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About the AuthorRich Robinson is the CEO and publisher of Rise News. He is also a journalist and a native of Miami. Robinson graduated from the University of Alabama and can be followed on Twitter @RichRobMiami.
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Nearly a decade of economic stagnation has fostered an environment of distrust and anger around some of our most important institutions, and this has lead us to Bernie Sanders and Donald Trump.
Both candidates pose as warriors for the underclass, promising that their policies and/or personality will break the vice grip of the “establishment” or the “1%” or the “upper class” or any other number of buzzwords thrown around at campaign rallies to generalize America’s wealthiest and most powerful citizens.
The way our politicians talk about the rich, it’s as if they’re a monolithic class of people.
The top one percent are not a homogenous group of monetary zealots hell bent on destroying civilization one Machiavellian step at a time; they’re a somewhat diverse group of white people (roughly 96%) whose jobs range from pediatricians, to athletes, to “managers” of everything you could possibly imagine.
The Chief Economic Adviser to global insurance giant Allianz, Mohamed El-Erian essentially wrote the thesis for this piece in his interview with Business Insider:
“Don’t underestimate the power of a simple framework to put into context a lot of the unusual and improbable things we see.”
Looking at the composition of Fortune 500 directors, we see a distorted example of the same issues surrounding race and gender that we have struggled with since the dawn of humanity.
When Bernie Sanders derides “the one percent,” he’s doing the truth in his message a disservice.
“The one percent” stretch across nearly every industry in America. Surely Senator Sanders does not believe that LeBron James is engaged in a cynical attempt to drive middle class workers’ wages down, but the generality of his rhetoric implies just that.
When trying to determine the central issues surrounding our economic malaise, simply saying “the rich are winning and we’re all losing” does not do the importance of the topic justice. In short, no shit.
We need to dive deep into the causes of our problems, instead of blanketing people and industries with cheap generalizations that barely scratch the surface, and then retreating to our corners.
All that said, there is one industry that stands out when searching for the genesis of our modern economic dysfunction: finance.
Ever since the crash of 2008, the world of investment’s public perception has taken a major blow, and it was not exactly in the best shape to begin with.
Matt Taibbi has popularized the term “Vampire Squid” as a nickname for Goldman Sachs in his reporting on financial malfeasance. Goldman Sachs has certainly done plenty to earn this derisive moniker, with one example being their complex plan to drive up the price of aluminum in order to further pad their wallets.
However, just because executives at some of our largest financial institutions have proven to be corrupt and inhumanly greedy, even at the expense of the people supposedly working for them, it does not mean that the entire industry is rotten.
My father worked as a stockbroker for 35 years, and I can promise you that a lot of the complexity coming out of the executive offices of Wall Street is nothing like what your average broker does while trying to create wealth for their clients.
Nearly one million people work in financial services in America, and the majority of them are trying to do right by their customers and play by the rules.
Many of the problems with finance don’t stem from some nefarious, evil plot to enslave mankind in some sort of New World Order (like Alex Jones’ four million monthly unique subscribers to Infowars might assert), but from what precipitates the fall of all great empires: a toxic combination of secrecy and ego.
The world of “shadow banking” has been blamed for much of our economic corruption, as it is an easy target due to its complex nature.
Tucker Hart Adams is one of the few people who foresaw the economic crash of 2008.
Her travels have taken her everywhere from leading classrooms in Russia to the heads of boards in both the private and public sector.
“We’ve just outsmarted ourselves,” Adams said in an interview with RISE NEWS. “Shadow banking isn’t some sinister thing, it’s simply something that we don’t know that much about.”
It’s similar to how scientists call dark matter “dark” because we know it’s there, and we can measure its impact on us, but we can’t even begin to rationally explain its inner mechanisms; the same can be said of shadow banking.
In fact, “shadow banking” has been around for ages.
Izabella Kaminska asserted in the Financial Times that Pompey’s offensive against the Cilician pirates in 67 BC is similar to today’s battle against offshore banking and off-balance sheet accounting.
The problem with determining if she is correct is that no matter how far and wide you search, there is no universally agreed upon definition of “shadow banking.” Kaminska goes on to write in the FT:
“The nearest thing to a formal definition comes from Perry Mehrling, professor of economics at Barnard College in New York City, who suggests that anything involving money market funding of capital market lending qualifies as shadow banking. For others, it’s simply lending done by any unlicensed institution, or non-bank, which doesn’t have access to ‘lender of last resort’ liquidity in a crisis.”
Even though the term conjures up images of the executive suites of Manhattan’s skyscrapers, there are many financial entities that would qualify as “shadow banking,” like Bitcoin.
