Two Bits of Good News

People with the most money don't always win, and that's a good thing. The nine baseball teams with the biggest payrolls (New York teams, Boston, Philadelphia, the Chicago teams, Los Angeles, etc.)  have all been eliminated, either failing to make the playoffs, or losing in the first round. As a long-suffering Montreal Expos fan, and admirer of Moneyball-like managing of small market teams, it's a pleasure to see smaller payroll but well managed clubs still playing.

On a more serious note (for some) are the Wall Street demonstrations popping up around the world now (London next??). It's been almost organic, watching how the media first tried to ignore, then trivialize, now cautiously lionize the anti-Wallstreet efforts. (the next phase will be to tear down what it's built up).  I don't deny the central role that "capital markets" play in capitalism, but we've been witness to something very different from the "efficient use of money". Perhaps Matt Taibbi's now famous, and certainly chilling description, captured it best:

"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates."


A couple of pieces on the on-going demonstrations, and Taibbi's full Rolling Stone article at the end. 


http://opinionator.blogs.nytimes.com/2011/10/11/finally-making-sense-on-wall-street/?ref=opinion



Finally Making Sense on Wall Street
By MARK BITTMAN

Countercultures and alternative systems can be nurturing, educational, illuminating, inspiring — and these are not small things — but they do not bring about fundamental change. Food co-ops, for example, make a difference, but they won’t much alter the way Big Food operates. Historically, the route to fixing broken systems goes through struggle, confrontation and even revolution.

Those scenarios are spreading because, as Naomi Klein wrote in The Guardian last week, “[E]veryone can see that the system is deeply unjust and careening out of control.” The struggle for positive change is being defined by groups as diverse as the revolutionaries in Tunisia and Egypt, the strikers in Greece (“Erase the debt and let the rich pay”), the indignados in Spain, the misled but occasionally well-intentioned members of the Tea Party, and certainly those occupying Wall Street (and, in case you missed it, some 1,500 other places, and growing, as of this writing). Now it’s even being embraced by the Democratic leadership.

What we need are more activists who are interested in food than “food activists.” Whether we’re talking about food, politics, healthcare, housing, the environment, or banking, the big question remains the same: How do we bring about fundamental change?

Some criticized the Wall Street occupiers for having no demands (“Anyway … it’s not the Brookings Institution,” quips The New Yorker’s Hendrik Hertzberg), but their position is clear: the Obama administration bailed out Wall Street without reforming it, allowing it to thrive while median income falls. (Europe is following suit: investors will make a killing on Greece and the other “Club Med” countries, at the expense of the social welfare of the continent’s non-rich.)

Indeed, at first the occupiers appeared to be building a counterculture. But on Sept. 29 they accused Wall Street of supporting foreclosures, encouraging inequality, undermining the agricultural system and poisoning the food supply, stripping employees of healthcare, pay and negotiating rights, determining “catastrophic” economic policy, blocking alternate energy sources, and more. (I didn’t see “sabotaging efforts to deal with climate change” in their declaration, but it noted — not without humor — that “these grievances are not all-inclusive.”) Who among us, except those who benefit from these practices, is not in agreement with at least some of this?

“We Are the 99 Percent” encourages us to demand of those in power, “Are you with the 99 percent or not? And what are you doing about it?” And the “99 percent” slogan is not only all-embracing but nearly correct: the system is working for far more than one percent of us, of course, but how much more? We are the most class-divided of all the world’s “developed” nations, though in my current travels through five European countries I’ve seen and heard about life-altering cuts everywhere.

Protest is such a no-brainer that support for the occupiers now comes even from labor union leadership, along with every progressive in the country. Happily, the right is unhappy. Herman “Get a Job” Cain calls Occupy Wall Street “un-American,” which is just stupid. Mitt “Put the Dog on the Roof” Romney calls it “class warfare,” but that’s as American as the struggle for justice; it’s just that the wrong class is winning. In fact there’s no more American action than this one; its roots are in the populist, suffragist, labor, civil rights, women’s, anti-war, environmental and even food movements. Unlike the Tea Party, funded as it is by wealthy reactionaries like the Koch brothers, “Occupy” is sustained by energy, frustration, anger, perception, pizza and apples paid for by supporters or donated by farmers and, ultimately, by its daily growth.

Like my colleague Gail Collins, I was part of a like-minded movement that peaked more than 40 years ago. I had really long hair; I went to a lot of meetings; I ran a tiny newspaper. After I had children, developed a career and gained the trappings of a successful American life, things seemed less black and white. Probably they are.

But if ever there were a time for outrage, this is it. And in stark contrast to those of us who came of age in the ‘60s and ‘70s — before the decline of American economic hegemony — today’s youth have a frighteningly more difficult future. But it’s not just young people, as the We Are the 99 Percent tumblr reveals. These are the stories, writes Washington Post columnist Ezra Klein, of “people who played by the rules, did what they were told, and now have nothing to show for it.” How many Americans fall into that category, and how many more are on the precipice?

The occupation of Wall Street may end with the first extended cold rain. But the renewed understanding that collective struggle is a key component in meaningful change — inspired by things as diverse as the Tea Party and a Tunisian fruit vendor — could not be more important. A movement that questions everything — from food justice to economic justice — is a fine start, and if Occupy Wall Street can push the Democrats as the Tea Party has pushed the Republicans … well, hooray.





http://www.nytimes.com/2011/10/12/opinion/theres-something-happening-here.html?ref=opinion






October 11, 2011
Something’s Happening Here
By THOMAS L. FRIEDMAN

When you see spontaneous social protests erupting from Tunisia to Tel Aviv to Wall Street, it’s clear that something is happening globally that needs defining. There are two unified theories out there that intrigue me. One says this is the start of “The Great Disruption.” The other says that this is all part of “The Big Shift.” You decide.

Paul Gilding, the Australian environmentalist and author of the book “The Great Disruption,” argues that these demonstrations are a sign that the current growth-obsessed capitalist system is reaching its financial and ecological limits. “I look at the world as an integrated system, so I don’t see these protests, or the debt crisis, or inequality, or the economy, or the climate going weird, in isolation — I see our system in the painful process of breaking down,” which is what he means by the Great Disruption, said Gilding. “Our system of economic growth, of ineffective democracy, of overloading planet earth — our system — is eating itself alive. Occupy Wall Street is like the kid in the fairy story saying what everyone knows but is afraid to say: the emperor has no clothes. The system is broken. Think about the promise of global market capitalism. If we let the system work, if we let the rich get richer, if we let corporations focus on profit, if we let pollution go unpriced and unchecked, then we will all be better off. It may not be equally distributed, but the poor will get less poor, those who work hard will get jobs, those who study hard will get better jobs and we’ll have enough wealth to fix the environment.

“What we now have — most extremely in the U.S. but pretty much everywhere — is the mother of all broken promises,” Gilding adds. “Yes, the rich are getting richer and the corporations are making profits — with their executives richly rewarded. But, meanwhile, the people are getting worse off — drowning in housing debt and/or tuition debt — many who worked hard are unemployed; many who studied hard are unable to get good work; the environment is getting more and more damaged; and people are realizing their kids will be even worse off than they are. This particular round of protests may build or may not, but what will not go away is the broad coalition of those to whom the system lied and who have now woken up. It’s not just the environmentalists, or the poor, or the unemployed. It’s most people, including the highly educated middle class, who are feeling the results of a system that saw all the growth of the last three decades go to the top 1 percent.”

Not so fast, says John Hagel III, who is the co-chairman of the Center for the Edge at Deloitte, along with John Seely Brown. In their recent book, “The Power of Pull,” they suggest that we’re in the early stages of a “Big Shift,” precipitated by the merging of globalization and the Information Technology Revolution. In the early stages, we experience this Big Shift as mounting pressure, deteriorating performance and growing stress because we continue to operate with institutions and practices that are increasingly dysfunctional — so the eruption of protest movements is no surprise.

Yet, the Big Shift also unleashes a huge global flow of ideas, innovations, new collaborative possibilities and new market opportunities. This flow is constantly getting richer and faster. Today, they argue, tapping the global flow becomes the key to productivity, growth and prosperity. But to tap this flow effectively, every country, company and individual needs to be constantly growing their talents.

“We are living in a world where flow will prevail and topple any obstacles in its way,” says Hagel. “As flow gains momentum, it undermines the precious knowledge stocks that in the past gave us security and wealth. It calls on us to learn faster by working together and to pull out of ourselves more of our true potential, both individually and collectively. It excites us with the possibilities that can only be realized by participating in a broader range of flows. That is the essence of the Big Shift.”

