Monday, April 22, 2013

US citizens increasingly facing austerity dictatorship

Dr. Webster G. Tarpley

To the extent that the modern world thinks at all about the problem of fascism, there is a tendency to regard this form of bankers’ totalitarian dictatorship as something which happens suddenly and all at once.

Historians can remember Mussolini’s march on Rome in October 1922, and Hitler’s seizure of power in January 1933. But we must also recall that the definitive seizure of power by fascism in these two countries was preceded by dress rehearsals and pilot projects of fascist rule on a more limited scale.

Mussolini’s dictatorship had its precursor in the dictatorship of the fascist literary man Gabriele d’Annunzio in the city of Fiume, bordering Yugoslavia, in 1919-1920. Here many of the rituals, methods, slogans, and other paraphernalia of fascism originated. The stalking horse for Hitler was the coup d’├ętat by Chancellor von Papen in the state of Prussia in July 1932, which ousted the Social Democratic government there, ending government by elected leaders and replacing them with Reichskommissars sent by von Papen from Berlin as Prussia went into receivership.

Von Papen’s Prussian coup gets us uncomfortably close to what has just happened this past week in the great American city of Detroit, Michigan, well-known as the capital of the automobile industry but now especially hard hit by the world economic depression. The Republican governor, Rick Snyder, has just ousted the Mayor and City Council of Detroit, replacing them with a single outside overseer who will combine both executive and legislative functions to enforce austerity.

The lawyer Kevyn Orr took power as dictator of Detroit on Monday, March 25, 2013. He is expected to begin voiding labor contracts, imposing unilateral sacrifices on city workers, autocratically cutting the Detroit city budget, selling off city assets to Governor Snyder’s cronies and backers at bargain basement prices, and privatizing or simply terminating city services. Orr has signaled that one of his priorities will be to renege on Detroit’s pension and healthcare commitments to retired policemen, firemen, teachers, and other municipal workers. He does not rule out a haircut for the bondholders, but this must be considered window dressing unless and until it occurs.

Orr has boasted: “I’m prepared to be the most hated man for a period of time.” Here is one promise on which he can be expected to deliver. Orr has announced that, although Detroit Mayor David Bing and the City Council have no more authority to decide anything, he will keep paying their salaries in an attempt to buy the passivity of the local Democratic Party machine. Snyder’s goal is to maintain debt service payments on Detroit’s $8.6 billion in bonded debt. A year ago, Moody’s Investors Service, one of the notoriously mendacious ratings agencies, reduced its rating for Detroit’s general obligation bonds to B2, which is five notches below investment grade. In November 2012, Moody’s downgraded Detroit by two notches to Caa1, meaning junk bonds with a significant risk of default.

During 2012, the city utility agency for water and sewage borrowed money to pay off $300 million in toxic derivative swaps on which it wanted to cut its losses. This came at the same time that Mayor Bing and the Detroit Water Board (sic) announced a plan to cut 81% of city workers in this sector, reducing jobs from 1,978 to 374 over the next five years. Bing and the city council were attempting to implement austerity cuts so brutal that they could convince Snyder that an outside commissar was not necessary, thus hoping to keep their jobs. It was during this phase that Bing first hired Jones Day as a restructuring consultant.

Detroit the victim of toxic derivatives

Detroit is also facing a payment of between $350 million and $400 million on toxic derivatives contracts which were sold to the city over recent years as the mayor and council struggled to avoid bankruptcy. Detroit had issued floating-rate bonds, but then with great folly decided to swap these for fixed rate instruments. When interest rates declined, the city did not reap the benefit of having to pay less debt service. Many US municipalities, ranging from the Metropolitan Water District of Southern California to Harvard University in Cambridge, Massachusetts have had to pay billions of dollars to zombie banks to get out of interest rate swaps gone sour.

It is estimated that Wall Street firms including UBS, Bank of America, Merrill Lynch, and J.P. Morgan Chase have since 2005 (when Detroit began running large yearly deficits) collected more than $474 million from Detroit in fees for floating $3.7 billion of bonds. One of those backing these deals was the former Detroit Mayor Kwame Kilpatrick, who was just convicted on corruption charges. The banks told Detroit that these interest rate swaps would offer protection against higher interest rates which failed to materialize. (Darrell Preston and Chris Christoff, “Only Wall Street Wins in Detroit Crisis Reaping $474 Million Fee,” Bloomberg, March 13, 2013)

Snyder’s emergency manager law also poses the problem of conflicts of interest. The city of Detroit is presently saddled with a toxic credit swap arrangement in which Bank of America/Merrill Lynch is a counterparty. Bank of America is a former client of Jones Day. This derivatives trap could force the city to pay $400 million to the zombie banks under certain circumstances, one of which is the imposition of an emergency manager - which is what has just happened. Detroit’s financial position is further complicated by the deliberate policy of the Snyder administration to delay and withhold tens of millions of dollars of payments owed to the city by the state.

Detroit, the capital of the US automobile industry, has been cynically driven into deep financial crisis. The 700,000 residents are currently suffering shortages of streetlights, buses, and street repairs, and many homes are now abandoned. In 2012, the Detroit Police Department was cut by almost 12% of its officers, leading to a 9% rise in the number of homicides in the city. The policy of Governor Snyder is to force Detroit to make debt service payments to the banks a top priority, even as he sends in a financial commissar to impose additional measures of savage austerity.

