naked capitalism Mon 2010-09-20 09:24 EDT

Theoclassical Law and Economics Makes the Law an Ass

William Black

...The Supreme Court's Citizens United decision allows businesses to make unlimited political contributions to judges and politicians. When judges are elected, the need for these contributions inherently turns judges into politicians. Sympathetic judges are corrupt businesses' most valuable allies. Corporations and their senior officials can commit civil or criminal wrongs with impunity if their case is assigned to a friendly judge...Yves noted that the Chamber of Commerce was leading the effort to elect CEO-friendly judges...The Chamber distributed a plan for a hostile takeover of university departments of economics and finance (and the courts and the media) proposed by Lewis Powell (the soon to be Supreme Court Justice). Extremely conservative ``law and economics'' proved to be central to this effort. The law and economics movement began as a non-ideological approach to explaining and aiding judicial decision-making. The scholars leading the movement had diverse views. The Olin Foundation transformed law and economics into an ultra ideological field dominated almost exclusively by passionate opponents of government ``interference'' in ``free enterprise.'' Olin specialized in creating well-funded positions in academia for scholars that had an ``Austrian'' approach to economics...Law and economics has, for over two decades, been dominated by theoclassical economic dogmas that have proved false...There are now tens of thousands of law and economics graduates that have taken a class in theoclassical law and economics. They were taught that theoclassical economic assertions (often falsified decades ago) were objective facts devoid of ideological content. They have been taught that economics has proven that regulation is unnecessary, hopeless, and harmful...

ass; economics make; Law; naked capitalism; Theoclassical Law.

Mon 2010-05-24 10:57 EDT

Asia Times Online :: World Order, Failed States and Terrorism

Henry C. K. Liu

The Washington Consensus, the synchronized ideology of US-based establishment economists, has for a quarter of a century wrought havoc in the developing world, leaving in its wake "failed states" vulnerable to economic, if not military, takeover. Yet the great failure of our age is not the concept of the sovereign state, but market fundamentalism itself...[10 part series]

Asia Times Online; failed state; terror; World ordering.

Thu 2009-11-19 10:09 EST

The downfall of Washington Mutual - Puget Sound Business Journal (Seattle)

Kirsten Grind

WaMu suffered through not one but two bank runs in its final months. The first run was many times larger than the run that felled California lender IndyMac in July 2008, though neither shareholders nor the public knew about it. WaMu survived that run, and the second run was tapering off when regulators moved in and shut the bank, citing the run as the reason. In addition, WaMu's top executives, led by CEO Alan Fishman, were trying to sell the bank after federal regulators imposed a deadline, only to discover that they were being undermined by those same regulators, executives say. The government's plan to seize the bank, if it became known beforehand, would cause potential buyers to immediately cool their heels, because buying after a government takeover would be a lot cheaper than even the desperate private purchase deal that Fishman was seeking.

downfall; Puget Sound Business Journal; Seattle; Washington Mutual.

Tue 2009-10-27 12:58 EDT

Looting: The Economic Underworld of Bankruptcy for Profit by George Akerlof, Paul Romer

During the 1980s, a number of unusual financial crises occurred. In Chile, for example, the financial sector collapsed, leaving the government with responsibility for extensive foreign debts. In the United States, large numbers of government-insured savings and loans became insolvent - and the government picked up the tab. In Dallas, Texas, real estate prices and construction continued to boom even after vacancies had skyrocketed, and the suffered a dramatic collapse. Also in the United States, the junk bond market, which fueled the takeover wave, had a similar boom and bust. In this paper, we use simple theory and direct evidence to highlight a common thread that runs through these four episodes. The theory suggests that this common thread may be relevant to other cases in which countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust. We describe the evidence, however, only for the cases of financial crisis in Chile, the thrift crisis in the United States, Dallas real estate and thrifts, and junk bonds. Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

bankruptcy; Economic Underworld; George Akerlof; Looting; Paul Romer; profits.

naked capitalism Tue 2009-10-27 12:18 EDT

Guest Post: Capitalism, Socialism or Fascism?

