During the 2008 Canadian federal election, I had the opportunity to be a political commentator for a cable television program. One thing that struck me during the campaign is that when the markets plunged, losing more than 30% of their value, the political class was at a loss to explain the events.
Remember the talk of how our economic fundamentals were sound, that a carbon tax would move us into a recession, and that there was no need to worry about returning to budgetary deficits? Well looking back, it now appears that our politicians really had no idea what was happening although they tried their best to grapple with the extraordinary events.
Certainly, from the perspective of those who believe in the efficient-market hypothesis, the market crash and the subsequent great global recession could not be foreseen. Fortunately, the failure to anticipate and account for economic events of this magnitude forced economists to look for other explanatory models. Much attention was then given to the work of Hyman Minsky and his Financial Instability hypothesis.
In short, Minsky proposed theories linking financial market fragility, in the normal life cycle of an economy, with speculative investment bubbles endogenous to financial markets. He claimed that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis. As a result of such speculative borrowing bubbles, banks and lenders tighten credit availability, even to companies that can afford loans, and the economy subsequently contracts.
In other words, during the last federal election the economy passed through what is called a Minsky moment. Greed gave way to fear amongst lenders and borrowers, setting off a daisy chain of reduced expectations, credit contraction, asset liquidation, bankruptcies, layoffs, and reduced economic activity. Throughout the OECD, national governments were forced to intercede with massive injections of public funds in order to prevent a collapse of the financial and economic systems.
To that end, national governments turned to budgetary deficits in order to continue furnishing the governmental goods they provide while at the same time experiencing a significant drop in tax revenues due to the decrease in economic activity. Essentially, the infusion of public funds halted the economic decline. From the perspective of the financial industry and government fiscal policy, it is devoutly to be wished that the credit crisis will play itself out and economic growth returns so that the deficits are eliminated and the accumulated debt can be reduced.
However, there now appears the real possibility of passing through a Minsky moment of a much greater scale. Specifically, this moment entails the widespread realization that we have moved from a period of resource abundance to resource scarcity, and the resource in question is conventional oil.
Economic growth is fueled by the availability of cheap conventional oil. Despite our best efforts and brightest minds, there is no alternative energy source that comes close to producing an energy return on the energy invested to extract or produce conventional oil. It is by far the source of energy that has the highest energy density relative to its productions costs. Switching to alternative sources of energy, although desirable from an environmental view, carries the economic cost of reducing energy consumption and economic growth.
It is simply a question of physics. Less energy available means that less work can be done. Other energy sources will replace oil consumption but at a much higher cost, which reduces the amount of work that can be performed. From an economic point of view, this means an inevitable contraction of the global economy that will be qualitatively different. This contraction will not be short-lived, a part of the normal business cycle predicted by economic historians drawing upon Minsky’s work. It will be structural and will require a complete re-conception of the economic and financial systems.
Recently, global financial markets destabilized when it became apparent that the latest round of debt-fueled economic growth had played itself out. Without economic growth, companies become unable to pay back the interest on their debt. To make good on their financial obligations, assets must be sold, but in a market in which asset values are declining rapidly. Thereafter, a vicious circle develops where declining asset values further reduce the availability of credit and the capacity to service debt, which in turn causes bankruptcies, layoffs, reduced consumer spending, business investment, thereby leading to economic recession. Eventually, perceptions change when a critical mass of investors believe that the bust portion of the cycle has bottomed out and assets are then put back into more productive use, thereby generating higher profits, which in turn re-initiates the extension of credit, the appreciation of assets, hiring, consumer spending, and in turn economic growth.
This oscillation between boom and bust is sustainable as long as economic growth is sustainable over the long-term. However, the bust turns into a full-blown collapse if economic growth does not return. Having jettisoned the gold standard in favor of fiat currencies (money is created out of thin air upon the contracting of a debt obligation), the global financial system functions on the belief of continued economic growth. Without growth, the interest on acquired debt cannot be paid.
Debt relief can be obtained if it is believed that a recession will be short-lived, but if the contraction becomes structural, as would be the case once we begin to travel downwards from peak conventional oil production, defaults on debt obligations accompanied by massive asset liquidation will increase exponentially. In other words, the Great Global Recession turns into the Great Global Depression.
Interestingly enough, as George Monbiot noted, last week two whistleblowers from the International Energy Agency (IEA) alleged that it has deliberately upgraded its estimate of the world's oil supplies in order not to frighten the markets. Three days later, a paper published by researchers at Uppsala University in Sweden showed that the IEA's forecasts must be wrong, because it assumes a rate of extraction that appears to be impossible. In fact, almost every year the Agency has been forced to downgrade its forecast for the daily supply of oil in 2030: from 123m barrels in 2004, to 120m in 2005, 116m in 2007, 106m in 2008 and 103m this year. But according to one of the whistleblowers, even today's number is much higher than can be justified, and the International Energy Agency knows this.
Given the current levels of national debt, it would appear that borrowing from future generations to alleviate financial and economic crisis has reached its limits. Inevitably, the delivery of government goods will be reduced in order to bring some financial stability to government expenditures. However, another financial shock, much larger than the latest round, will create economic conditions beyond the capacity of governments to react. Laden with debt, national governments won’t be able to intervene in any meaningful way unless they reduce the systemic risk that their economies are now exposed to.
Two measures must be taken in the immediate future if we are to stave off economic collapse. The first is to increase the reserves that banks must maintain in order to make loans. Fractional-reserve banking within global financial markets amplifies systemic risk exponentially. To avoid a complete freeze of credit markets within a shrinking global economy, banks must be legislated to hold in reserve funds equivalent of at least 25% of their loan portfolios. Second, a financial transaction tax, similar in kind to the Tobin tax but applicable to all financial transactions, must be implemented. Funds generated from this tax should go towards either building up financial reserves or paying down the national debt.
To stay within the business as usual, good times are just around the corner, lets continue with the status quo is an invitation to simply wait for a Force 5 Hurricane to pass over, believing that will we simply be able to pick up the pieces and return to our previous lives with only minimal discomfort.
Monday, November 30, 2009
Saturday, November 7, 2009
How to Kill the Zombie Economy
To kill a zombie, you must destroy its brain. To kill the zombie economy, we must exorcise its unrelenting pursuit of economic growth and its insatiable lust for capital gains.
Zombies eat live humans to continue their existence. In the zombie economy, the speculative economy cannibalizes the real economy to enrich the lost souls who have given themselves to Mammon.