So when we’re talking about “shadow banking” in the sense that most TV news discusses it, we’re really talking about the derivatives market, which is a real problem.
It was one of the prime causes of the 2008 crash, which stemmed from an effort to try to get ahead of the market, and the market nearly swallowed itself whole using financial instruments that Wall Street didn’t quite understand.
These complex swaps that basically amount to various forms of financial insurance have led to a situation where only the biggest banks have the capital and the expertise to play in this space. However, just because a bunch of wonks are on the case with a nuclear silo full of cash doesn’t mean that they will succeed in this post-2008 world, as it was revealed that five Wall St banks just failed living will tests.
Now, this doesn’t mean that derivatives were solely responsible for that result, but given the explosion of their popularity in the first part of the 21st century and its resulting impact on the economic crash, one would have to imagine that they played a role in these failures.
Four large commercial banks were responsible for 91% of the total banking industry notional amounts in the derivatives market in Q4 2015, which is a fairly tenuous situation.
Given the amount of this space that is controlled by so few entities, one misstep might cause a hiccup that could have drastic consequences for the rest of the economy.
Our government has a hand in all of this mess, as it creates the conditions for everyone to operate within. The derivatives market is in the shadows because the federal government has not found a suitable method to regulate these securities, yet will not ban them outright either. This ambivalent position sows the seeds of confusion for later crises.
The chart below further demonstrates the dramatic effect that certain government policies can have on the economy. Accounting for capital gains, which the government taxes at less than half of the tax rate for labor, the top 10% are taking a greater share of the income than they did during the Gilded Age.
The Panama Papers, which will dominate much of the news cycle over the coming months, will produce a veritable truckload of stories about companies dodging taxes (amongst many other potentially scandalous revelations once the 11 million documents get sorted through and litigated).
A report just stated that the 50 biggest US companies stash an estimated $1.3 trillion overseas. Ironically enough, the Financial Secrecy Index ranks the United States as the 3rd best place in the world to hide money.
Somehow, we manage to chase our own cash out of the country with one of the highest corporate tax rates in the world, yet we let much of it and others back in through faceless shell companies exempting millions (billions? trillions?) of dollars from taxation.
The statistic that most embodies the absurdity of US tax havens is that 64% of Fortune 500 companies are based in Delaware (I’m sure that it has nothing to do with their state tax code and everything to do with Joe Biden’s charm).
Andy Fastow, the former felon/CFO of Enron, is lending his expertise to help firms spot fraud, sometimes even pro bono. He gives lectures on how companies engage in tactics today similar to what he performed at Enron.
Because of the shitshow that is the US tax code, it’s more beneficial for Apple to station their global HQ in Ireland than in Cupertino.
“If Apple did not do this, your iPhone would cost $2,000,” Fastow told the Irish Times. “They run over $50 billion of earnings through this building [in Ireland].”
Once accounting for state taxes, the average corporate tax rate in the United States is 39.2% (unless you have an army of lawyers, accountants, and Congress on your payroll, then you pay much less). To compare, the global average is around 25%.
Tucker Adams provided RISE NEWS with a simple solution to keep tax money within our borders:
“You have all these companies going through all this to avoid taxes at 39%, you’ll collect more revenue if you bring the rate down to match everyone else.”
According to the Atlantic, only three OECD countries (Mexico, Turkey and Japan) bring in less tax revenue as a percentage of GDP than the United States.
Now, that’s not a list that you necessarily want to find yourself at the top of; tax policy should be focused on funneling as much money into the hands of consumers, because my spending is your income etcetera, etcetera, etcetera…but if your tax rate is high and the relative income you gain from it is low, something is fundamentally wrong.
Tax rates are not the only area where the government is fomenting big problems, central bank policies have contributed as well. Keeping interest rates near 0% for nearly a decade has been punishing savers, as Larry Fink, the CEO of Blackrock, one of the largest hedge funds in the world said in an annual letter to his shareholders:
“Not nearly enough attention has been paid to the toll these low rates — and now negative rates — are taking on the ability of investors to save and plan for the future. People need to invest more today to achieve their desired annual retirement income in the future. For example, a 35-year-old looking to generate $48,000 per year in retirement income beginning at age 65 would need to invest $178,000 today in a 5% interest rate environment. In a 2% interest rate environment, however, that individual would need to invest $563,000 (or 3.2 times as much) to achieve the same outcome in retirement.”
Interest rates are a double edged sword.
