** Robin's Book Report #70 A reading list by Robin Kaiser-Schatzlein ------------------------------------------------------------ Agenda -New Article -Shutdown Notes -Reading list *** For many of you who responded to my last letter, I didn't get to your letters this week! Sorry. But I promise to follow up with many of you who wrote to me about what you are reading, so keep them coming! *** New Article I wrote about shadow banks (https://newrepublic.com/article/157455/shadow-banks-back-still-big-fail) , institutions that act like banks but aren’t regulated like banks. They include really big companies like AIG, Quicken, BlackRock, and other financial firms. In 2008, the country bailed out these shadow banks because they had acted recklessly and imperiled the global economy (AIG, MetLife, and Prudential are examples). Since then, the shadow banking sector has grown by 75 percent and continues to be unregulated. In fact, they have actively pushed back against regulation. Today, they once again needed the government to back them up. I talk about the history of the federal government guaranteeing the business of banking, and how banks pay for that protection. Shadow banks need to do the same. It goes to show that all banking should be regulated, if not controlled like a public utility. My tweet thread about the article (https://twitter.com/robinsreport/status/1254790565037735936) . Shutdown notes -Fighting Schadenfreude I am finding it difficult to fight the schadenfreude. On one hand, I want the Trump administration to fail, I want fracking companies to fail, I want all those astroturfed protesters to fail (get sick?). I want all kinds of things to fail. I was, for a moment, so happy that Boris Johnson got sick. But the cost of the failure is too great to want it to happen. I can’t wish for anyone to die, not even Boris. I suppose I just don’t want things to go back to the way they were before, but then again, I do. There are many things I want back. Like riding the subway, or walking on the street without anxiety. So what to do? I guess it’s what we always had to do: fight for a better world, hope for success, and highlight the failures of everyone in charge. As Helaine Olen writes (https://www.washingtonpost.com/opinions/2020/04/29/im-rooting-georgia-you-should-be-too/) , we should be rooting for the states who are reopening, like Georgia. I hope it goes well. This doesn’t seem likely, but if it does, that’s great. -Will cities and states survive the shutdown? One of the worst things that could come out of the economic shutdown would be a wave of state, city, and municipal bankruptcies. Many cuts are already happening (https://www.cnbc.com/2020/04/22/coronavirus-relief-bill-layoffs-coming-to-state-local-governments.html) . States cannot legally run deficits, and I imagine that few can sell enough bonds to raise the money needed to keep on spending. Without significant federal aid, states and cities will default on their obligations. No state has gone bankrupt since the Great Depression, but with so many regions of the country suffering at once, it is a tricky issue to figure out how to rescue them all at once. It’s tricky, but not any more tricky than saving the banking sector, airline industry, and much of the private corporate world. So why is Mitch McConnell openly blocking state and city funding (https://www.bloomberg.com/news/articles/2020-04-22/mcconnell-says-he-favors-allowing-states-to-declare-bankruptcy) in Congress? Does he want to purposely inflict misery? Actually, he does. Forcing a wave of default would allow states to restructure their public sector employees’ pensions, potentially just eliminating them completely, which he openly mentioned was the goal. It would also allow Republican governors to slash funding and promised aid to any number of other institutions, and do it very quickly. Austerity to resolve huge budget deficits, could lead to a terrifyingly rapid make-over of American society, if the federal government withholds money. Congress can run unlimited deficits, which they have already demonstrated by allowing the Federal Reserve to buy and hold tons of crappy loans (like junk bonds) that allow loser companies to survive and fail another day. What really irks me is that the language of austerity that McConnell uses, that states were too generous to their public employees, is not applied to dumbass, wasteful companies that chronically overcompensate their executives and spend their money on everything but their employees or improving their capital stock (factories, technology, etc). If you are wondering how this might play out, I would (once again) recommend reading Kim Phillips-Fein’s Fear City, which chronicles how the withholding of federal support to New York City in 1974 lead to a quick, wholesale remaking of the city on the false grounds that the city had overspent and needed to discipline the greedy, pampered working classes. -PPP isn’t working The higher than expected numbers of unemployed people shows that the response to the shutdown was too slow. Money did not get to businesses fast enough, which will have longer term consequences. Employers who laid-off their employees don’t qualify for the Payroll Protection Plan, because they have little payroll to protect anymore and some workers are making more on unemployment now, and have little incentive to return to a low-paying jobs (I think unemployment averages out to about $16/hour which leaves me no sympathy for employers who are complaining they can’t get employees to return to work). Another problem with PPP is that no one really understands how it works, and many small businesses, afraid of using it incorrectly, are just letting the money sit around. A clearer rescue program, that sent money directly to the small businesses that needed it (like restaurants)––instead of an over-complicated lending program that had tons of fine print and needed to be administered by private banks––would have been better. But that would have required