The realm of the living is much different from the realm of the undead. In the real world, ordinary people are loosing their jobs; they are loosing their homes; they are loosing their pensions; and they are loosing hope. In the realm of the undead, the US economy grew by over 3% in the third quarter. Bankers and fund managers celebrated and welcomed the return of their million dollar bonuses.
Clearly, good fortune is not being ferried from one realm to the other. On one side, the undead relish the great wealth that has been amassed; on the other, real people are having their life-blood sucked out of them and are facing the prospect of having their children enslaved to pay down the debt brought on by the pillaging of the public purse.
How is it that the ghoulish speculators have made off with the so much of the common wealth and left such misery behind amongst the real folk?
We were fooled. We were seduced by our own desires to have more than our fair share, and we allowed the undead to take control of the helm.
We believed the ghouls of finance who told us we could become rich by producing less and by trading more. So we flipped our houses and hollowed-out our companies (paying a handsome fee for each transaction) and placed huge bets on the outcomes of games we did not understand.
All the while, we took comfort in being told that the economy was still growing. We believed that the zombie pulse of the nation, the GDP, indicated continued health and prosperity.
But, we were wrong. We could not distinguish between the sound of our collective heartbeat and the sound of the drum egging us on to place more and more of our wealth in the hands of those who run the zombie economy.
When we had spent all that we could spend, we were then told that our world would come to an end unless we agreed to hand over a large part of our future earnings to keep the system in place. Apparently, even the zombies can’t help laughing amongst themselves that we fell for this one.
So, now we toil longer for less, under conditions much less favourable, and the zombies continue to tell us stories, hoping to entice us to return to the gaming tables of financial speculation.
But now, for the sake of the unborn, we must break the zombie spell. Even the zombies know that no real thing can grow forever. Eventually, growth slows and comes to rest. We must learn to ignore the shrieks from the zombies that would have us take any action, at any price, to keep their zombie world from contracting.
There are those who know what measures need to be taken. Let us heed their counsel and stop our ears to the sirens song of unsustainable wealth.
Zombies eat live humans to continue their existence. In the zombie economy, the speculative economy cannibalizes the real economy to enrich the lost souls who have given themselves to Mammon.
The realm of the living is much different from the realm of the undead. In the real world, ordinary people are loosing their jobs; they are loosing their homes; they are loosing their pensions; and they are loosing hope. In the realm of the undead, the US economy grew by over 3% in the third quarter. Bankers and fund managers celebrated and welcomed the return of their million dollar bonuses.
Clearly, good fortune is not being ferried from one realm to the other. On one side, the undead relish the great wealth that has been amassed; on the other, real people are having their life-blood sucked out of them and are facing the prospect of having their children enslaved to pay down the debt brought on by the pillaging of the public purse.
How is it that the ghoulish speculators have made off with the so much of the common wealth and left such misery behind amongst the real folk?
We were fooled. We were seduced by our own desires to have more than our fair share, and we allowed the undead to take control of the helm.
We believed the ghouls of finance who told us we could become rich by producing less and by trading more. So we flipped our houses and hollowed-out our companies (paying a handsome fee for each transaction) and placed huge bets on the outcomes of games we did not understand.
All the while, we took comfort in being told that the economy was still growing. We believed that the zombie pulse of the nation, the GDP, indicated continued health and prosperity.
But, we were wrong. We could not distinguish between the sound of our collective heartbeat and the sound of the drum egging us on to place more and more of our wealth in the hands of those who run the zombie economy.
When we had spent all that we could spend, we were then told that our world would come to an end unless we agreed to hand over a large part of our future earnings to keep the system in place. Apparently, even the zombies can’t help laughing amongst themselves that we fell for this one.
So, now we toil longer for less, under conditions much less favourable, and the zombies continue to tell us stories, hoping to entice us to return to the gaming tables of financial speculation.
But now, for the sake of the unborn, we must break the zombie spell. Even the zombies know that no real thing can grow forever. Eventually, growth slows and comes to rest. We must learn to ignore the shrieks from the zombies that would have us take any action, at any price, to keep their zombie world from contracting.
There are those who know what measures need to be taken. Let us heed their counsel and stop our ears to the sirens song of unsustainable wealth.
Monday, November 2, 2009
Can’t See the Forest for the Trees
The head of the international group leading the fight against climate change has accused countries of pushing science aside in favor of self-serving "political myopia" ahead of the vital Copenhagen summit.
Rajendra Pachauri, head of the Intergovernmental Panel on Climate Change, was quoted in the Guardian as saying: science has been moved aside and the space has been filled up with political myopia with every country now trying to protect its own narrow short-term interests. They are afraid to have negotiations go any further because they would have to compromise on those interests.
Political myopia pretty well sums the Canadian Government’s response to a landmark study published last week that details how Canada can reduce its green house gas emissions by 20% of the 1990 levels by 2020.
Federal Environment Minister Jim Prentice said there is no way Western Canadians could absorb the deep economic hit projected by the report's environmentalist authors – the David Suzuki Foundation and the Pembina Institute. Mr. Prentice, in an interview with The Globe and Mail from Kingston, said Canadians will not accept the report's advocacy of emission targets for 2020 that would reduce Canada's gross domestic product by 3 per cent nationally and 12 per cent in Alberta from business-as-usual estimates.
Well Minister Prentice have you calculated the potential economic cost of dust bowl conditions in Alberta and Saskatchewan that would result as the planet continues to heat up? Look at what’s happening in Australia and the American Southwest, never mind equatorial east Africa. What’s the projected loss of GDP in a worst case scenario where there are successive years of massive crop failures? Why would Western Canadians accept a return to the dirty thirties landscape on the prairies?
Moreover, slowing the rate of extraction of fossil fuels in the West actually makes a lot of sense from a long-term intergenerational economic perspective. The oil and gas locked in the ground will not suddenly evaporate. In fact, once the extraction of conventional oil and gas supplies begins to wane as we move downward from peak oil production, the market value of the reserves in Western Canada will increase substantially. It’s as if you would have us believe that all Western Canadians are intent to piss away their natural inheritance in one generation.
Other than the loony fringe of the Christian fundamentalist movement, where the apocalypse cannot arrive soon enough, and the shareholders of the major corporations racing to extract as much as they can as quickly as they can – they have cornered the market on asbestos suitcases – most Western Canadians have the common sense to realize that extracting non-renewable resources at full throttle is not in their long-term self-interest.
One thing that is most striking in the political myopia of our political class is that almost no serious thought has been given to the economic potential of extracting financial wealth from the real and speculative economy to preserve the carbon sequestration capabilities of Canada’s boreal forest.
