of life?
Where were the signs that things were going to end disastrously and, worse still, that the most vulnerable might end up paying the heftiest and most disproportionate price than anyone else?
I believe the status quo was allowed to go unquestioned because banks were benefiting obscenely from the interest on our debt, and governments were in cahoots with these banks. Let's not forget that governments conveniently moved away from the provision of affordable healthcare, free university education and affordable housing while the banks entered our lives, aggressively, to fill that void.
In addition, I think that this warped and unjust way of operating was not questioned because the electorate was kept in the dark in the most subtle way possible.
The whole issue was made invisible. It was kept off the radar screens of electoral politics.
The American electorate were made accomplice to this because they were convinced that what was good for Wall Street, was good for America as a whole.
It was a political sleight of hand of the highest order. And this explains the bipartisan agreement to the ill-designed deregulation of the finance sector that we have seen over the years.
America has become a bank-owned state.
Ann Pettifor, a fellow development economist who works for the New Economics Foundation, says the US administration has been hijacked, and democracy has been pushed aside in favour of what is good for the bankers, by what Abraham Lincoln called "the money power".
And how right she is. The way the banks are being bailed out is a clear example of this political edifice.
Sucking the life out of tax-payers
The fact some of these failing banks have been thrown a lifeline is a testament to the hold they have over Barack Obama's administration.
Some of the banks should be allowed to die because they are so insolvent and holding so much in toxic assets that they will forever need to be on taxpayer-funded life support.
The problem is, this life support is sucking the life out of the taxpayer in the process, as it weighs them down with ever-increasing debt.
On top of that, the money could be used to restructure the economy in a way that is less reliant on the financial sector.
Underlying this refusal to kill those banks in poor health is a faulty and, dare I say, convenient assumption, that is not backed up by reality or fact, that the banks are facing a liquidity crisis as opposed to them facing a solvency crisis.
A liquidity crisis means the banks are facing a credit shortage, and once that is sorted, all will be well. A solvency crisis means that the assets of many banks, firms and households are worth less than their debt.
And this means that these banks have to be completely nationalised.
Which leads us to Timothy Geithner, the US treasury secretary, and his "stress tests".
The tests were meant to give a clear and final assessment of these banks' balance sheets, telling us which were healthy and which would not be able to survive and would need more cash if the recession deepens.
As in any induced test, like the ones we undergo when we have our hearts tested, the "stress tests" were meant to simulate worse-case scenarios. Well, that was the promise at least.
The hope was that some would be declared so bad, they would have to go under once and for all.
Unfortunately, the tests turned out peculiarly lacking in stress.
Nouriel Roubini, professor at the Stern School of Business at New York University, says: "The government used assumptions for the macro variables in 2009 and 2010 that are so optimistic that the actual data for 2009 are already worse than the adverse scenario."
"As for some crucial variables, such as the unemployment rate – key to proper estimates of default and recovery rates for residential mortages ... and other bank loans – the current trend shows that by the end of 2009 the unemployment rate will be higher than the average unemployment rate assumed in the more adverse scenario for 2010, not for 2009."
The unemployment rate used in the worse-case scenario was assumed to average 8.9 per cent in 2009 and 10.3 per cent in 2010. But unemployment has already reached 9.4 per cent this year, and looks likely to overtake 10.3 per cent by next year.
So, there is nothing really challenging about these worse case scenarios at all.
Next week, I'll write about Timothy Geithner's plan to wipe toxic assets off the banks' balance sheets without getting rid of one single bank ... and how long before we say ENOUGH and really do something about it.
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