Yes, corporations now have access to more cheap software, robots, automation, labor and genius than ever. So holding a job takes more talent. But the flip side is that individuals — individuals — anywhere can now access the flow to take online courses at Stanford from a village in Africa, to start a new company with customers everywhere or to collaborate with people anywhere. We have more big problems than ever and more problem-solvers than ever.

So there you have it: Two master narratives — one threat-based, one opportunity-based, but both involving seismic changes. Gilding is actually an optimist at heart. He believes that while the Great Disruption is inevitable, humanity is best in a crisis, and, once it all hits, we will rise to the occasion and produce transformational economic and social change (using tools of the Big Shift). Hagel is also an optimist. He knows the Great Disruption may be barreling down on us, but he believes that the Big Shift has also created a world where more people than ever have the tools, talents and potential to head it off. My heart is with Hagel, but my head says that you ignore Gilding at your peril.

You decide.




http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405


The Great American Bubble Machine
From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression -- and they're about to do it again
by: Matt Taibbi


The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.

Invasion of the Home Snatchers

By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …


But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain — an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank's unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere — high gas prices, rising consumer credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you're losing, it's going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it's going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth — pure profit for rich individuals.

The Feds vs. Goldman

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They've been pulling this same stunt over and over since the 1920s — and now they're preparing to do it again, creating what may be the biggest and most audacious bubble yet.

If you want to understand how we got into this financial crisis, you have to first understand where all the money went — and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long — including last year's strange and seemingly inexplicable spike in the price of oil. There were a lot of losers in each of those bubbles, and in the bailout that followed. But Goldman wasn't one of them.

BUBBLE #1 The Great Depression

Goldman wasn't always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids —just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to smalltime vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman's first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there's really only one episode that bears scrutiny now, in light of more recent events: Goldman’s disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.

Wall Street's Big Win

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an "investment trust." Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got into the investmenttrust game late, then jumped in with both feet and went hogwild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund — which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah — which, of course, was in large part owned by Goldman Trading.


The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line. The basic idea isn't hard to follow. You take a dollar and borrow nine against it; then you take that $10 fund and borrow $90; then you take your $100 fund and, so long as the public is still lending, borrow and invest $900. If the last fund in the line starts to lose value, you no longer have the money to pay back your investors, and everyone gets massacred.

In a chapter from The Great Crash, 1929 titled "In Goldman Sachs We Trust," the famed economist John Kenneth Galbraith held up the Blue Ridge and Shenandoah trusts as classic examples of the insanity of leveragebased investment. The trusts, he wrote, were a major cause of the market's historic crash; in today's dollars, the losses the bank suffered totaled $475 billion. "It is difficult not to marvel at the imagination which was implicit in this gargantuan insanity," Galbraith observed, sounding like Keith Olbermann in an ascot. "If there must be madness, something may be said for having it on a heroic scale."


BUBBLE #2 Tech Stocks

Fast-forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country's wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor's assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm's mantra, "long-term greedy." One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. "We gave back money to 'grownup' corporate clients who had made bad deals with us," he says. "Everything we did was legal and fair — but 'long-term greedy' said we didn't want to make such a profit at the clients' collective expense that we spoiled the marketplace."

But then, something happened. It's hard to say what it was exactly; it might have been the fact that Goldman's cochairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. While the American media fell in love with the story line of a pair of baby-boomer, Sixties-child, Fleetwood Mac yuppies nesting in the White House, it also nursed an undisguised crush on Rubin, who was hyped as without a doubt the smartest person ever to walk the face of the Earth, with Newton, Einstein, Mozart and Kant running far behind.

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national clichè that whatever Rubin thought was best for the economy — a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline The Committee To Save The World. And "what Rubin thought," mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. During his tenure at Treasury, the Clinton White House made a series of moves that would have drastic consequences for the global economy — beginning with Rubin's complete and total failure to regulate his
old firm during its first mad dash for obscene short-term profits.

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren't much more than potfueled ideas scrawled on napkins by uptoolate bongsmokers were taken public via IPOs, hyped in the media and sold to the public for mega-millions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn't know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system — one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman's later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry's standards of quality control.

"Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public," says one prominent hedge-fund manager. "The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash." Goldman completed the snow job by pumping up the sham stocks: "Their analysts were out there saying Bullshit.com is worth $100 a share."

The problem was, nobody told investors that the rules had changed. "Everyone on the inside knew," the manager says. "Bob Rubin sure as hell knew what the underwriting standards were. They'd been intact since the 1930s."

Jay Ritter, a professor of finance at the University of Florida who specializes in IPOs, says banks like Goldman knew full well that many of the public offerings they were touting would never make a dime. "In the early Eighties, the major underwriters insisted on three years of profitability. Then it was one year, then it was a quarter. By the time of the Internet bubble, they were not even requiring profitability in the foreseeable future."

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called "laddering," which is just a fancy way of saying they manipulated the share price of new offerings. Here's how it works: Say you're Goldman Sachs, and Bullshit.com comes to you and asks you to take their company public. You agree on the usual terms: You'll price the stock, determine how many shares should be released and take the Bullshit.com CEO on a "road show" to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price — let's say Bullshit.com's starting share price is $15 — in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO's future, knowledge that wasn't disclosed to the day trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company's price, which of course was to the bank's benefit — a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nicholas Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television asshole Jim Cramer, himself a Goldman alum. Maier told the SEC that while working for Cramer between 1996 and 1998, he was repeatedly forced to engage in laddering practices during IPO deals with Goldman.

"Goldman, from what I witnessed, they were the worst perpetrator," Maier said. "They totally fueled the bubble. And it's specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation — manipulated up — and ultimately, it really was the small person who ended up buying in." In 2005, Goldman agreed to pay $40 million for its laddering violations — a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was "spinning," better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price — ensuring that those "hot" opening-price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of Bullshit.com opening at $20, the bank would approach the Bullshit.com CEO and offer him a million shares of his own company at $18 in exchange for future business — effectively robbing all of Bullshit's new shareholders by diverting cash that should have gone to the company's bottom line into the private bank account of the company's CEO.

In one case, Goldman allegedly gave a multimillion-dollar special offering to eBay CEO Meg Whitman, who later joined Goldman's board, in exchange for future i-banking business. According to a report by the House Financial Services Committee in 2002, Goldman gave special stock offerings to executives in 21 companies that it took public, including Yahoo! cofounder Jerry Yang and two of the great slithering villains of the financial-scandal age — Tyco's Dennis Kozlowski and Enron's Ken Lay. Goldman angrily denounced the report as "an egregious distortion of the facts" — shortly before paying $110 million to settle an investigation into spinning and other manipulations launched by New York state regulators. "The spinning of hot IPO shares was not a harmless corporate perk," then-attorney general Eliot Spitzer said at the time. "Instead, it was an integral part of a fraudulent scheme to win new investment-banking business."

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn't the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.

Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits — an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman's mantra of "long-term greedy" vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else's Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America's recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that "I've never even heard the term 'laddering' before.")

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent —they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

BUBBLE #3 The Housing Craze

Goldman's role in the sweeping global disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren't in IPOs but in mortgages. By now almost everyone knows that for decades mortgage dealers insisted that home buyers be able to produce a down payment of 10 percent or more, show a steady income and good credit rating, and possess a real first and last name. Then, at the dawn of the new millennium, they suddenly threw all that shit out the window and started writing mortgages on the backs of napkins to cocktail waitresses and ex-cons carrying five bucks and a Snickers bar.

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those shitty mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con's mortgage on its books, knowing how likely it was to fail. You can't write these mortgages, in other words, unless you can sell them to someone who doesn't know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the shitty ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance — known as credit default swaps — on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won't.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated — and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses.

More regulation wasn’t exactly what Goldman had in mind. “The banks go crazy — they want it stopped,” says Michael Greenberger, who worked for Born as director of trading and markets at the CFTC and is now a law professor at the University of Maryland. “Greenspan, Summers, Rubin and [SEC chief Arthur] Levitt want it stopped.”