A report by the International Boreal Conservation Campaign said the forests, with their rich mix of trees, wetlands, peat and tundra, were a far bigger carbon store than scientists had realized, soaking up 22% of the total carbon stored on the earth's land surface.
If you look across Canada one of [the boreal forest's] great values to us globally is its carbon storage value, said Steve Kallick, director of the Pew Environment Group's International Boreal Conservation Campaign. There is so much carbon sequestered in it already that if it escaped it would pose a whole new, very grave threat.
Canada's cold temperatures slow decomposition, allowing the build-up of organic soil and peat. The forest floors beneath its evergreens hold twice as much carbon per acre as tropical forests, such as the Amazon.
Canada has approximately 1.3 billion acres of boreal forest. Each acre can absorb on average between one and two metric tons of CO2 per year. Do the math at $30 a ton and then at $100 a ton. Evidently, the forests are worth much more as carbon reservoirs than for their lumber.
Unfortunately, the Canadian political class doesn’t seem to have a clue that we should be negotiating hard to have carbon credits for old growth forests included in the post-Kyoto accord. Talk about a missed opportunity. If we can pay Canadians for not growing wheat, we should be paying those in the forestry sector for managing the forests in an ecological manner.
Rajendra Pachauri, head of the Intergovernmental Panel on Climate Change, was quoted in the Guardian as saying: science has been moved aside and the space has been filled up with political myopia with every country now trying to protect its own narrow short-term interests. They are afraid to have negotiations go any further because they would have to compromise on those interests.
Political myopia pretty well sums the Canadian Government’s response to a landmark study published last week that details how Canada can reduce its green house gas emissions by 20% of the 1990 levels by 2020.
Federal Environment Minister Jim Prentice said there is no way Western Canadians could absorb the deep economic hit projected by the report's environmentalist authors – the David Suzuki Foundation and the Pembina Institute. Mr. Prentice, in an interview with The Globe and Mail from Kingston, said Canadians will not accept the report's advocacy of emission targets for 2020 that would reduce Canada's gross domestic product by 3 per cent nationally and 12 per cent in Alberta from business-as-usual estimates.
Well Minister Prentice have you calculated the potential economic cost of dust bowl conditions in Alberta and Saskatchewan that would result as the planet continues to heat up? Look at what’s happening in Australia and the American Southwest, never mind equatorial east Africa. What’s the projected loss of GDP in a worst case scenario where there are successive years of massive crop failures? Why would Western Canadians accept a return to the dirty thirties landscape on the prairies?
Moreover, slowing the rate of extraction of fossil fuels in the West actually makes a lot of sense from a long-term intergenerational economic perspective. The oil and gas locked in the ground will not suddenly evaporate. In fact, once the extraction of conventional oil and gas supplies begins to wane as we move downward from peak oil production, the market value of the reserves in Western Canada will increase substantially. It’s as if you would have us believe that all Western Canadians are intent to piss away their natural inheritance in one generation.
Other than the loony fringe of the Christian fundamentalist movement, where the apocalypse cannot arrive soon enough, and the shareholders of the major corporations racing to extract as much as they can as quickly as they can – they have cornered the market on asbestos suitcases – most Western Canadians have the common sense to realize that extracting non-renewable resources at full throttle is not in their long-term self-interest.
One thing that is most striking in the political myopia of our political class is that almost no serious thought has been given to the economic potential of extracting financial wealth from the real and speculative economy to preserve the carbon sequestration capabilities of Canada’s boreal forest.
A report by the International Boreal Conservation Campaign said the forests, with their rich mix of trees, wetlands, peat and tundra, were a far bigger carbon store than scientists had realized, soaking up 22% of the total carbon stored on the earth's land surface.
If you look across Canada one of [the boreal forest's] great values to us globally is its carbon storage value, said Steve Kallick, director of the Pew Environment Group's International Boreal Conservation Campaign. There is so much carbon sequestered in it already that if it escaped it would pose a whole new, very grave threat.
Canada's cold temperatures slow decomposition, allowing the build-up of organic soil and peat. The forest floors beneath its evergreens hold twice as much carbon per acre as tropical forests, such as the Amazon.
Canada has approximately 1.3 billion acres of boreal forest. Each acre can absorb on average between one and two metric tons of CO2 per year. Do the math at $30 a ton and then at $100 a ton. Evidently, the forests are worth much more as carbon reservoirs than for their lumber.
Unfortunately, the Canadian political class doesn’t seem to have a clue that we should be negotiating hard to have carbon credits for old growth forests included in the post-Kyoto accord. Talk about a missed opportunity. If we can pay Canadians for not growing wheat, we should be paying those in the forestry sector for managing the forests in an ecological manner.
Tuesday, October 27, 2009
A Tragedy in the Commons
Amongst ecologists, the tragedy of the commons is a well-known phenomenon that demonstrates how the rational pursuit of self-interest can lead to an irrational result, the collapse of a shared limited resource. The standard example is the case of a sheep herder who brings to the common grazing grounds some extra sheep to feed. As long as everyone else respects their quotas, he experiences the gain from feeding his extra sheep whereas the rest of the herders share the loss. All is fine and well until other herders begin to adopt the same strategy. If enough herders do so, the grazing of the sheep will exceed the capacity of the commons to regenerate itself, thereby diminishing the feed available to all. Everyone loses.
In the House of Commons, we have recently witnessed a similar problem in sustaining a collective action that would bring benefits that would be distributed widely. In this case, it is the adoption of Bill C-311, otherwise known as the Climate Change Accountability Act. If adopted, the Bill has already passed two readings, it would commit Canada to reducing its green house gas emissions 25% below 1990 levels by 2020 and 80% below 1990 levels by 2050. This is the scale of the required reductions that Canada and other developed countries must undertake if catastrophic climate change is to be averted.
Unfortunately, a motion was introduced to extend the time the Bill would pass in committee thereby preventing the adoption of the Act before the upcoming global summit in Copenhagen, where the global community would gather to discuss and hopefully come up with a plan to replace the Kyoto Accord. Previously, the three parties in opposition voted together in support of Bill C-311, but this time around it was the Liberals who voted with the government to scuttle the attempt to have Canada arrive at an international summit on climate change with something to bring to the table.
In regard to Kyoto, Jeffery Simpson sums up Canada’s pitiful performance in a recent article: as for Canada, its record on reducing emissions is recognized internationally to have disgraced the country's good name. It broke all its promises at Kyoto. Domestic emissions continue to rise.
Disgraceful, shameful, and uncaring are all words associated with Canada’s international reputation. Maybe its time to tear off the maple leaf from our back packs before the Olympic craze takes over the land.