the federal government making decisions and taking action, which it seems incapable of doing. All they can do is free up money for credit facilities, which is important, but inadequate. -Vultures and monopolies As companies fail, bigger companies will take them over, possibly leading to more monopolization (investors are betting it will) (https://www.nytimes.com/2020/04/28/business/coronavirus-stocks.html?referringSource=articleShare) and an even more unequal society. Private equity firms reportedly have enormous amounts of “dry powder” on hand to buy up distressed assets and companies in bankruptcy. Real estate investors are licking their chops (https://www.wsj.com/articles/real-estate-investors-eye-potential-bonanza-in-distressed-sales-11586260801) at the possibility of foreclosures. Big banks appear to be growing (https://thehill.com/opinion/finance/495719-big-banks-are-growing-due-to-coronavirus-thats-an-ominous-sign) even bigger during the crisis, which should worry us all. Vulture capitalists are people, like Commerce Secretary Wilbur Ross, who specialize in buying bankrupt companies for pennies on the dollar and them reselling them. It’s predatory and exploits the nature of bankruptcy law, which was initially designed to prevent widespread chaos when a company failed. But vulture capitalists use bankruptcy law to swoop in and devastate a companies’ suppliers, employees, and customers. They sell the assets of the company and leave the scene unscathed. This article in the Nation (https://www.thenation.com/article/society/coronavirus-vulture-capitalism/) lays out what kind of world we might live in if vulture capitalists get their way. -Financialized risks everywhere Part of the character of financialization is that credit schemes are injected into situations where they were never before. This can be dangerous, because the novelty of the scheme means it often initially goes unregulated and the lack of regulation means that people often bet imprudently. One example is something I learned about the other day called “supply-chain finance (https://www.wsj.com/articles/supply-chain-finance-is-new-risk-in-crisis-11585992601) ,” which is where a company borrows money to pay off their suppliers. WSJ likens it to taking a personal loan to pay off a credit card. If companies overborrow to make it look like they have more money than they really do, this could be a problem. Especially because it masks their funding problems for, usually, about 60 days. For me, I’m not worried about supply-chain debt specifically, but about all the other financial schemes that are lurking in the dark waiting to crash the economy, or necessitate another private sector bail out. ============================================================ Reading list “** A Walk in the Park (https://nplusonemag.com/online-only/online-only/a-walk-in-the-park/) ” A memento mori at the heart of the leisure zone by Dan Fox Fabulous essay, not only because it examines the perils of trying to enjoy Prospect Park during the pandemic, but also because it taught me a lot of history of the park that I didn’t know. “The park encourages preventive psychology. Running and cycling is a way to remind yourself that you’ve not been infected and that your lungs still work to capacity.” “** Harpooned by Facebook (https://www.revealnews.org/episodes/harpooned-by-facebook-2/) ” by Nathan Halverson (Reveal) Facebook willingly, purposefully addicts children and gambling addicts with its games. One child accidentally racked up $1000 in charges on his mom’s credit card playing a free game on Facebook, and a gambling addict lost $400,000 to a game that didn’t even have a feature that paid out money. More reason to break up a company that can use its expansive surveillance power to sell data to companies that can addict you with the data. “** When Journalists Become Workers (https://prospect.org/labor/when-journalists-become-workers/) ” Five years ago, unions barely existed in digital media. Today, they may save the industry from the worst of the COVID-19 depression—and provide a model to other working professionals. by Aaron Freedman (The American Prospect) An analysis of a fairly quick change in the minds of journalists, who, in big waves, jumped on board the labor movement. “** When Art Becomes Self-Help (https://newrepublic.com/article/157222/jerry-saltz-how-be-artist-instagram-self-help) ” Jerry Saltz’s new book markets an instagram-friendly version of creativity. By Kyle Chayka (The New Republic) My question is, Why did Jerry Saltz write a book about how to become an artist when he (as he himself admits!) failed at being an artist? Why didn’t he write a book about something he actually is an expert in, like art criticism? The result of the book, this essay shows, is that Saltz sells art as a lifestyle choice, an affirmative self-help mode of being, instead of what art is generally considered: a practice, a research field, or a craft and commodity trade. “** The Pessimistic Style in American Politics (https://harpers.org/archive/2020/05/how-the-anti-populists-stopped-bernie-sanders/) ” And its eternal war on reform By Thomas Frank I was excited to read this essay, because I love Thomas Frank, but found it doesn’t have much to do with the headline on the magazine (“How The Anti-Populist Stopped Bernie Sanders"). Frank explores the history of the word 'populism' and how elites frequently and inaccurately characterised populist movements as being backwards and ignorant. It’s an important historical assessment, but at the moment it's most important to dispel the connection between the “populism” of Donald Trump and the populism of Bernie Sanders. Equating them has been the somewhat successful rhetorical twist of elitist pundits like Frank Bruni, and is really frustrating for someone, like me, who believes in the capacity of the general people, that they are capable of government and decision making. It is hard to parse and I wish I knew of a better rebuttal. Thanks for reading!