Gangster Capitalism: Same as it ever was?

If you are going to read one thing and just one thing on the financial crisis and how it is working itself out you need to read this blog post at naked capitalism:  the one stop shop for understanding contemporary finance.

After the September 2008 crash, Iceland’s government took over the old, collapsed, banks and created new ones in their place. Original bondholders of the old banks off-loaded the Icelandic bank bonds in the market for pennies on the dollar. The buyers were vulture funds. These bondholders became the owners of the old banks, as all shareholders were wiped out. In October, the government’s monetary authority appointed new boards to control the banks. Three new banks were set up, and all the deposits, mortgages and other bank loans were transferred to these new, healthier banks – at a steep discount. These new banks received 80 percent of the assets, the old banks 20 percent.

Then, owners of the old banks were given control over two of the new banks (87% and 95% respectively). The owners of these new banks were called vultures not only because of the steep discount at which the financial assets and claims of the old banks were transferred, but mainly because they already had bought control of the old banks at pennies on the dollar.

The result is that instead of the government keeping the banks and simply wiping them out in bankruptcy, the government kept aside and let vulture investors reap a giant windfall – that now threatens to plunge Iceland’s economy into chronic financial austerity. In retrospect, none of this was necessary. The question is, what can the government do to clean up the mess that it has created by so gullibly taking bad IMF advice?

In the United States, banks receiving TARP bailout money were supposed to negotiate with mortgage debtors to write down the debts to market prices and/or the ability to pay. This was not done. Likewise in Iceland, the vulture funds that bought the bad “old bank” loans were supposed to pass on the debt write-downs to the debtors. This was not done either. In fact, the loan principals continued to be revalued upward in keeping with Iceland’s unique indexing designed to save banks from taking a loss – that is, to make sure that the economy as a whole suffers, even suffering a fatal austerity attack, so that bankers will be “made whole.” This means making a windfall fortune for the vultures who buy bad loans on the cheap.

Go read the whole article.

The right of the community to know and love one another

Guest Post By Elleni Centime Zeleke

Hot on the the heels of my last post on romance and because I am still high from celebrating international women’s day I want to add a few more discussion points to the topic of love and capitalism.
I will start by restating some basic premises and then posing a question.

So, in the context of advanced capitalist societies self-interest is the only form of subjectivity that we are allowed to have access to. We believe that we can overcome the experience of being self-interested humans within the context of a romantic love relationship, but in fact the structure of our society is such that we can really never reconcile self-interest with the reproduction of longer-term cycles of community and collective life.

If we are rich or middle class enough,sometimes we survive as a couple and suffer the illusion that the needs of the individual have been reconciled with the needs of the collective (society). After all money can buy you love, houses, and comforts that keep the couple together and so it reconciles the couples desires with the needs of a consumer based society to reproduce itself.

So, to be sure in order to eat decent food coupling might in fact be a necessary institutional requirement of our time. But that is the point, it is a very historically specific institution, and as a social practice it is more akin to visiting the toilet than any real creative ambition.

Now, to be sure humans are also animals and so we make pragmatic choices in order to survive. It is better to piss in a toilet than to piss randomly and wherever the wind takes you.

But in this sense romance turns us into animals driven by instinct rather than self-critical thought.

Interestingly, we like to gaze at backward women in other countries and feel sorry for them because we see them as passive victims of patriarchy. But romantic coupling is a social arrangement produced in the context where we are all passive victims to narrowly defined goals that are motivated by self-interest rather than self-critical and collectively defined activity. And yet, as we have been saying, to act as a self-interested human being is not natural, it is a political project that we all accept in the advanced capitalist countries as nature and so we fashion our love and our behaviour accordingly.
In my previous post I told the story of the prisoner because he offered a different way of being in the world. His confidence in loving me came from the fact that he did not doubt for a moment that we shared the same world. As a loving man he insisted that the collective be the front and centre of any decision making, even if his body suffered to some degree because of that. His act of love was a sign of maturity that moves us beyond the animality that most romantic partners indulge in for the entirety of their lives.

Marx asked us to rethink whether it was possible to reconcile the right of poor people to survive with a regime of private property rights. I do think that a corollary to that question is whether it is possible to reconcile romantic love with the right of the community to know and love the world that we all have already made and need to remake together?

Where are the provinces?

What I cannot figure out is why the provinces have not been more vocal on expanding both eligibility and the duration of benefits for EI given the EI program is a federal program and welfare is provincial. From a provincial point of view the more restrictive the EI program the greater the provincial welfare bills.  So why are the provinces not calling on the Feds to at least temporarily expand the program in  a meaningful way?  I doubt the provinces are worried about moral hazard.  So what has been going on?

The False Dichotomy: Minimum Wages Vs WITB

As designed, the WITB (Canada’s version of the US earned income tax benefit) is not structured to increase the minimum annual full time wage.  In most provincial jurisdictions the WITB kicks out just before or just after the minimum annual full time wage is achieved.

For example a single person earning minimum wage working full time of 35 hours a week in Quebec will have an annual gross income of between 14,000 and 15,000.  The WITB for the lower amount is 230$ for the year or 19.16 per month.  The WITB for the higher amount is 30$ a year or 2.50$ per month!

As is clear from the example above the WITB is designed to phase out at the point a full time minimum wage salary is achieved.  The whole point of the program is to make sure that there are not any tax penalties for working.   And it most definitely is not about augmenting the full time minimum wage.

So in sense those that argue in favour of the WITB over the minimum wage as a poverty alleviation strategy simply do not know what they are talking about because full time minimum wages are being used by the government to set the income threshold for the program.  That is, the only way in which WITB can be viewed as augmenting the minimum annual wage is if an individual works less than full time then the WITB kicks to augment the wage but outside of a narrow band not to the full time minimum wage level.

In the illustration above the WITB would contribute 230$ to someone working just shy of 35 hours a week 52 weeks a year. However, for someone working part time at minimum wages in Quebec, the WITB would kick in around 750$ a year effectively increasing the minimum wage by .78 cents an hour.

Hence it is only in the case of a part-time minimum wage worker that the WITB makes a meaningful adjustment to the minimum hourly wage.  However, in the last example provided above, someone working 20 hours a week at min wage including the WITB will have an annual income 8,640$.

Hardly a poverty arrestor.

Interestingly one of the perverse outcomes of the program is that there is a built in incentive for min wage employers to offer less than full time hours because the further away from full time the higher the level of the wage subsidy/premium.  The other perverse outcome (some will say a feature because it targets the worst of the worst off–part time min wage workers) is that unlike increases in the min wage which increase all min wage workers’ salaries the WITB only meaningfully increases part time min wages while doing little to nothing for full time min wage workers.