Clearly, the Liberals and NDP are caught up in the perpetual electoral campaign that has seized Canadian politics. Together, with the support of the Bloc, they could have pushed this bill through, or if they felt that the long-term well being of the planet mattered enough, they could have brought down the Conservative-led Government. Yet, for all their platitudes about the importance of addressing the problem of climate change, each party remains trapped in its Quixotic quest for a single-party majority government. Once again, everyone loses.
The only bright spot to this sad story is the group of young adults who seized the moment and disrupted Parliament from the gallery during Question Period and denounced the government’s inertia with their shouting of slogans. They were of course expelled from Parliament, but it was very refreshing to see Canadian youth manifest their disapproval and refuse to join the swelled ranks of their smug and complacent Parliamentarians.
In the House of Commons, we have recently witnessed a similar problem in sustaining a collective action that would bring benefits that would be distributed widely. In this case, it is the adoption of Bill C-311, otherwise known as the Climate Change Accountability Act. If adopted, the Bill has already passed two readings, it would commit Canada to reducing its green house gas emissions 25% below 1990 levels by 2020 and 80% below 1990 levels by 2050. This is the scale of the required reductions that Canada and other developed countries must undertake if catastrophic climate change is to be averted.
Unfortunately, a motion was introduced to extend the time the Bill would pass in committee thereby preventing the adoption of the Act before the upcoming global summit in Copenhagen, where the global community would gather to discuss and hopefully come up with a plan to replace the Kyoto Accord. Previously, the three parties in opposition voted together in support of Bill C-311, but this time around it was the Liberals who voted with the government to scuttle the attempt to have Canada arrive at an international summit on climate change with something to bring to the table.
In regard to Kyoto, Jeffery Simpson sums up Canada’s pitiful performance in a recent article: as for Canada, its record on reducing emissions is recognized internationally to have disgraced the country's good name. It broke all its promises at Kyoto. Domestic emissions continue to rise.
Disgraceful, shameful, and uncaring are all words associated with Canada’s international reputation. Maybe its time to tear off the maple leaf from our back packs before the Olympic craze takes over the land.
Clearly, the Liberals and NDP are caught up in the perpetual electoral campaign that has seized Canadian politics. Together, with the support of the Bloc, they could have pushed this bill through, or if they felt that the long-term well being of the planet mattered enough, they could have brought down the Conservative-led Government. Yet, for all their platitudes about the importance of addressing the problem of climate change, each party remains trapped in its Quixotic quest for a single-party majority government. Once again, everyone loses.
The only bright spot to this sad story is the group of young adults who seized the moment and disrupted Parliament from the gallery during Question Period and denounced the government’s inertia with their shouting of slogans. They were of course expelled from Parliament, but it was very refreshing to see Canadian youth manifest their disapproval and refuse to join the swelled ranks of their smug and complacent Parliamentarians.
Tuesday, October 20, 2009
The Constitutional Kerfuffle Masks the Democratic Divide
This week Canadian Prime Minister Stephen Harper referred the question of whether the federal government has the power to create a national securities regulator to the Supreme Court of Canada. Three provinces (Quebec, Alberta, and Manitoba) oppose the creation of a federal regulator.
Talk about being trapped in a dysfunctional political discourse. For more than 140 years we have been wrangling over the question ofprovincial/federal jurisdiction. What gets lost in this debate is whether the members of the public are sufficiently protected from the unscrupulous trading practices of the financial industry.
It seems to me that the more pertinent question is would it be in the best interest of the public to create a pan-Canadian regulatory agency given that Parliament is ruled by successive political oligarchies. Political power in this country is largely determined by the ability to appeal and solicit donations from the investor class. Within this framework, we would expect that such a regulatory body would be more favourable to the interests of the financial industry at the expense of the general public.
Look at the recent US experience. Effective lobbying by the financial industry led to the repeal of the Glass-Steagall Act. The repeal enabled commercial lenders such as Citigroup, which was in 1999 the largest US bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations. A year later, the Commodity Futures Modernization Act of 2000 was adopted, which exempted the exchange of financial derivatives from federal regulation.
Everything was then in place to produce an economic meltdown that enriched those in the financial industry beyond belief and produced unimaginable collateral economic damage for the bulk of the population: 8 million lost jobs, almost 1 million home foreclosures in the third quarter of 2009 alone, pension plans reduced by 30% and more, and untold trillions in accumulated public debt foisted on the present and future generations.
Here in Canada, our democratic institutions are not sufficiently democratic to prevent a similar rewriting of the financial regulatory practices that would enrich an extremely small but extremely powerful elite at the expense of the vast majority of Canadians. Neither the Conservatives nor the Liberals can muster the support of more than 25% of the electorate. Yet, the power of the majority can be exercised under the threat of sending the electorate back into a general election, something that the Economist referred to as Canada's perpetual electoral campaign.
In principle, the creation of a federal regulator could be very beneficial if it exercised its power so that the wealth generated from the real economy was distributed in a more equitable fashion and prevented the buccaneers of high finance from siphoning off this wealth through the churn of dubious financial transactions.
If there is one lesson that we should draw from the US experience is that the finance industry can capture the regulatory function. Evidently, the counterbalance to unacceptable levels of systemic risk engendered by the greed of a few is the effective representation of the many. However, the British parliamentary system substitutes the effective representation of the majority with the over-representation ofa well-heeled minority through the systemic distortion of the electoral results. Without qualitative change to our electoral system, there remains a distinct possibility that any pan-Canadian regulator would escape democratic censure.
To move forward with the proposal, democratic reform must precede the creation of the new financial institution. Questions of provincial jurisdiction are anachronistic because of the way the exchange of financial securities no longer respects territorial limits. Securities are now traded 24 hours a day in a global market.
Finally, as a resident of Quebec I can quite comfortably say that the claim that the creation of a federal regulator is an affront to Quebec sovereignty is laughable given the recent scandals in Quebec involving Vincent Lacroix and Earl Jones, two financiers that bilked their clients of millions, and the recent performance of the Caisse de dépôt et placement du Québec, the fiduciary responsible for the management of many of the province's pension plans, which saw a reduction in value of 24% of its investment portfolio (approximately $40 billion) in 2008 and a failure to generate any returns for the first six months of 2009. Having failed miserably to meet even the most modest of performance requirements, the Quebec government has little in the way of legitimacy in the eyes of its citizens as the a priori regulator of the financial industry within Quebec.
Talk about being trapped in a dysfunctional political discourse. For more than 140 years we have been wrangling over the question ofprovincial/federal jurisdiction. What gets lost in this debate is whether the members of the public are sufficiently protected from the unscrupulous trading practices of the financial industry.