When they’re low, it encourages borrowing but discourages saving. If I take on $1,000 in debt at 1% interest, I’ll only owe $10 on my interest payment. I don’t know about you, but a $10 interest payment that I have to make sounds a lot more appealing than a $10 interest payment that I will receive.
The main reason for this dependence on the Fed to play the role of economic Batman comes from the fact that our political system is completely paralyzed, which lets markets know that any major tax reform is completely off the table.
People should be angry. The deck is stacked, the game is rigged, and the bad guys have already won before you even finished reading this sentence, yet no one seems to be doing anything about it.
However, just because all you hear on TV is gloom and doom does not mean that is all that’s occurring. Our most pressing issues are largely concentrated in rectifiable areas; there’s simply a lack of will to undertake the effort to correct them. Perhaps it’s an issue of culture, as we assume that the “smart guys” will eventually fix it.
Warren Buffett’s right hand man, Charlie Munger certainly thinks so, as he stated during Whitney Tilson’s annual meeting:
“Too much of the new wealth has gone to people who either own a casino or are playing in a casino. And I don’t think the exaltation of that group has been good for life generally, and I am to some extent a member of that group. Both Elizabeth Warren and Bernie Sanders are not two of my favorite people on earth, but they are absolutely right.”
Some investors like Bill Ackman are speculating that the next economic calamity will come from student debt, as they say it could resemble the housing crisis.
But Tucker Adams disagrees with this assessment, telling RISE NEWS:
“No I do not believe this is like 2005, 06, 07. The average student debt is about $28,000, and there isn’t the speculation around it like there was with housing, so it’s much more manageable.”
If there is a bubble that could be created by this student debt, it might be in apartments, as millennials have been reluctant up to this point to seriously invest in housing, but we would be the first American generation in history to buck this trend.
“These new apartments they’re building just outside the city and not near much public transportation, those are the ones I would worry about, but I think it would be very very sad if millennials decided not to buy houses,” Adams said. “They’re a solid investment.”
Whatever economic future we are entering, the general sentiment amongst experts seems to be that it is manageable, so long as we have the political will to do what is needed.
Given that Donald Trump is the overwhelming favorite to win the Republican nomination, political will to do real, challenging things seems to be off the table right now.
Things are bad, but they’re fixable.
There are simple steps we can take to tilt the scales back in favor of the many. One example is to find a better way to compensate federal regulators in the financial sector.
America is fighting off a recession with one arm, and we need the government to function properly and join the Fed in this fight. The fact of the matter is that our political and economic futures are intertwined. Without government creating the right conditions, economic growth stalls, and the levers of power are leveraged by the powerful to grab a larger slice for themselves while the rest of us struggle to grow the pie.
Our economic dysfunction is largely in response to a tax code devised to help a select few and waste resources for everyone else. Nearly everyone agrees that the current tax code is less valuable than a Nickelback cassette, but nothing is being done about it.
Why? It makes no sense. Americans have abandoned our responsibility to govern ourselves effectively, or even show up for an election every two years.
Congress’ approval rating hovers near 10%, yet we reelect our Congressmen at a 90% clip, effectively proving that Americans are political hypocrites. We despise our Congress, but don’t care enough to change it, thus creating the conditions for corruption to flourish.
Hopefully we will use this election as a moment to understand how our apathy has helped to create all of this misfortune. We demand that government be for the people, of the people, and by the people, but we don’t hold any of the people accountable.
Like every single one in recent memory, the main issue in this election is the economy. We want government to fix it for us, but in order for that to happen, Americans need to step up and fix our government first.
RISE NEWS is a grassroots journalism news organization that is working to change the way young people become informed and engaged in public affairs. You can write for us.
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The World Trade Organisation (WTO) has come under renewed criticism for failing poor and developing countries in their 14-year-long battle to achieve a breakthrough in key agricultural trade talks. Several countries, including Kenya, India and Pakistan, have been calling the WTO to force developed countries to phase out subsidies paid to farmers whose overproduction threatens the… Read MorePost Views: 257
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By Jacob Kaye
It is common knowledge that the Russian government attempted to interfere with the 2016 U.S. presidential election.
The success of that interference is, and may always be, up for debate.
The same can be said for understanding the true nature of their motivations behind these actions.
On January 6, 2017, The Office of the Director of National Intelligence released a declassified report, assessing Russian activities and intentions in the most recent U.S. presidential election.
The twenty-three page report, created in union by The Central Intelligence Agency (CIA), The Federal Bureau of Investigations (FBI), and The National Security Agency (NSA), makes several, high confidence claims about Russia’s – and the President of the Russian Federation, Vladimir Putin’s – motivations and intentions behind their actions.