Clinton's reigning economic foursome — “especially Rubin,” according to Greenberger — called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 11,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn't end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities — a third of which were sub-prime — much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation — no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners — old people, for God's sake — pretending the whole time that it wasn't grade D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. "The mortgage sector continues to be challenged," David Viniar, the bank's chief financial officer, boasted in 2007. "As a result, we took significant markdowns on our long inventory positions … However, our risk bias in that market was to be short, and that net short position was profitable." In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

"That's how audacious these assholes are," says one hedge fund manager. "At least with other banks, you could say that they were just dumb — they believed what they were selling, and it blew them up. Goldman knew what it was doing."

I ask the manager how it could be that selling something to customers that you're actually betting against — particularly when you know more about the weaknesses of those products than the customer — doesn't amount to securities fraud.

"It's exactly securities fraud," he says. "It's the heart of securities fraud."

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. New York state regulators are suing Goldman and 25 other underwriters for selling bundles of crappy Countrywide mortgages to city and state pension funds, which lost as much as $100 million in the investments. Massachusetts also investigated Goldman for similar misdeeds, acting on behalf of 714 mortgage holders who got stuck holding predatory loans. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million — about what the bank's CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known — it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It fucked the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and fucked the taxpayer by making him pay off those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm's payroll jumped to $16.5 billion — an average of $622,000 per employee. As a Goldman spokesman explained, "We work very hard here."

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down — and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

BUBBLE #4 $4 a Gallon

By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn't leave much to sell that wasn't tainted. The terms junk bond, IPO, sub-prime mortgage and other once-hot financial fare were now firmly associated in the public's mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years — the notion that housing prices never go down — was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market — stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a "flight to commodities." Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be "very helpful in the short term," while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.

But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling — which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help — there were other players in the physical commodities market — but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures — agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. The commodities market was designed in large part to help farmers: A grower concerned about future price drops could enter into a contract to sell his corn at a certain price for delivery later on, which made him worry less about building up stores of his crop. When no one was buying corn, the farmer could sell to a middleman known as a "traditional speculator," who would store the grain and sell it later, when demand returned. That way, someone was always there to buy from the farmer, even when the market temporarily had no need for his crops.

In 1936, however, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission — the very same body that would later try and fail to regulate credit swaps — to place limits on speculative trades in commodities. As a result of the CFTC's oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren't the only ones who needed to hedge their risk against future price drops — Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap — the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman's argument. It issued the bank a free pass, called the "Bona Fide Hedging" exemption, allowing Goldman's subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market — driven there by fear of the falling dollar and the housing crash — finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers — and that's likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. "I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC," says Greenberger, "and neither of us knew this letter was out there." In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

"I had been invited to a briefing the commission was holding on energy," the staffer recounts. "And suddenly in the middle of it, they start saying, 'Yeah, we've been issuing these letters for years now.' I raised my hand and said, 'Really? You issued a letter? Can I see it?' And they were like, 'Duh, duh.' So we went back and forth, and finally they said, 'We have to clear it with Goldman Sachs.' I'm like, 'What do you mean, you have to clear it with Goldman Sachs?'"

The CFTC cited a rule that prohibited it from releasing any information about a company's current position in the market. But the staffer's request was about a letter that had been issued 17 years earlier. It no longer had anything to do with Goldman's current position. What's more, Section 7 of the 1936 commodities law gives Congress the right to any information it wants from the commission. Still, in a classic example of how complete Goldman's capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index — which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil — became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly "long only" bettors, who seldom if ever take short positions — meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it's terrible for commodities, because it continually forces prices upward. "If index speculators took short positions as well as long ones, you'd see them pushing prices both up and down," says Michael Masters, a hedge fund manager who has helped expose the role of investment banks in the manipulation of oil prices. "But they only push prices in one direction: up."

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an "oracle of oil" by The New York Times, predicted a "super spike" in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn't know when oil prices would fall until we knew "when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives."

But it wasn't the consumption of real oil that was driving up prices — it was the trade in paper oil. By the summer of 2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country's commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees' Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn't just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World.

Now oil prices are rising again: They shot up 20 percent in the month of May and have nearly doubled so far this year. Once again, the problem is not supply or demand. "The highest supply of oil in the last 20 years is now," says Rep. Bart Stupak, a Democrat from Michigan who serves on the House energy committee. "Demand is at a 10-year low. And yet prices are up."

Asked why politicians continue to harp on things like drilling or hybrid cars, when supply and demand have nothing to do with the high prices, Stupak shakes his head. "I think they just don't understand the problem very well," he says. "You can't explain it in 30 seconds, so politicians ignore it."

BUBBLE #5 Rigging the Bailout

After the oil bubble collapsed last fall, there was no new bubble to keep things humming — this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers — one of Goldman's last real competitors — collapse without intervention. ("Goldman's superhero status was left intact," says market analyst Eric Salzman, "and an investment banking competitor, Lehman, goes away.") The very next day, Paulson green-lighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bank holding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding — most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs — and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman's primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict of interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman — New York Fed president William Dudley — is yet another former Goldmanite.

The collective message of all this — the AIG bailout, the swift approval for its bank holding conversion, the TARP funds — is that when it comes to Goldman Sachs, there isn't a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. "In the past it was an implicit advantage," says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. "Now it's more of an explicit advantage."

Once the bailouts were in place, Goldman went right back to business as usual, dreaming up impossibly convoluted schemes to pick the American carcass clean of its loose capital. One of its first moves in the post-bailout era was to quietly push forward the calendar it uses to report its earnings, essentially wiping December 2008 — with its $1.3 billion in pretax losses — off the books. At the same time, the bank announced a highly suspicious $1.8 billion profit for the first quarter of 2009 — which apparently included a large chunk of money funneled to it by taxpayers via the AIG bailout. "They cooked those first quarter results six ways from Sunday," says one hedge fund manager. "They hid the losses in the orphan month and called the bailout money profit."

Two more numbers stand out from that stunning first-quarter turnaround. The bank paid out an astonishing $4.7 billion in bonuses and compensation in the first three months of this year, an 18 percent increase over the first quarter of 2008. It also raised $5 billion by issuing new shares almost immediately after releasing its first quarter results. Taken together, the numbers show that Goldman essentially borrowed a $5 billion salary payout for its executives in the middle of the global economic crisis it helped cause, using half-baked accounting to reel in investors, just months after receiving billions in a taxpayer bailout.

Even more amazing, Goldman did it all right before the government announced the results of its new "stress test" for banks seeking to repay TARP money — suggesting that Goldman knew exactly what was coming. The government was trying to carefully orchestrate the repayments in an effort to prevent further trouble at banks that couldn't pay back the money right away. But Goldman blew off those concerns, brazenly flaunting its insider status. "They seemed to know everything that they needed to do before the stress test came out, unlike everyone else, who had to wait until after," says Michael Hecht, a managing director of JMP Securities. "The government came out and said, 'To pay back TARP, you have to issue debt of at least five years that is not insured by FDIC — which Goldman Sachs had already done, a week or two before."

And here's the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion — yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman's annual report, the low taxes are due in large part to changes in the bank's "geographic earnings mix." In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely fucked corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage — but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. "With the right hand out begging for bailout money," he said, "the left is hiding it offshore."

BUBBLE #6 Global Warming

Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

Gone are Hank Paulson and Neel Kashkari; in their place are Treasury chief of staff Mark Patterson and CFTC chief Gary Gensler, both former Goldmanites. (Gensler was the firm's co-head of finance.) And instead of credit derivatives or oil futures or mortgage-backed CDOs, the new game in town, the next bubble, is in carbon credits — a booming trillion dollar market that barely even exists yet, but will if the Democratic Party that it gave $4,452,585 to in the last election manages to push into existence a groundbreaking new commodities bubble, disguised as an "environmental plan," called cap-and-trade.

The new carbon credit market is a virtual repeat of the commodities-market casino that's been kind to Goldman, except it has one delicious new wrinkle: If the plan goes forward as expected, the rise in prices will be government-mandated. Goldman won't even have to rig the game. It will be rigged in advance.

Here's how it works: If the bill passes, there will be limits for coal plants, utilities, natural-gas distributors and numerous other industries on the amount of carbon emissions (a.k.a. greenhouse gases) they can produce per year. If the companies go over their allotment, they will be able to buy "allocations" or credits from other companies that have managed to produce fewer emissions. President Obama conservatively estimates that about $646 billion worth of carbon credits will be auctioned in the first seven years; one of his top economic aides speculates that the real number might be twice or even three times that amount.