It seems to me that the more pertinent question is would it be in the best interest of the public to create a pan-Canadian regulatory agency given that Parliament is ruled by successive political oligarchies. Political power in this country is largely determined by the ability to appeal and solicit donations from the investor class. Within this framework, we would expect that such a regulatory body would be more favourable to the interests of the financial industry at the expense of the general public.
Look at the recent US experience. Effective lobbying by the financial industry led to the repeal of the Glass-Steagall Act. The repeal enabled commercial lenders such as Citigroup, which was in 1999 the largest US bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations. A year later, the Commodity Futures Modernization Act of 2000 was adopted, which exempted the exchange of financial derivatives from federal regulation.
Everything was then in place to produce an economic meltdown that enriched those in the financial industry beyond belief and produced unimaginable collateral economic damage for the bulk of the population: 8 million lost jobs, almost 1 million home foreclosures in the third quarter of 2009 alone, pension plans reduced by 30% and more, and untold trillions in accumulated public debt foisted on the present and future generations.
Here in Canada, our democratic institutions are not sufficiently democratic to prevent a similar rewriting of the financial regulatory practices that would enrich an extremely small but extremely powerful elite at the expense of the vast majority of Canadians. Neither the Conservatives nor the Liberals can muster the support of more than 25% of the electorate. Yet, the power of the majority can be exercised under the threat of sending the electorate back into a general election, something that the Economist referred to as Canada's perpetual electoral campaign.
In principle, the creation of a federal regulator could be very beneficial if it exercised its power so that the wealth generated from the real economy was distributed in a more equitable fashion and prevented the buccaneers of high finance from siphoning off this wealth through the churn of dubious financial transactions.
If there is one lesson that we should draw from the US experience is that the finance industry can capture the regulatory function. Evidently, the counterbalance to unacceptable levels of systemic risk engendered by the greed of a few is the effective representation of the many. However, the British parliamentary system substitutes the effective representation of the majority with the over-representation ofa well-heeled minority through the systemic distortion of the electoral results. Without qualitative change to our electoral system, there remains a distinct possibility that any pan-Canadian regulator would escape democratic censure.
To move forward with the proposal, democratic reform must precede the creation of the new financial institution. Questions of provincial jurisdiction are anachronistic because of the way the exchange of financial securities no longer respects territorial limits. Securities are now traded 24 hours a day in a global market.
Finally, as a resident of Quebec I can quite comfortably say that the claim that the creation of a federal regulator is an affront to Quebec sovereignty is laughable given the recent scandals in Quebec involving Vincent Lacroix and Earl Jones, two financiers that bilked their clients of millions, and the recent performance of the Caisse de dépôt et placement du Québec, the fiduciary responsible for the management of many of the province's pension plans, which saw a reduction in value of 24% of its investment portfolio (approximately $40 billion) in 2008 and a failure to generate any returns for the first six months of 2009. Having failed miserably to meet even the most modest of performance requirements, the Quebec government has little in the way of legitimacy in the eyes of its citizens as the a priori regulator of the financial industry within Quebec.
Sunday, October 11, 2009
In the Land of the Cannibals, the Ponzi Economy Rules
We are not used to thinking about our own political economy as one that cannibalizes its basic supporting subsystems in order to generate the greatest short-term profits possible for a wealthy elite. I know that some environmentalists would disagree. They would respond that they have been engaged in a struggle for decades against a political class that would expand economic production until every tree was logged, every lake and river left polluted, an atmosphere rendered unbreathable, and our topsoil turned into dust.
Tree huggers, what do they know? Well, they were bang on in identifying the self destructive nature of free market capitalism. They just didn’t predict that the insatiable appetite for profits would begin to feed off of the very means of production that generated the initial capital that the Lords of Wall Street successfully looted, multiplied, and subsequently ran off with, ravaging the US economy so that if it were a landscape, it would resemble the remains of a clear cut forest.
Presently, we are led to believe that the economy is this large, somewhat incomprehensible, singular entity. Most of our politicians try to pass themselves off as competent stewards of THE ECONOMY. In fact, we would do much better to think of THE ECONOMY as being composed of three mutually interdependent economies: the primary economy, which consists of the natural resources and the freely given human labour that sustains human society; the real economy, which is the sector of THE ECONOMY devoted to the production of goods and services with real added value; and the speculative economy in which money multiplies as a result of a series of financial transactions.
Essentially, the primary economy gives birth to the real economy, which in turn gives birth to the speculative economy. It should be obvious that if the quality of the primary economy is led to degrade sufficiently, continued activity in the other two economies will cease. This is, in a nutshell, the economic argument for addressing climate change former World Bank chief economist Lord Nicholas Stern makes in the Stern Review. If we don’t begin to act immediately, the economic costs resulting from not acting or an undue delay taking action will far outweigh the cost of the investments. Some would say it is already too late, and we will scorch the earth and leave the planet inhospitable for humans for hundreds of thousands of years.
What is relatively new is that with the near collapse of the global financial system and the Great Global Recession that ensued, it has become evident that the unfettered activities in the speculative economy have been catastrophic for the activities in the real economy. In the United States alone 8 million jobs have disappeared since December 2007, and the US government has been forced to assume trillions of dollars in debt to ward off being plunged into another Great Depression. What the stewards of the free market failed to realize is that those who were raking in billions as a result of their trades in the speculative economy were more than willing to sacrifice the well-being of those who toiled in the real economy because the scale of the profits were exponentially greater than what could be made by making money the old fashion way, earning it.
To understand how the Great Global Recession came into being, we must give proper consideration to key developments concerning economic policy during the Clinton–Bush years. In particular, there was a significant shift in the importance accorded to the speculative economy, and a decision made not to regulate the exchange of financial derivatives.
During the nineties, a seminal article, Securities: The New World Wealth Machine, appeared in the periodical Foreign Policy, which effectively explained how financial markets could become the most powerful generator of wealth. In what appears to be a classic example of putting the cart before the horse, the author articulates what would become the dominant economic strategy in the U.S:
Historically, manufacturing, exporting, and direct investment produced prosperity through income creation. Wealth was created when a portion of income was diverted from consumption into investment in buildings, machinery and technological change. Societies accumulated wealth slowly over generations. Now, many societies, and indeed the entire world, have learned how to create wealth directly. The new approach requires that a state find ways to increase the market value of its stock of productive assets. Several countries have successfully directed their economic policies toward that goal, achieving and sustaining faster growth rates than were once thought possible...
an economic policy that aims to achieve growth by wealth creation therefore does not attempt to increase the production of goods and services, except as a secondary objective.