George Washington of Washington's Blog

What is the current American economy: capitalism, socialism or fascism? ...Nouriel Roubini writes ``We're essentially continuing a system where profits are privatized and...losses socialized.'' Nassim Nicholas Taleb says ``the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren.'' Nobel prize winning economist Joseph Stiglitz calls it ``socialism for the rich'' ...leading journalist Robert Scheer writes: ``What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as ``financial fascism'''' ...Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because ``the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social'' ...one of the best definitions of fascism -- the one used by Mussolini -- is the ``merger of state and corporate power`` ...Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing the causes of the S&L crisis and other financial meltdowns...[Looting is the] common thread [when] countries took on excessive foreign debt, governments had to bail out insolvent financial institutions, real estate prices increased dramatically and then fell, or new financial markets experienced a boom and bust...Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society's expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations ...Whether we use the terminology regarding socialism-for-the-giants (''socialized losses''), of fascism (''public and social losses''), or of looting (''left the government holding the bag for their eventual and predictable losses''), it amounts to the exact same thing. [kleptocracy] Great comments, including Joseph: Three core ideas characterize the myth of our society: 1. Free market; 2. Capitalism; 3. Democracy. The conceptual error that people make is to think that they are compatible, or indeed represent aspect of the same thing. In fact they are all deeply antagonistic towards each other. It is the miracle of post-war society that we managed to hold them in balance for so long. That balance has now been destroyed. A simple example of the contradiction, and the one that the over-socialised right finds most confusing, is the contradiction between capitalism and the market. Capitalism is a system of ownership; the market is a system of distribution. The perfect world for the capitalist is one in which they are price setters in terms of the commodities they produce and labour they employ -- ie a state of monopoly. Each individual capitalist seeks the destruction of the market. What has occurred over the past year is not corruption; it is the triumph of capitalism. The market and democracy have been defeated. Not socialism, not fascism,...

capitalism; Fascism; Guest Post; naked capitalism; social.

naked capitalism Tue 2009-09-22 13:02 EDT

Bank of America: 40% of Junk Bonds to Default by 2013

With more than half the corporate bonds rated junk, thanks to highly-levered takeovers, it wasn't hard to imagine that a protracted economic bad spell could lead to a lot of defaults...the novel feature of the binge of late-cycle merger loans, ``cov lite'' deals, will make the damage worse...the odds of a successful [re]structuring are lower, and more companies will wind up liquidating. Thus not only will defaults reach new post-war highs, but recoveries are likely to be lower.

2013; 40; America; bank; default; junk bonds; naked capitalism.

Tue 2009-04-21 00:00 EDT

The Big Takeover : Rolling Stone

The Big Takeover, by Matt Taibbi : Rolling Stone; ``The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution''

big takeover; Rolling Stone.

Thu 2009-02-26 00:00 EST

The banks' reverse takeover of Britain | Coffee House

The banks' reverse takeover of Britain, by Fraser Nelson | Coffee House; financial coup d'état -- ``instead of the taxpayers owning the banks, the banks now seem to own the taxpayers''

bank; Britain; coffee-house; reverse takeover.

Tue 2008-10-07 00:00 EDT

Bronte Capital: The end-goal of any bailout or government takeover

``The end of this financial crisis will occur when unsecured lenders feel safe lending to financial institutions again''

Bailout; Bronte Capital; end goal; government takeover.

Tue 2008-07-01 00:00 EDT

The Institutional Risk Analyst: BAC+CFC: Can Ken Lewis Rescue the Kobayashi Maru?

BAC+CFC: Can Ken Lewis Rescue the Kobayashi Maru? BoA endangered by Countrywide takeover

BAC; CFC; Institutional Risk Analyst; Ken Lewis Rescue; Kobayashi Maru.