The feature of this plan that has special appeal to speculators is that the "cap" on carbon will be continually lowered by the government, which means that carbon credits will become more and more scarce with each passing year. Which means that this is a brand new commodities market where the main commodity to be traded is guaranteed to rise in price over time. The volume of this new market will be upwards of a trillion dollars annually; for comparison's sake, the annual combined revenues of all electricity suppliers in the U.S. total $320 billion.

Goldman wants this bill. The plan is (1) to get in on the ground floor of paradigm-shifting legislation, (2) make sure that they're the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade long ago, but things really ramped up last year when the firm spent $3.5 million to lobby climate issues. (One of their lobbyists at the time was none other than Patterson, now Treasury chief of staff.) Back in 2005, when Hank Paulson was chief of Goldman, he personally helped author the bank's environmental policy, a document that contains some surprising elements for a firm that in all other areas has been consistently opposed to any sort of government regulation. Paulson's report argued that "voluntary action alone cannot solve the climate change problem." A few years later, the bank's carbon chief, Ken Newcombe, insisted that cap-and-trade alone won't be enough to fix the climate problem and called for further public investments in research and development. Which is convenient, considering that Goldman made early investments in wind power (it bought a subsidiary called Horizon Wind Energy), renewable diesel (it is an investor in a firm called Changing World Technologies) and solar power (it partnered with BP Solar), exactly the kind of deals that will prosper if the government forces energy producers to use cleaner energy. As Paulson said at the time, "We're not making those investments to lose money."

The bank owns a 10 percent stake in the Chicago Climate Exchange, where the carbon credits will be traded. Moreover, Goldman owns a minority stake in Blue Source LLC, a Utah-based firm that sells carbon credits of the type that will be in great demand if the bill passes. Nobel Prize winner Al Gore, who is intimately involved with the planning of cap-and-trade, started up a company called Generation Investment Management with three former bigwigs from Goldman Sachs Asset Management, David Blood, Mark Ferguson and Peter Harris. Their business? Investing in carbon offsets. There's also a $500 million Green Growth Fund set up by a Goldmanite to invest in green-tech … the list goes on and on. Goldman is ahead of the headlines again, just waiting for someone to make it rain in the right spot. Will this market be bigger than the energy futures market?

"Oh, it'll dwarf it," says a former staffer on the House energy committee.

Well, you might say, who cares? If cap-and-trade succeeds, won't we all be saved from the catastrophe of global warming? Maybe — but cap-and-trade, as envisioned by Goldman, is really just a carbon tax structured so that private interests collect the revenues. Instead of simply imposing a fixed government levy on carbon pollution and forcing unclean energy producers to pay for the mess they make, cap-and-trade will allow a small tribe of greedy-as-hell Wall Street swine to turn yet another commodities market into a private tax collection scheme. This is worse than the bailout: It allows the bank to seize taxpayer money before it's even collected.

"If it's going to be a tax, I would prefer that Washington set the tax and collect it," says Michael Masters, the hedge fund director who spoke out against oil futures speculation. "But we're saying that Wall Street can set the tax, and Wall Street can collect the tax. That's the last thing in the world I want. It's just asinine."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going.

Apple and Butter

It was the first time I'd thought hard about how our food system works. It was the late 1960's and I heard an interview with a nutritionist  (can't remember his name) who said why would anyone stop eating butter and replace it with something coming out of an industrial plant, ladled with artificial colour and flavour. Margarine was pretty crude back then.  I still don't eat it today, but there's no denying that soft margarines do have many credible supporters:
From: http://www.mayoclinic.com/health/butter-vs-margarine/AN00835

"Margarine is made from vegetable oils, so it contains no cholesterol. Margarine is also higher in "good" fats — polyunsaturated and monounsaturated — than butter is. These types of fat help reduce low-density lipoprotein (LDL), or "bad," cholesterol, when substituted for saturated fat. Butter, on the other hand, is made from animal fat, so it contains cholesterol and high levels of saturated fat."

On the other hand, butter has many supporters too, and their number seem to be growing. One piece on butter's qualities, another on an effort by Denmark to tax people's desire for fat, and the unintended consequences of that tax in Sweden, and finally (totally off topic, but timely) because I always admire people who can link good jazz with anything, Paul Well's thoughts on Steve Jobs (that's the apple part).

 http://besthealth.com.au/why-butter-is-better-than-margarine/

Why Butter is Better Than Margarine
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Author: Stephen Byrnes, ND, RNCP
One of the most healthy whole foods you can include in your diet is butter. “What?” I can hear many of you saying, “Isn’t butter bad for you? I thought margarine and spreads were better because they’re low in saturated fat and cholesterol?”

Be not deceived folks!

Butter is truly better than margarine or other vegetable spreads. Despite unjustified warnings about saturated fat from well-meaning, but misinformed, nutritionists, the list of butter’s benefits is impressive indeed:

Vitamins

Butter is a rich source of easily absorbed vitamin A, needed for a wide range of functions in the body, from maintaining good vision, to keeping the endocrine system in top shape. Butter also contains all the other fat-soluble vitamins (E, K, and D).

Minerals

Butter is rich in trace minerals, especially selenium, a powerful antioxidant. Ounce for ounce, butter has more selenium per gram than either whole wheat or garlic. Butter also supplies iodine, needed by the thyroid gland (as well as vitamin A, also needed by the thyroid gland).

Fatty Acids

Butter has appreciable amounts of butyric acid, used by the colon as an energy source. This fatty acid is also a known anti-carcinogen. Lauric acid, a medium chain fatty acid, is a potent antimicrobial and antifungal substance. Butter also contains conjugated linoleic acid (CLA) which gives excellent protection against cancer. Range-fed cows produce especially high levels of CLA as opposed to “stall fed” cattle.
It pays, then, to get your butter from a cow that has been fed properly. Butter also has small, but equal, amounts of omega 3and 6 fatty acids, the so-called essential fatty acids.

Glycospingolipids

These are a special category of fatty acids that protect against gastrointestinal infections , especially in the very young and the elderly. Children, therefore, should not drink skim or low fat milk. Those that do have higher rates of diarrhea than those that drink whole milk.




http://opinionator.blogs.nytimes.com/2011/10/04/how-about-a-little-danish/?hp



October 4, 2011, 8:30 pm
How About a Little Danish?
By MARK BITTMAN

COPENHAGEN, Denmark — Well lookee here: the inevitable move toward taxing unhealthful foods to raise income and discourage damaging diets has begun. Last month, Hungary, almost unnoticed, began taxing foods with high levels of fat, salt and sugar. And earlier this week, with just a little more fanfare, Denmark instituted an excise tax on foods high in saturated fat.

By our standards, the Danes aren’t even that fat: their obesity rate is about nine percent (it could be all that bike-riding), well below the European average of 15 percent and less than a third the rate of Americans. More startling, perhaps, is that the tax was introduced by a center-right government that was simply looking for new revenues. Although it met resistance, its passage was never really in doubt, because it was supported by both the right and the left. The tax was approved in a vote that ran about 90 percent in favor, and instituted at a rate of 16 Kroner (just under $3) per kilo, which will mean a half-pound of butter will rise in cost by about 15 cents.

When the old government was booted out last month, its place was taken by a coalition led by the leftish Social Democrats and including, among others, the Socialist People’s Party (SF). Before it even took office, that alliance was talking about doubling the tax, which would truly test its health benefits.

As an outsider who spent three days trying to comprehend the dynamics behind this, my understanding is bound to be flawed. But I believe there are two or three reasons this tax is happening (other than the obvious, which is that it makes sense).

First, like its counterparts throughout Western Europe, the Danish government is struggling to find new income. And although there have been excise taxes on tobacco, sugar, alcohol and other “luxury” goods here for nearly 100 years, this one must have felt like peeking under a rock and finding a diamond.

Then there’s the idea that Danes — like many citizens of many countries, including our own — do not mind paying taxes as long as they’re put to good use, and here to a great extent they are. Denmark is far from ideal, yet it offers many benefits of a progressive tax structure that Americans could see if we only had the political will: real universal health care, free education to all through college or trade school, terrific child care and retirement benefits, and more.

Finally, “social engineering” (better term, anyone? “enforced attitude adjustment” doesn’t cut it) is standard in Denmark. “It’s simply not taboo here,” said Jesper Petersen, when I spoke with him over coffee in the Parliament’s cafeteria. Petersen, who is 30 years old and looks it, is a spokesperson on taxation for the SF and was mentioned to me several times as a likely minister of taxation when the new government sorts itself out. (He refused to comment.)