This represents a historical shift in thinking about the economy. Evidently, there is a reversal of economic priorities in regard to the creation of wealth, in particular, a shift away from the production of tangible goods and services in the real economy to the manipulation of financial assets in the speculative economy. In other words, why go through the painfully slow way of creating wealth through the real economy when unimagined riches (for the few) can be obtained by shuffling financial securities.
Importantly, not only is there a big disconnect between a sustainable future and the desire for immediate reward, but, as well, between the well being of a political and financial elite and the rest of the population. At least, within the real economy even though the benefits are distributed disproportionally, there exists a common interest between capital and labor in that direct investment leads to the creation of jobs. In the speculative economy, however, the so called creation of wealth is little more than a transfer of wealth from those who toil outside of the financial sector to those who work within it and the clients that they serve.
In order to bring about the realization of the New World Wealth Machine, an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000 needed to be introduced. It not only removed derivatives and credit default swaps from the purview of federal regulation, it gave Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century.
Interestingly enough, the legislation was never debated in either the Senate or Congress and was adopted unanimously on the last vote of the last day of the lame duck 106th Congress, between the election and inauguration of George W. Bush.
Once the legal impediments had been removed, Wall Street began to put into practice the irrational belief that great wealth could be created by convincing those with limited means to assume levels of debt they could not possibly service, transferring the fiscal responsibility of the debt to third parties and then betting on the outcomes. Indeed, this is the unregulated world of subprime mortgages, collateralized debt obligations and credit default swaps, which has turned out to be perhaps the greatest Ponzi scheme ever undertaken.
This is the way the scam worked. During the recent real estate bubble in the United States, people were lured into buying houses with surreal financial terms (the subprime mortgage): little or no down payment and a mortgage with a low initial interest rate which would readjust to a higher rate at a later date. Imbued with the expectation that real estate values would continue to rise, people were led to believe that they could simply sell their house at a tidy profit if they were subsequently unable to meet their financial obligations when the higher interest rate kicked in. Knowing full well that many of these mortgages would be subject to default if the American real estate market began to level off (more so, if values began to fall) the financial securities industry buried these suspicious debt obligations within larger and more complex securities (collateralized debt obligation) and sold them as AAA financial products on the global financial markets. To make matters worse, one could take out an apparent insurance policy (credit default swap) on the likelihood that a party would default on its debt obligations, and even worse, such a policy could be bought without even being party to the debt, in other words, a side bet, which explains why it was necessary to gain immunity from state gambling laws. Moreover, the marketing of these derivates as a type of insurance was fraudulent since no monies were set aside from which payments could be made in case of default on a debt obligation.
It doesn’t take much to realize that this set up is nothing less than an elaborate house of cards that will begin to collapse once the subprime mortgages surpass the accepted default rate. Once this occurs, a domino effect takes over, where one default triggers another and where no one wants to be holding the toxic assets. As should be expected, the one ultimately holding the bag is the tax payer because, after all that is said and done, it’s his job or his pension that is eventually imperiled once the decline in asset prices impacts upon the real economy, and it will be his tax dollars that is called upon in order to prop up the financial system.
Without question there was an absence of effective regulation of the financial markets. In the worst case, the Securities and Exchange Commission failed to intervene in the New York financier Bernard Madoff’s elaborate scheme that bilked friends, clients and charitable foundations of approximately $50 billion despite having been informed of the gross irregularities concerning his affairs. The failure to do so has been often cited as the reluctance of regulatory officials to investigate suspected criminal behavior by those with whom they might do business after their stint at the regulatory agency is over. After all, time spent working for the government can often be parlayed into future career gains in the private sector as a result of increased familiarity with the regulatory mechanisms.
With regard to a much more disturbing phenomenon, the bond rating agencies decision to award AAA status to collateral debt obligations tainted with subprime mortgages seems to be a case of the refusal to kill the goose which lays the golden eggs. There is a flagrant conflict of interest when financial institutions have their quality of their financial products evaluated by agencies that are funded by the said institutions. Moreover, there was simply too much money to be made to take the time necessary to evaluate the risk. For example, in 2007 the top fifty individual hedge fund managers earned $29 billion. Their average income was twelve thousand times the income of the typical American family.
Finally, the investment climate allowed private equity firms to engage in leveraged buyouts of successful companies that operate in the real economy in which the real wealth of the company was sucked out and replaced with mountains of debt, often forcing the cannibalized company into bankruptcy, leaving the bondholders not holding the appropriate credit default swaps, creditors, and of course the workers in the lurch.
In the most telling example, the iconic manufacturer the Simmons Bedding Company was flipped from one private equity firm to another, generating millions of dollars of profit in the process and leaving behind an accumulated debt that grew from $164 million in 1991 to $1.3 billion in 2009. According to analysts at Standard & Poor’s, more than half of the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms.
With respect to how the financiers of the speculative economy have behaved towards those who gain their livelihood from the real economy, it is similar in kind to the way the proponents of wealth creation through the real economy behaved to those whose livelihood depended on the health of the primary economy. In both instances, there was a pathological fixation on wealth extraction with little thought and no remorse for the damage left behind.
If we are to have a sustainable future and be stewards of THE ECONOMY, we will need to reverse the direction of the cash flow. Monies gained from the speculative economy need to flow back into the real economy in such a way as to re-establish the health of the primary economy. Faced with the possibility of catastrophic climate change, this is the biggest and most important challenge facing humanity today.
Tree huggers, what do they know? Well, they were bang on in identifying the self destructive nature of free market capitalism. They just didn’t predict that the insatiable appetite for profits would begin to feed off of the very means of production that generated the initial capital that the Lords of Wall Street successfully looted, multiplied, and subsequently ran off with, ravaging the US economy so that if it were a landscape, it would resemble the remains of a clear cut forest.
Presently, we are led to believe that the economy is this large, somewhat incomprehensible, singular entity. Most of our politicians try to pass themselves off as competent stewards of THE ECONOMY. In fact, we would do much better to think of THE ECONOMY as being composed of three mutually interdependent economies: the primary economy, which consists of the natural resources and the freely given human labour that sustains human society; the real economy, which is the sector of THE ECONOMY devoted to the production of goods and services with real added value; and the speculative economy in which money multiplies as a result of a series of financial transactions.