These actions, as identified by the report, include cyber espionage, the leaking of data collected by Russian Intelligence, interference in state and local electoral boards, and Russian propaganda efforts.
The goals behind these actions were also laid out in the report.
“Russia’s goals were to undermine public faith in the US democratic process, denigrate Secretary Clinton, and harm her electability and potential presidency,” the report reads. “We further assess Putin and the Russian Government developed a clear preference for President-elect Trump.”
But while understanding these actions is important and necessary, maybe even more important, is to understand the motivations behind them.
“The motivation, if we can guess it, was just to disrupt, and to create doubts, and weaken the integrity of the process,” William Wohlforth, a Dartmouth professor who studies, among other areas, international relations and Russian foreign policy said in an interview with RISE NEWS.
Robert Jervis, the Adlai E. Stevenson Professor of International Politics at Columbia University, takes a similar view.
“It was a general attempt to discredit American democracy here and abroad,” Jervis said in an interview.
These attempts are not necessarily unusual – during the Cold War, the Soviet Union engaged in similar “active measures.”
In fact, the tactics used in 2016 are eerily similar to those used throughout much of the Cold War – primarily, the spreading of false information in an attempt to delegitimize or scandalize a perceived political opponent.
Mark Kramer recently wrote about this history on WBUR’s Cognoscenti website:
“[The KGB’s] Service A, formed in the 1950s, almost immediately set to work spreading disinformation, producing forgeries, transmitting propaganda, and disrupting U.S. and Western public diplomacy.”
Some of the misinformation spread by the KGB includes rumors that FBI Director J. Edgar Hoover was a “gay transvestite” and that Martin Luther King Jr. and President Lyndon B. Johnson were colluding to continue black suppression.
During the Cold War- now seen as a more conventional battle between capitalism and communism, all behaviors stemmed from a fairly defined ideological starting point.
But in a post-Cold War era, these ideologies have become less defined, leaving the motivations behind these active measures more mysterious.
“Now, all bets are off, they don’t need to be particularly consistent with any political ideology,” Wohlforth said. “As long as it has the potential to weaken the cohesiveness of the block of states that they perceive to be against them.”
One of the more popular speculations is that Putin saw interference in the U.S. election as payback.
Russian President Vladimir Putin believes that the United States was secretly active in orchestrating the Color Revolutions of the early 2000s – a set of revolutions and protests in former Soviet republics.
Putin believes that the U.S. interfered so as to create a new geopolitical order.
Putin may also view his active measures as payback for his belief that the U.S. – and Secretary Clinton – was behind the massive protests in Moscow over his election in December 2011.
In 2014, Putin likened protests in his own country to the Color Revolutions.
“In the modern world, extremism is being used as a geopolitical instrument and for remaking spheres of influence,” Putin said in 2014. “We see what tragic consequences the wave of so-called color revolutions led to.”
By interfering in the 2016 U.S. presidential election, Putin attempted to ruin the chances of victory for his perceived nemesis, Secretary Clinton, while also attempting to avoid any chance that he may have to interact with her as President of the U.S.
Also a popular speculation about Russia’s motivation is that Putin was actively hoping to change the outcome of the election – although there is little to no evidence to support this claim.
“I suspect that by some time in the fall that was one of the objectives,” Jervis said. “But the evidence for that is much weaker.”
When polls began to show Clinton as weaker than conventionally believed, Moscow may have seen an opportunity to test the ability of their active measures.
What is interesting about this possible motivation is that there is little evidence to suggest that any time Soviet/Russian active measures favored a candidate, the candidate ended up favoring the Kremlin.
In 1968, the Soviet Union was worried that if Richard Nixon won the presidential election, Soviet-U.S. relations would suffer even more than if the Democratic candidate Hubert Humphrey won.
Instead, Nixon acted somewhat favorably towards the Soviet state after being elected.
“The candidate that they often seek to undermine may not be so bad for Russian relations,” Wohlforth said.
The opposite can be said as well – it may have been easier for Secretary Clinton to act more favorably towards Russia than President Trump, who has received a mass of scrutiny for even just speaking favorably about Putin or Russia.
The true motivations behind Russia’s most recent active measures may never be known – needless to say, it is impossible to get inside the head of Putin.
Russia’s current posture towards the United States is not new – and the medium through which they acted is – and in truth, this behavior is not limited to Russia.
These actions are unlikely to stop anytime soon.
America is under siege.
RISE NEWS is a grassroots journalism news organization that is working to change the way young people become informed and engaged in the world. You can write for us.
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