“For generations, when we believe something is bad for the population but not so bad that it should be outlawed, we tax it,” he said. Thus, not only alcohol and tobacco but pesticides are taxed, and the first step taken to reduce the use of antibiotics and growth promoters in animals was to tax them. (It wasn’t the last step, but I’ll report on Denmark’s relatively progressive animal agriculture at another time.)

This tax is not without problems. It’s limited to saturated fats, though other fats and empty carbohydrates from sugar to white bread are probably equally to blame for the obesity epidemic. Although the tax will be applied to imported goods as well, labeling and documentation from some neighboring countries are less than reliable. And, of course, since Denmark is a small country, people may just cross the border to score their fixes of butter, frozen pizza and ribeyes.

But Petersen believes that seeing the strategy as health-related rather than simply income-generating will allow government to both increase its rate and expand it to more unhealthy foods. Then, he says, the new revenues can be spent “on health care and prevention of lifestyle diseases” rather than on lowering income tax. And after admitting that it was complicated, he said, “If anyone can do this, we can. We have the labeling, we have an administration that can deal with complicated stuff, and we have companies that are used to making these kinds of adjustments.” (It’s worth noting that the use of trans fats is illegal in Denmark — as well as in Austria and Switzerland — and that this, too, happened without much fuss.)

I have been advocating for taxes similar to these for years, so talking to Petersen was fantasy-like. At the end of our interview he said, “These taxes will work, and they’ll become the trend. Health problems from lifestyle diseases are big in every European country — and even more in the United States — and everyone will be watching us. They’ll see that this can help us control health care expenses — which will help us control the economy — and make people more healthy and allow them to live longer and better lives. We’ll also pressure industry to create products that are healthier.

“All of this can be done.”

I think he’s right. We’ll see similar taxes implemented throughout Scandinavia, and countries as diverse as France and Romania are already considering them. When we can say the same of the States, which needs these taxes more than any country in the world, it’ll be time for a serious celebration. Perhaps a few rounds of Danish?

http://www.theglobeandmail.com/report-on-business/international-news/global-exchange/globe-correspondents/butter-shortage-has-swedes-churning/article2191753/




Butter shortage has Swedes churning
by naomi powell  •  Oct. 6, 2011 •

Danes looking to sneak butter over the Swedish border to escape a new fat tax may be out of luck. After years of lukewarm interest in butter and heavy cream, Swedes have developed a new passion for the stuff.

The demand is such that Sweden is now battling a national butter shortage. Supplies were low enough at one point that a local newspaper printed instructions on how to churn it at home.

The butter boom has been attributed to low-carb fad diets and a return to “natural cooking” that eschews processed spreads, sauces and other products. But the shortage has as much to do with the rapid decline of the country’s dairy industry as it does with renewed demand. Sweden is one of the few countries in Europe where milk production has consistently decreased -- a trend the industry is struggling to reverse.

“We have cheap land here and Swedish producers are paid similar prices as elsewhere,” said Lennart Holmstrom of the Swedish Dairy Association. “The conditions are the same and still our production falls while in Denmark and the Netherlands they increase production. We are working very hard to mobilize and retain the farmers we have left but it is a very difficult job.”

And so, in a country where eating locally produced food is a longstanding preference, milk production has plunged 15 per cent in the last 20 years. Meanwhile, demand for butter alone spiked 18.2 per cent in 2009, with the average Swede putting away 1.8 kilograms. That’s not much compared to other European nations -- the French consumed 7.9 kilograms per capita in 2009 -- but as the appetite for butter and cream continues to grow, it’s pushing dairy farms to their limit.

“We’ve had shortages before, but never this big or for this long,” said Claes Henriksson of dairy giant Arla. “The gap between milk production and demand for butter has been quite high but we didn’t expect demand for butter to rise so much that we’d be put in this situation.”

In order to free up Swedish cream for butter production, Arla -- which controls 45 per cent of the Sweden’s dairy market -- plans to import 150 tonnes of Danish cream per week to substitute into other products such as yogurt. Mr. Henriksson expects the butter supply to return to normal by the end of the month.

The Swedish Dairy Association wants to increase annual milk production by 18 per cent to 3.3 billion litres. If that fails, Swedes will likely face more shortages in the future, Mr. Holmstrom says.


http://www2.macleans.ca/2011/10/05/steve-jobs-this-american-life/

This American life
by Paul Wells on Wednesday, October 5, 2011

The question before the house now, or one of them, is whether Steve Jobs was an innovator. It’s easy to come up with perfectly fair definitions of the term that leave him offside. The mouse and the graphic user interface came from the Xerox Palo Alto Research Center. Music downloading was huge before he ever did it, or at least it seemed huge before he changed the scale on which the word is understood. I remember taking my first iPod to a computer store where one of the geeks showed me how to pry the back off. The magic came off with it. Just a thin battery, a thin hard drive, and a circuit board. Anybody could do it. Many already had.

So if innovation means being the very first, count Jobs out. There’s actually a parallel argument in jazz music, if you can believe it, where people have spent 30 years debating whether Miles Davis innovated anything. The obvious answer is that, if innovating means being very first, he didn’t. Charlie Parker and Dizzy Gillespie showed him how to play bebop. Lester Young was stripping ornament from his solo lines when Miles was in short pants. And so on. But Miles heard new currents, found ways to make them consistent with his own aesthetic, and presented them in ways a general audience could grasp and then love. And then he did it again and again. If an innovator is a conduit between an idea and all its possible audiences, then both of these guys were at the heart of that game.

Very early on, Apple got in the habit of producing products that weren’t particularly impressive in their technical specs but inspired loyalty with an appeal to intangibles. The Apple II+ wasn’t particularly a smarter or faster beast than the TRS-80 or the Commodore Pet or the other dinosaurs of the silicon swamps at the dawn of the 1980s. But it looked (a tad) more elegant, and its top was connected with nothing more than velcro strips so you could get at the crazy number of expansion slots — eight, I think — that made even that paleolithic machine open to easy, radical customization.

Those were key elements of the Jobs style: aesthetic grace and heaps of flexibility. A third element was apparent soon after: a deep urge to simplify, often beyond reason. The first Macintosh keyboard had no numerical keypad, even though keypads are actually pretty useful. The first iPod had fewer controls than it should have had. Jobs’s mouse had one button when the rest of the industry was using two or even three. Those extra mouse buttons were really handy. Almost always Jobs would un-simplify his products as he went along. But that urge to strip to the bone matched the intuition of millions of consumers, who were sure that if a machine is as smart as advertised, it should not need a human to do all the work.

Jobs screwed up a lot. He made dud products (Lisa, Newton) and dud applications (Hypercard, Mobile Me). He managed to get himself fired by the company he founded; there’s a movie, a Russian novel, in the way he schemed his way back in. If he hadn’t he’d be a footnote. His greatest triumphs came near the end of his life: the iPhone in 2007, the iPad in 2010 — together worth three-quarters of the whole company’s sales last quarter — the very late-breaking market-share growth of Apple laptops and desktops. In the last few months of Jobs’s life, his company became the biggest in the world. There’s been no comeback like it.

One more lesson from Miles Davis: there is no need to confuse effectiveness with virtue when taking the measure of a man. Jobs seems to have been a fine fellow, but it wasn’t virtue he was trying to spread, it was competence and ingenuity. Virtue was one of the things his customers could do with his stuff, if they liked. It came from them, not from him. Jobs didn’t lead so much as listen, refine, extend, echo, and repeat. He amplified human potential. Not a bad life’s work.

Post PEI Election Tealeaves

The fact that Robert Ghiz's Liberals were reelected was no surprise,  but there were some interesting developments.  

The two cabinet ministers most responsible for the Liberal's Rural Action Plan were both defeated (Allan Campbell in Souris, Neil Leclair in Tignish).  Both were facing strong Conservative candidates, and particular issues in their ridings, but if there were more tangible results from  the Rural Action Plan (hardly even mentioned during the campaign)  then the two would have been better positioned to fight back.

I don't think he would disagree if I said that Neil Leclair was not a great communicator.  What worried farmers first, and then fishermen later on (talk about bad timing going into both portfolios) was that Leclair wasn't any more forceful around the cabinet table then he was in front of a microphone, that he would have been too easily handled by Ghiz and the fifth floor bunch.