Essentially, the primary economy gives birth to the real economy, which in turn gives birth to the speculative economy. It should be obvious that if the quality of the primary economy is led to degrade sufficiently, continued activity in the other two economies will cease. This is, in a nutshell, the economic argument for addressing climate change former World Bank chief economist Lord Nicholas Stern makes in the Stern Review. If we don’t begin to act immediately, the economic costs resulting from not acting or an undue delay taking action will far outweigh the cost of the investments. Some would say it is already too late, and we will scorch the earth and leave the planet inhospitable for humans for hundreds of thousands of years.
What is relatively new is that with the near collapse of the global financial system and the Great Global Recession that ensued, it has become evident that the unfettered activities in the speculative economy have been catastrophic for the activities in the real economy. In the United States alone 8 million jobs have disappeared since December 2007, and the US government has been forced to assume trillions of dollars in debt to ward off being plunged into another Great Depression. What the stewards of the free market failed to realize is that those who were raking in billions as a result of their trades in the speculative economy were more than willing to sacrifice the well-being of those who toiled in the real economy because the scale of the profits were exponentially greater than what could be made by making money the old fashion way, earning it.
To understand how the Great Global Recession came into being, we must give proper consideration to key developments concerning economic policy during the Clinton–Bush years. In particular, there was a significant shift in the importance accorded to the speculative economy, and a decision made not to regulate the exchange of financial derivatives.
During the nineties, a seminal article, Securities: The New World Wealth Machine, appeared in the periodical Foreign Policy, which effectively explained how financial markets could become the most powerful generator of wealth. In what appears to be a classic example of putting the cart before the horse, the author articulates what would become the dominant economic strategy in the U.S:
Historically, manufacturing, exporting, and direct investment produced prosperity through income creation. Wealth was created when a portion of income was diverted from consumption into investment in buildings, machinery and technological change. Societies accumulated wealth slowly over generations. Now, many societies, and indeed the entire world, have learned how to create wealth directly. The new approach requires that a state find ways to increase the market value of its stock of productive assets. Several countries have successfully directed their economic policies toward that goal, achieving and sustaining faster growth rates than were once thought possible...
an economic policy that aims to achieve growth by wealth creation therefore does not attempt to increase the production of goods and services, except as a secondary objective.
This represents a historical shift in thinking about the economy. Evidently, there is a reversal of economic priorities in regard to the creation of wealth, in particular, a shift away from the production of tangible goods and services in the real economy to the manipulation of financial assets in the speculative economy. In other words, why go through the painfully slow way of creating wealth through the real economy when unimagined riches (for the few) can be obtained by shuffling financial securities.
Importantly, not only is there a big disconnect between a sustainable future and the desire for immediate reward, but, as well, between the well being of a political and financial elite and the rest of the population. At least, within the real economy even though the benefits are distributed disproportionally, there exists a common interest between capital and labor in that direct investment leads to the creation of jobs. In the speculative economy, however, the so called creation of wealth is little more than a transfer of wealth from those who toil outside of the financial sector to those who work within it and the clients that they serve.
In order to bring about the realization of the New World Wealth Machine, an obscure but critical piece of federal legislation called the Commodity Futures Modernization Act of 2000 needed to be introduced. It not only removed derivatives and credit default swaps from the purview of federal regulation, it gave Wall Street immunity from state gambling laws and legalizing activity that had been banned for most of the 20th century.
Interestingly enough, the legislation was never debated in either the Senate or Congress and was adopted unanimously on the last vote of the last day of the lame duck 106th Congress, between the election and inauguration of George W. Bush.
Once the legal impediments had been removed, Wall Street began to put into practice the irrational belief that great wealth could be created by convincing those with limited means to assume levels of debt they could not possibly service, transferring the fiscal responsibility of the debt to third parties and then betting on the outcomes. Indeed, this is the unregulated world of subprime mortgages, collateralized debt obligations and credit default swaps, which has turned out to be perhaps the greatest Ponzi scheme ever undertaken.
This is the way the scam worked. During the recent real estate bubble in the United States, people were lured into buying houses with surreal financial terms (the subprime mortgage): little or no down payment and a mortgage with a low initial interest rate which would readjust to a higher rate at a later date. Imbued with the expectation that real estate values would continue to rise, people were led to believe that they could simply sell their house at a tidy profit if they were subsequently unable to meet their financial obligations when the higher interest rate kicked in. Knowing full well that many of these mortgages would be subject to default if the American real estate market began to level off (more so, if values began to fall) the financial securities industry buried these suspicious debt obligations within larger and more complex securities (collateralized debt obligation) and sold them as AAA financial products on the global financial markets. To make matters worse, one could take out an apparent insurance policy (credit default swap) on the likelihood that a party would default on its debt obligations, and even worse, such a policy could be bought without even being party to the debt, in other words, a side bet, which explains why it was necessary to gain immunity from state gambling laws. Moreover, the marketing of these derivates as a type of insurance was fraudulent since no monies were set aside from which payments could be made in case of default on a debt obligation.
It doesn’t take much to realize that this set up is nothing less than an elaborate house of cards that will begin to collapse once the subprime mortgages surpass the accepted default rate. Once this occurs, a domino effect takes over, where one default triggers another and where no one wants to be holding the toxic assets. As should be expected, the one ultimately holding the bag is the tax payer because, after all that is said and done, it’s his job or his pension that is eventually imperiled once the decline in asset prices impacts upon the real economy, and it will be his tax dollars that is called upon in order to prop up the financial system.
Without question there was an absence of effective regulation of the financial markets. In the worst case, the Securities and Exchange Commission failed to intervene in the New York financier Bernard Madoff’s elaborate scheme that bilked friends, clients and charitable foundations of approximately $50 billion despite having been informed of the gross irregularities concerning his affairs. The failure to do so has been often cited as the reluctance of regulatory officials to investigate suspected criminal behavior by those with whom they might do business after their stint at the regulatory agency is over. After all, time spent working for the government can often be parlayed into future career gains in the private sector as a result of increased familiarity with the regulatory mechanisms.
With regard to a much more disturbing phenomenon, the bond rating agencies decision to award AAA status to collateral debt obligations tainted with subprime mortgages seems to be a case of the refusal to kill the goose which lays the golden eggs. There is a flagrant conflict of interest when financial institutions have their quality of their financial products evaluated by agencies that are funded by the said institutions. Moreover, there was simply too much money to be made to take the time necessary to evaluate the risk. For example, in 2007 the top fifty individual hedge fund managers earned $29 billion. Their average income was twelve thousand times the income of the typical American family.
Finally, the investment climate allowed private equity firms to engage in leveraged buyouts of successful companies that operate in the real economy in which the real wealth of the company was sucked out and replaced with mountains of debt, often forcing the cannibalized company into bankruptcy, leaving the bondholders not holding the appropriate credit default swaps, creditors, and of course the workers in the lurch.
In the most telling example, the iconic manufacturer the Simmons Bedding Company was flipped from one private equity firm to another, generating millions of dollars of profit in the process and leaving behind an accumulated debt that grew from $164 million in 1991 to $1.3 billion in 2009. According to analysts at Standard & Poor’s, more than half of the roughly 220 companies that have defaulted on their debt in some form this year were either owned at one time or are still controlled by private equity firms.
With respect to how the financiers of the speculative economy have behaved towards those who gain their livelihood from the real economy, it is similar in kind to the way the proponents of wealth creation through the real economy behaved to those whose livelihood depended on the health of the primary economy. In both instances, there was a pathological fixation on wealth extraction with little thought and no remorse for the damage left behind.
If we are to have a sustainable future and be stewards of THE ECONOMY, we will need to reverse the direction of the cash flow. Monies gained from the speculative economy need to flow back into the real economy in such a way as to re-establish the health of the primary economy. Faced with the possibility of catastrophic climate change, this is the biggest and most important challenge facing humanity today.
Thursday, October 1, 2009
It's the Climate Stupid
We are a culture that has been denied, or has passively given up, the linguistic and intellectual tools to cope with complexity, to separate illusion from reality.
Today cinematic, political, and journalistic celebrities distract us with personal foibles and scandals. They create our public mythology. Acting, politics, and sports have become, as they were in Nero’s age, interchangeable. In an age of images and entertainment, in an age of instant emotional gratification, we neither seek nor want honesty or reality. Reality is complicated. Reality is boring. We are incapable or unwilling to handle its confusion.
Chris Hedges, Empire of Illusion: The End of Literacy and the Triumph of Spectacle.
There are less than 70 days to go to the Copenhagen Conference, perhaps humanity’s last chance to come up with a viable solution to avoid catastrophic climate change. Yesterday, the US Senate made public its plan to cut green house gas emissions by 20% by 2020, using 2005 as a baseline. In the UK, British Prime Minister, Gordon Brown, announced his intention of making available $100 billion to help under-developed countries reduce their emissions.
In Canada, we are treated to the Denis Codere show. This week the nation focused its attention on the loose-cannon antics of the Liberals former Quebec Lieutenant who had resigned, claiming that he had lost the moral authority to do his job, and, what the Quebec media loves to hear, his claim that the Liberal Party is being run out of Toronto at the expense of Liberals in Montreal.
Morevover, instead of being present in Parliament to cast his vote on a vote of non-confidence that could bring down the Stephen Harper led Conservative government, he opted to miss the crucial vote in order to attend the taping of Tout le Monde en Parle, the most popular celebrity television talk show in Quebec that has a regular audience of Super Bowl proportions.
Likewise, the most popular newspaper in Montreal publishes on its front page the results of a poll which shows how the Liberals are experiencing, according the head-line, a brutal drop in the polls.
It must have been a boring week. Never mind the economy has tanked. Forget that negotiations leading up to Copenhagen have stalled and Canadian politicians, being in a state of perpetual election, have absolutely nothing to bring to the table.
Instead, we should focus out attention of the personal narrative of Michael Ignatieff, betrayed by his lieutenant and facing comparisons to his weak predecessor at the helm of the party. How will he manage? Will the Conservatives take advantage of his perceived weakness and call an election, hoping to find that elusive majority? What will happen to little Denis? Will he keep his seat or will he, like the former leader of the opposition in Quebec's National Assembly, Mario Dumont, get his own television program?
Essentially, we are being treated to what Benjamin DeMott calls “junk politics.” It does not demand justice or the reparation of rights. It seeks to divert attention away that which is important, and the result is that nothing changes—“meaning zero interruption in the processes and practices that strengthen existing, interlocking systems of socioeconomic advantage.”
Today cinematic, political, and journalistic celebrities distract us with personal foibles and scandals. They create our public mythology. Acting, politics, and sports have become, as they were in Nero’s age, interchangeable. In an age of images and entertainment, in an age of instant emotional gratification, we neither seek nor want honesty or reality. Reality is complicated. Reality is boring. We are incapable or unwilling to handle its confusion.
Chris Hedges, Empire of Illusion: The End of Literacy and the Triumph of Spectacle.
There are less than 70 days to go to the Copenhagen Conference, perhaps humanity’s last chance to come up with a viable solution to avoid catastrophic climate change. Yesterday, the US Senate made public its plan to cut green house gas emissions by 20% by 2020, using 2005 as a baseline. In the UK, British Prime Minister, Gordon Brown, announced his intention of making available $100 billion to help under-developed countries reduce their emissions.
In Canada, we are treated to the Denis Codere show. This week the nation focused its attention on the loose-cannon antics of the Liberals former Quebec Lieutenant who had resigned, claiming that he had lost the moral authority to do his job, and, what the Quebec media loves to hear, his claim that the Liberal Party is being run out of Toronto at the expense of Liberals in Montreal.
Morevover, instead of being present in Parliament to cast his vote on a vote of non-confidence that could bring down the Stephen Harper led Conservative government, he opted to miss the crucial vote in order to attend the taping of Tout le Monde en Parle, the most popular celebrity television talk show in Quebec that has a regular audience of Super Bowl proportions.
Likewise, the most popular newspaper in Montreal publishes on its front page the results of a poll which shows how the Liberals are experiencing, according the head-line, a brutal drop in the polls.
It must have been a boring week. Never mind the economy has tanked. Forget that negotiations leading up to Copenhagen have stalled and Canadian politicians, being in a state of perpetual election, have absolutely nothing to bring to the table.
Instead, we should focus out attention of the personal narrative of Michael Ignatieff, betrayed by his lieutenant and facing comparisons to his weak predecessor at the helm of the party. How will he manage? Will the Conservatives take advantage of his perceived weakness and call an election, hoping to find that elusive majority? What will happen to little Denis? Will he keep his seat or will he, like the former leader of the opposition in Quebec's National Assembly, Mario Dumont, get his own television program?
Essentially, we are being treated to what Benjamin DeMott calls “junk politics.” It does not demand justice or the reparation of rights. It seeks to divert attention away that which is important, and the result is that nothing changes—“meaning zero interruption in the processes and practices that strengthen existing, interlocking systems of socioeconomic advantage.”
So what if we don’t act to make the essential changes to the way we live and we scorch the planet in the process. Pity those passengers of the Titanic that only had an orchestra to listen to while the ship was sinking—we can watch our own disaster unfold with the brilliance of HD.
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