Allan Campbell was just the opposite. He was seen as so capable on his feet, and with the media, that when it became clear that Richard Brown could no longer credibly handle the PNP file, it was Campbell picked to take over the thankless job.  Having to defend the indefensible wouldn't have impressed anyone in Eastern Kings. A new school in the district was an accomplishment, but that had less to do with Campbell and more to do with  good maneuvering by parents who argued we'll let some small schools close without a fight, if we get this in return. A padlocked gate at Souris's biggest employer Ocean Choice and a hospital ER that closed at night were seen as Campbell's responsibility.  He actually did better in the election than I thought he would.  I suspect it was his willingness to take on the difficult PNP file that had Robert Ghiz promising some kind of government job if he wasn't re-elected. If Campbell can get back to actually working on rural development issues, he could be helpful


Solving the huge financial catastrophes  facing farmers and now fishermen (a mountain of debt not unlike what the province is facing) won't be easy.  I think primary producers were looking for signs, beyond platitudes, that the Liberals really get it, and I don't think that happened.  On a positive note, for me some of  Robert Ghiz's best moments during the first mandate were when he announced a couple of years ago that he'd called senior executives with Sobeys and Loblaws to insist that they carry Maritime produced beef, and when he compared the collapse of the lobster fishery here to the collapse of the auto sector in Ontario.   Both showed some understanding of the economic forces at play in the food business, and a willingness to use political capital to fight for primary producers. 

There will be some stiff tests ahead: the future of the Atlantic Beef Plant after next March, what to do about the tens of millions of dollars of livestock loans  the Federal Government wants paid back, stabilizing the lobster processing business, and proving once and for all if the tens of millions of dollars going into the "bio-commons" is money well spent, or a cheap location for start-ups who will go elsewhere if the research pans out. 


The make-up of the new cabinet will be a sign of things to come. Alan McIsaac's presence at the cabinet table would indicate that Ghiz et all aren't afraid of strong knowledgeable rural voices. Buck Watts or Charlie McGeoghegan (if he survives a possible recount) would be good additions too.

What's the Real Tragedy?

All of us can think back to bits of information or ideas that stick with us for the rest of our lives. One that  stays with me is an ecological concept called  "The Tragedy of the Commons".  At its heart is the environmental destruction caused by over exploitation of a resource, but it also speaks to human nature, economics, and ideology.

Aristotle captured the problem three hundred years BC: "For that which is common to the greatest number has the least care bestowed upon it. Every one thinks chiefly of his own, hardly at all of the common interest; and only when he is himself concerned as an individual." An ecologist called Garret Hardin wrote an  influential essay in Science Magazine in the late 1960's called "The Tragedy of the Commons" which popularized the idea. Hardin used a very concrete example: livestock herders all able to use a community pasture or commons, all wanting their sheep or cattle to eat as much of the common pasture as possible regardless of the impact this has on anyone else, or the damage to the pasture caused by overgrazing.  Both Aristotle and Hardin argue that when something is "commonly" or publicly owned,  everyone will want to exploit it, but no one will take responsibility for how it's used. Most ecologists, economists and politicians use the dilemma to argue for the importance of private property, that if someone owns  the pasture he or she would make sure it wasn't overgrazed.

This isn't the best solution for everyone, particularly left-leaning folk who would argue that reasonable, ethical  people can share a resource fairly and protect it, and if they won't then it's up to the government to bring in regulations to ensure the pasture isn't over exploited.

Some argue that medicare suffers from this problem, that because going to the doctor in Canada doesn't "cost" anything,  many overuse the system adding unnecessary costs to other taxpayers.  I'm not sure about that, but there's no question that the fishery is the best example of the difficulty of managing a public resource used by private interests who's livelihoods are linked to getting whatever they can of a limited amount of fish, and do it before someone else does.

There has been experimentation with ITQ's, or boat quotas. Each fisherman (sorry fisher is still a woodland creature for me) can count on catching a certain amount of fish, and do it when it suits him or her, rather than rushing out and glutting the market. Some worry whatever the rules are, ITQ's will eventually be controlled by monied interests like large processors, that that's the importance of maintaining the fishery as a "public" resource. 

Others talk about something I think makes more sense, a sort of mid-way solution between private and public ownership: community quotas. Give fishing communities the ability to control how local stocks are exploited.  There's no "private" ownership, but a clear interest in maintaining a fish stock for future generations. Right now fishermen see the regulators as pampered civil servants in Moncton or Ottawa and feel no compelling interest to pay attention to the rules, just a competitive drive to get their share of the stock. Answering to neighbours or community leaders is much more difficult.

In his essay Garrett Hardin tried to develop an understanding of how we use resources that we fill up rather than take from, like the air and water.

"In a reverse way, the tragedy of the commons reappears in problems of pollution. Here it is not a question of taking something out of the commons, but of putting something in--sewage, or chemical, radioactive, and heat wastes into water; noxious and dangerous fumes into the air, and distracting and unpleasant advertising signs into the line of sight. The calculations of utility are much the same as before. The rational man finds that his share of the cost of the wastes he discharges into the commons is less than the cost of purifying his wastes before releasing them. Since this is true for everyone, we are locked into a system of "fouling our own nest," so long as we behave only as independent, rational, free-enterprisers.

The tragedy of the commons as a food basket is averted by private property, or something formally like it. But the air and waters surrounding us cannot readily be fenced, and so the tragedy of the commons as a cesspool must be prevented by different means, by coercive laws or taxing devices that make it cheaper for the polluter to treat his pollutants than to discharge them untreated. We have not progressed as far with the solution of this problem as we have with the first. Indeed, our particular concept of private property, which deters us from exhausting the positive resources of the earth, favors pollution."



Don't forget that Hardin wrote this thirty-three years ago and that Aristotle understood the forces at play two thousand years ago. Our human nature hasn't changed much, we just have better tools and toys  to get the job done.

Are These the Farmers Who Need Supervision?

Anyone who decides to become a "certified" organic farmer makes a huge commitment in time, effort and money, and the payoff isn't always obvious.

This is how it was supposed to work: farmers with concerns about the environmental and health impacts of commercial fertilizers and synthetic pesticides would use more labour and smarts,  more expensive natural pesticides derived from plants and bacteria,  better land management, more humane treatment of livestock,  to produce food. Consumers with similar concerns would pay a premium to get it. It's the consumer side of this bargain that  really hasn't developed, and could be breaking down. In fact there are places like England where demand for organic food is falling, no doubt the result of the economic crisis.

Anyone who spends time with organic farmers know they are very very committed to what they're doing, it's almost a religious calling. At the same time, in order to justify the higher prices, they have to spend money to have their farms certified by an outside agency. I'm always left with the feeling that if there is one group of farmers who don't need this kind of supervision it's the farmers who can speak endlessly about organic matter, earthworms, and cover crops, and would see soil erosion as a mortal sin. I want more farmers like that, but unless the "marketplace" (and I'm talking about major food retailers not just farmers markets) send the right signals, we risk losing the very farmers we should want to keep in business.  Months ago the big food retailer Sobeys ran commercials offering organic food at the same price as conventional food.  It's hard to know whether this led to an increase in sales, but it certainly had a chilling effect on organic farmers at the time.

On PEI smart retailers like Barb MacLeod invested heavily in retailing organic food, but the store quickly closed. ADL, PEI's big dairy, made a serious effort to buy and market organic milk and cheese. The company discovered there just wasn't enough demand here to sustain paying farmers the higher price and reworking  the production line to accommodate organic rules. The cheese is in storage and improving with age,  and will be sold as markets develop, but farmers were sent a disappointing message that growing and sourcing organic feed, managing their herds a little differently, wasn't going to lead to the higher prices they were promised. And with economic anxiety high in Canada too, it's hard to see when demand will improve.

In the end it will be consumers who determine what happens.   Farmers of all kinds are very entrepreneurial and will respond to the market signals they see. I don't believe that there is some kind of moral failing in farmers who continue to use fertilizer and pesticides (they need to be used properly, kept out of waterways, etc), just business people who look at the marketplace and see they're competing with South American and Chinese labour costs, government subsidies in the U.S., and a brutally competitive food wholesaling and retail business. Walmarts steady growth in food retailing in Canada will make it just that more difficult. It's the reason I don't think government regulations mandating organic farming makes any sense.  Making sure that conventional farmers pay the full cost of what they do (carbon tax, environmental clean-up, etc), and that food imports meet the same standards, is much more important.

PEI consumers who do respect what certified organic farmers are doing get a chance to express that appreciation this weekend. The 8th annual Organic Harvest Festival will take place at the Farm Centre on University Avenue, Sunday October the 2nd, from 4 to 7 P.M.. More information here: 
http://www.organicpei.com/  It will be an excellent chance to eat wonderful food, meet interesting farmers, hear some good music, and say thank you  to farmers who are trying to do the right thing with very few rewards.

Wind and Watersheds in the PEI Election

Yes healthcare, education, jobs remain the big issues in provincial elections across Canada, but here on PEI political parties pay some attention to the environment as well. As expected Green Party Leader Sharon Labchuck has made it central to all the party's promises and platforms. She's also running in an urban riding against the province's environment minister, so we should get a better  sense of how interested Islanders really are in this issue. Richard Brown has a long history in that district and will be difficult to beat, and the NDP is running a strong candidate in Rita Jackson, so there will be some split in the protest vote which will help Brown.  The Conservatives have an interesting candidate too in radio personality Myles Mackinnon. It will be a district worth watching Monday night.

I was critical of the current Liberal Government for limiting support of watershed groups and farmers taking additional steps to protect the environment to sales of pop and beer ( http://foodmatters-petrie.blogspot.com/2011/09/is-drinking-pop-best-way-to-support.html ) so will acknowledge a campaign promise made this week.

http://www.movingforwardpei.ca/uploads/pdfs/Lib-Backgrounder-Environment.pdf

"Watershed groups are among the most committed to environmental sustainability. The work they have
done over the past several years represents a true devotion to improving our Island. To support this work,
the Liberal Team is proposing to invest $4 million in watershed management over the next four years - and
further protect our water supply for the future."


This represents a 25% increase in support ($800 thousand to $ 1 million per year) and goes along with a promise to increase support in the ALUS program as well. If the Liberals are elected and keep their promise, this is definitely moving in the right direction.

I also wanted to point to one other major policy shift  by the Liberals (if I were a real political journalist I'd call it a flip-flop).  When Robert Ghiz was first elected he insisted that any new wind energy projects would be driven by the private sector.   Years ago former Conservative energy minister  Jamie Ballem  had convinced then premier  Pat Binns that there were a limited number of sites on the Island with wind regimes suitable for power production, and the public should own and develop them (remember those Energy Bonds we were encouraged to buy, and at a 5% return they look pretty good right now and you  can see how screwy political ideology is here: Conservatives wanting public ownership, Liberals arguing strenuously that the government had no role in the wind power business). Now the Liberals have come to their senses and promised that the next big wind farm will again be built and owned by the public.  If this project plays out like East Point and North Cape it will pay for itself, and actually make the province some money. Wind is the one energy source Islanders can tap into, it's good to see the benefits will stay here rather than disappearing into Ontario capital markets.   The one exception in ownership here is the West Cape wind farm which is owned by the huge French energy company Suez.  It ships most of its power to the United States.

Not So Fast Food

This article is really comfort food rather than challenging for many, but given what else is going on in the world (I'm also including a powerful piece from K'Naan on Somalia just to remind us what a real poet sounds like),  maybe that's OK. There is growing interest in once more teaching young people basic cooking skills, and here's an excellent reason to do that.

http://www.nytimes.com/2011/09/25/opinion/sunday/is-junk-food-really-cheaper.html?ref=opinion&pagewanted=print



September 24, 2011
Is Junk Food Really Cheaper?
By MARK BITTMAN

THE “fact” that junk food is cheaper than real food has become a reflexive part of how we explain why so many Americans are overweight, particularly those with lower incomes. I frequently read confident statements like, “when a bag of chips is cheaper than a head of broccoli ...” or “it’s more affordable to feed a family of four at McDonald’s than to cook a healthy meal for them at home.”

This is just plain wrong. In fact it isn’t cheaper to eat highly processed food: a typical order for a family of four — for example, two Big Macs, a cheeseburger, six chicken McNuggets, two medium and two small fries, and two medium and two small sodas — costs, at the McDonald’s a hundred steps from where I write, about $28. (Judicious ordering of “Happy Meals” can reduce that to about $23 — and you get a few apple slices in addition to the fries!)

In general, despite extensive government subsidies, hyperprocessed food remains more expensive than food cooked at home. You can serve a roasted chicken with vegetables along with a simple salad and milk for about $14, and feed four or even six people. If that’s too much money, substitute a meal of rice and canned beans with bacon, green peppers and onions; it’s easily enough for four people and costs about $9. (Omitting the bacon, using dried beans, which are also lower in sodium, or substituting carrots for the peppers reduces the price further, of course.)

Another argument runs that junk food is cheaper when measured by the calorie, and that this makes fast food essential for the poor because they need cheap calories. But given that half of the people in this country (and a higher percentage of poor people) consume too many calories rather than too few, measuring food’s value by the calorie makes as much sense as measuring a drink’s value by its alcohol content. (Why not drink 95 percent neutral grain spirit, the cheapest way to get drunk?)

Besides, that argument, even if we all needed to gain weight, is not always true. A meal of real food cooked at home can easily contain more calories, most of them of the “healthy” variety. (Olive oil accounts for many of the calories in the roast chicken meal, for example.)In comparing prices of real food and junk food, I used supermarket ingredients, not the pricier organic or local food that many people would consider ideal. But food choices are not black and white; the alternative to fast food is not necessarily organic food, any more than the alternative to soda is Bordeaux.

The alternative to soda is water, and the alternative to junk food is not grass-fed beef and greens from a trendy farmers’ market, but anything other than junk food: rice, grains, pasta, beans, fresh vegetables, canned vegetables, frozen vegetables, meat, fish, poultry, dairy products, bread, peanut butter, a thousand other things cooked at home — in almost every case a far superior alternative.

“Anything that you do that’s not fast food is terrific; cooking once a week is far better than not cooking at all,” says Marion Nestle, professor of food studies at New York University and author of “What to Eat.” “It’s the same argument as exercise: more is better than less and some is a lot better than none.”

THE fact is that most people can afford real food. Even the nearly 50 million Americans who are enrolled in the Supplemental Nutrition Assistance Program (formerly known as food stamps) receive about $5 per person per day, which is far from ideal but enough to survive. So we have to assume that money alone doesn’t guide decisions about what to eat. There are, of course, the so-called food deserts, places where it’s hard to find food: the Department of Agriculture says that more than two million Americans in low-income rural areas live 10 miles or more from a supermarket, and more than five million households without access to cars live more than a half mile from a supermarket.

Still, 93 percent of those with limited access to supermarkets do have access to vehicles, though it takes them 20 more minutes to travel to the store than the national average. And after a long day of work at one or even two jobs, 20 extra minutes — plus cooking time — must seem like an eternity.

Taking the long route to putting food on the table may not be easy, but for almost all Americans it remains a choice, and if you can drive to McDonald’s you can drive to Safeway. It’s cooking that’s the real challenge. (The real challenge is not “I’m too busy to cook.” In 2010 the average American, regardless of weekly earnings, watched no less than an hour and a half of television per day. The time is there.)

The core problem is that cooking is defined as work, and fast food is both a pleasure and a crutch. “People really are stressed out with all that they have to do, and they don’t want to cook,” says Julie Guthman, associate professor of community studies at the University of California, Santa Cruz, and author of the forthcoming “Weighing In: Obesity, Food Justice and the Limits of Capitalism.” “Their reaction is, ‘Let me enjoy what I want to eat, and stop telling me what to do.’ And it’s one of the few things that less well-off people have: they don’t have to cook.”

It’s not just about choice, however, and rational arguments go only so far, because money and access and time and skill are not the only considerations. The ubiquity, convenience and habit-forming appeal of hyperprocessed foods have largely drowned out the alternatives: there are five fast-food restaurants for every supermarket in the United States; in recent decades the adjusted for inflation price of fresh produce has increased by 40 percent while the price of soda and processed food has decreased by as much as 30 percent; and nearly inconceivable resources go into encouraging consumption in restaurants: fast-food companies spent $4.2 billion on marketing in 2009.

Furthermore, the engineering behind hyperprocessed food makes it virtually addictive. A 2009 study by the Scripps Research Institute indicates that overconsumption of fast food “triggers addiction-like neuroaddictive responses” in the brain, making it harder to trigger the release of dopamine. In other words the more fast food we eat, the more we need to give us pleasure; thus the report suggests that the same mechanisms underlie drug addiction and obesity.

This addiction to processed food is the result of decades of vision and hard work by the industry. For 50 years, says David A. Kessler, former commissioner of the Food and Drug Administration and author of “The End of Overeating,” companies strove to create food that was “energy-dense, highly stimulating, and went down easy. They put it on every street corner and made it mobile, and they made it socially acceptable to eat anytime and anyplace. They created a food carnival, and that’s where we live. And if you’re used to self-stimulation every 15 minutes, well, you can’t run into the kitchen to satisfy that urge.”

Real cultural changes are needed to turn this around. Somehow, no-nonsense cooking and eating — roasting a chicken, making a grilled cheese sandwich, scrambling an egg, tossing a salad — must become popular again, and valued not just by hipsters in Brooklyn or locavores in Berkeley. The smart campaign is not to get McDonald’s to serve better food but to get people to see cooking as a joy rather than a burden, or at least as part of a normal life.

As with any addictive behavior, this one is most easily countered by educating children about the better way. Children, after all, are born without bad habits. And yet it’s adults who must begin to tear down the food carnival.

The question is how? Efforts are everywhere. The People’s Grocery in Oakland secures affordable groceries for low-income people. Zoning laws in Los Angeles restrict the number of fast-food restaurants in high-obesity neighborhoods. There’s the Healthy Food Financing Initiative, a successful Pennsylvania program to build fresh food outlets in underserved areas, now being expanded nationally. FoodCorps and Cooking Matters teach young people how to farm and cook.

As Malik Yakini, executive director of the Detroit Black Community Food Security Network, says, “We’ve seen minor successes, but the food movement is still at the infant stage, and we need a massive social shift to convince people to consider healthier options.”

HOW do you change a culture? The answers, not surprisingly, are complex. “Once I look at what I’m eating,” says Dr. Kessler, “and realize it’s not food, and I ask ‘what am I doing here?’ that’s the start. It’s not about whether I think it’s good for me, it’s about changing how I feel. And we change how people feel by changing the environment.”

Obviously, in an atmosphere where any regulation is immediately labeled “nanny statism,” changing “the environment” is difficult. But we’ve done this before, with tobacco. The 1998 tobacco settlement limited cigarette marketing and forced manufacturers to finance anti-smoking campaigns — a negotiated change that led to an environmental one that in turn led to a cultural one, after which kids said to their parents, “I wish you didn’t smoke.” Smoking had to be converted from a cool habit into one practiced by pariahs.

A similar victory in the food world is symbolized by the stories parents tell me of their kids booing as they drive by McDonald’s.

To make changes like this more widespread we need action both cultural and political. The cultural lies in celebrating real food; raising our children in homes that don’t program them for fast-produced, eaten-on-the-run, high-calorie, low-nutrition junk; giving them the gift of appreciating the pleasures of nourishing one another and enjoying that nourishment together.

Political action would mean agitating to limit the marketing of junk; forcing its makers to pay the true costs of production; recognizing that advertising for fast food is not the exercise of free speech but behavior manipulation of addictive substances; and making certain that real food is affordable and available to everyone. The political challenge is the more difficult one, but it cannot be ignored.

What’s easier is to cook at every opportunity, to demonstrate to family and neighbors that the real way is the better way. And even the more fun way: kind of like a carnival.


http://www.nytimes.com/2011/09/25/opinion/sunday/returning-to-somalia-after-20-years.html?ref=opinion



September 24, 2011
A Son Returns to the Agony of Somalia
By K’NAAN

K'Naan is a musician and poet.

MOGADISHU, Somalia

ONE has to be careful about stories. Especially true ones. When a story is told the first time, it can find a place in the listener’s heart. If the same story is told over and over, it becomes less like a presence in that chest and more like an X-ray of it.

The beating heart of my story is this: I was born in Mogadishu, Somalia. I had a brief but beautiful childhood filled with poetry from renowned relatives. Then came a bloody end to it, a lesson in life as a Somali: death approaching from the distance, walking into our lives in an experienced stroll.

At 12 years old, I lost three of the boys I grew up with in one burst of machine-gun fire — one pull from the misinformed finger of a boy probably not much older than we were.

But I was also unusually lucky. The bullets hit everyone but me.

Luck follows me through this story; so does my luckless homeland. A few harrowing months later, I found myself on the last commercial flight to leave Somalia before war closed in on the airport. And over the years, fortune turned me into Somalia’s loudest musical voice in the Western Hemisphere.

Meanwhile, my country festered, declining more and more. When I went on a tour of 86 countries last year, I could not perform in the one that mattered most to me. And when my song “Wavin’ Flag” became the theme song for the World Cup that year, the kids back home were not allowed to listen to it on the airwaves. Whatever melodious beauty I found, living in the spotlight, my country produced an opposing harmony in shadows, and the world hardly noticed. But I could still hear it.

And now this terrible year: The worst famine in decades pillages the flesh of the already wounded in Somalia. And the world’s collective humanitarian response has been a defeated shrug. If ever there was a best and worst time to return home, it was now.

So, 20 summers after I left as a child, I found myself on my way back to Somalia with some concerned friends and colleagues. I hoped that my presence would let me shine a light into this darkness. Maybe spare even one life, a life equal to mine, from indifferently wasting away. But I am no statesman, nor a soldier. Just a man made fortunate by the power of the spotlight. And to save someone’s life I am willing to spend some of that capricious currency called celebrity.

We had been told that Mogadishu was still among the most dangerous cities on the planet. So it was quiet on the 15-seat plane from Nairobi. We told nervous jokes at first, then looked to defuse the tension. The one book I had brought was Hemingway’s “A Moveable Feast.” I reached a chapter titled “Hunger Was Good Discipline” and stopped. That idea needed some contemplation. The very thing driving so many from their homes in Somalia was drawing me back there. I read on. Hemingway felt that paintings were more beautiful when he was “belly-empty, hollow-hungry.” But he was not speaking of the brutal and criminally organized hunger of East Africa. His hunger was beautiful. It made something of you. The one I was heading into only made ashes of you.

By now, the ride was bumpy. We were flying low, so I could see Baraawe and Merca, beauties of coastal towns that I had always dreamed of visiting. The pilot joked that he would try to fly low enough for my sightseeing, but high enough to avoid the rocket-propelled grenades.

FOR miles along that coast, all you see are paint-like blue water, beautiful sand dunes eroding, and an abandoned effort to cap them with concrete. Everything about Somalia feels like abandonment. The buildings, the peace initiatives, the hopes and dreams of greatness for a nation.

With the ocean to our backs, our wheels touch down in Mogadishu, at the airport I left 20 years before to the surround-sound of heavy artillery pounding the devil’s rhythm. Now there is an eerie calm. We clear immigration, passing citizens with AK-47’s slung over their shoulders.

It’s not a small task to be safe in Mogadishu. So we keep our arrival a secret until after we ride from the airport to the city, a ride on which they say life expectancy is about 17 minutes if you don’t have the kind of security that has been arranged for me.

Over breakfast at a “safe house,” I update my sense of taste with kidney and anjera (a bread), and a perfectly cooled grapefruit drink. Then we journey onto the city streets. It’s the most aesthetically contradictory place on earth — a paradise of paradox. The old Italian and locally inspired architecture is colored by American and Russian artillery paint. Everything stands proudly lopsided.

And then come the makeshift camps set up for the many hungering displaced Somalis. They are the reason I am here. If my voice was an instrument, then I needed it to be an amplifier this time. If my light was true, then I needed it to show its face here, where it counts. Nothing I have ever sung will matter much if I can’t be the mouth of the silenced. But will the world have ears for them, too?

I find the homeless Somalis’ arms open, waiting for the outside world and hoping for a second chance into its fenced heart. I meet a young woman watching over her dying mother, who has been struck by the bullet of famine. The daughter tells me about the journey to Mogadishu — a 200-mile trek across arid, parched land, with adults huddling around children to protect them first. This mother refused to eat her own food in order to feed abandoned children they had picked up along the way. And now she was dying because of that.

The final and most devastating stop for me was Banadir Hospital, where I was born. The doctors are like hostages of hopelessness, surrounded and outnumbered. Mothers hum lullabies holding the skeletal heads of their children. It seems eyes are the only ornament left of their beautiful faces; eyes like lanterns holding out a glimmer of faint hope. Volunteers are doing jobs they aren’t qualified for. The wards are over-crowded, mixing gun wound, malnutrition and cholera patients.

Death is in every corner of this place. It’s lying on the mattresses holding the tiny wrists of half-sleeping children. It’s near the exposed breasts of girls turned mothers too soon. It folds in the cots, all-knowing and silent; its mournful wind swells the black sheets. Here, each life ends sadly, too suddenly and casually to be memorialized.

In this somber and embittered forgotten place, at least they were happy to see I had come.