November 2012: Michigan voters reject dictators, but Snyder installs them anyway

In November 2012, a broad coalition of community forces with strong representation from the black community gathered almost a quarter of a million signatures to get the repeal of the existing emergency manager law (Public Act 4) onto the state’s November election ballot in the form of Proposal 1. Incredibly, the United Auto Workers dragged its feet in this process, and preferred to focus its energies on efforts to get out the vote for Obama, who has never lifted a finger to defend the rights of Michigan citizens under attack. In the November 2012 election, Michigan voters nevertheless voted by 52% to 48% to strike down Snyder’s Public Act Four of 2011. Unfortunately, an attempt to write collective bargaining into the state constitution failed, most likely due to union efforts siphoned off for the benefit of Obama.

At this point, the GOP State Attorney General invoked the older and weaker emergency manager law, Public Act 72 of 1990, to keep the existing commissars in power. Snyder’s minions in the state legislature then quickly rubberstamped Public Act for 36 of 2012, a measure practically identical to the law which Michigan voters had just rejected. This new enabling legislation for city dictators has just gone into effect on March 28, 2013.

Who is governor Rick Snyder?

What kind of governor imposes dictatorial rule on a large part of his state? Michigan’s Republican Governor Rick Snyder represents Schachtian economics in a business suit for the United States in the 21st century. His outward demeanor seems reasonable, measured, moderate, even affable. Snyder wears button-down oxfords, with no black shirt or brown shirt, no Roman salute, no screaming (at least in public), no speeches from balconies. He uses the direct apologetic, arguing that his oppressive measures are rational and practical responses to the problems of Michigan and its cities. This is known as Snyder’s “positive” style - wildly ideological in content, muted in packaging.

Rick Snyder, like Bill Gates, Gianroberto Casaleggio, and Peter Thiel is a reactionary operative from the modern computer and information technology industry. Snyder was at various times chairman of the board (2005-2007), CEO, and cofounder of Gateway 2000, a computer hardware firm originally based in Iowa and South Dakota which later moved to California. Gateway’s stock price averaged about four dollars per share in the mid-1990s, and peaked at $84 in 1999 thanks to the dotcom bubble. Gateway at one time had a network of hundreds of its own retail computer shops, but this fell apart in 2004 after the dotcom bubble burst. The brand was damaged by shoddy customer service due to the overseas outsourcing of call centers. In October 2007, Gateway was sold to Acer of Taiwan for about $1.90 per share. The Gateway name is now in the process of being phased out. Gateway appears as a company which was decimated by unwise acquisitions, the reckless quest for short-term profit, outsourcing, and the desire to cash in by selling out to a foreign buyer.

Trained as a certified public accountant, Snyder was also a venture capitalist. In 1997, he founded Avalon investments Inc. of Ann Arbor. In 2000, he was cofounder of Ardesta, an investment firm which reportedly put money into 20 startup companies over the subsequent years.

Hear a word of clarification is in order. It would be misleading to expect fascism in the United States in the second decade of the 21st century to imitate each and every feature of historical fascism as it existed in Europe between the two world wars. Fascism today means first of all a commitment to destroy all remaining forms of trade unionism and other labor organization. It includes efforts to impose brutal austerity policies, such as the lowering of real wages, and a shifting of the tax burden from the super rich to the middle class and the underclass - in other words, tax cuts for the rich and tax hikes for working people. Modern-day fascists seek to destroy the social safety net, including food stamps, unemployment benefits, and child nutrition programs. They demand the radical deregulation of the entire economy, including in such savage directions as abolishing the child labor laws. Modern fascist economics also includes the vehement refusal to use public funds for building vital infrastructure.

Snyder was elected governor in 2010, the year of the hysterical tea party revolt against Obama as the first black president and as a Wall Street puppet. He campaigned as pro-life, pro-gun, and pro-family while touting his business experience. Unlike many less clever reactionaries, Snyder supported the federal rescue of General Motors and Chrysler, which make up a huge part of the Michigan economy. Upon taking power in Lansing in early 2011, Snyder rammed through a policy of balancing the budget by cutting spending on vital services to the disadvantaged while lowering taxes on corporate profits and increasing the burden on the middle class and the poor. Snyder claimed to be asking for “shared sacrifice,” but Democrats accused him of balancing his budget on the backs of children, working families, and seniors, brutally harming certain groups to get the result they wanted.

Snyder’s push for austerity dictatorship went into high gear in March 2011, when he signed a law increasing the powers of “emergency managers” whom the governor could appoint to take over the government of cities and other entities declared in receivership because of alleged financial insolvency. The new law also made easier for Snyder to oust existing mayors and city council members, replacing them with local budget dictators. To make it easier to implement these takeovers under bipartisan cover, Snyder had appointed as State Treasurer Democrat Andy Dillon, a former speaker of the Michigan House of Representatives who had lost the 2010 Democratic primary to choose an opponent for Snyder. Dillon had worked in Washington as an aide to the former right-wing Democratic Senator and basketball star Bill Bradley of New Jersey, who later went to work on Wall Street.

Snyder uses “right to work” law to bust unions

In December 2012, Snyder - ignoring vehement protests by the United Auto Workers (UAW) and other unions who have large memberships and deep historical roots in Michigan - ordered his rubberstamp state legislature to ram through a bill making Michigan a “Right to Work” state. This bill outlawed the union shop by forbidding employers to collect dues on behalf of the labor union representing a bargaining unit. Henceforth only the open shop is allowed, with workers free to enjoy the benefits of union bargaining without paying any of the costs. Such an arrangement usually leads to the collapse of the union, which is Snyder’s goal. Snyder’s cited motivation was to make Michigan more business friendly. Michigan is thus walking in the footsteps of Mussolini’s fascism and Hitler’s Nazi regime, both of which had the total destruction of labor unions as the leading point on their agenda. This Michigan union-busting offensive came at the same time that other Midwestern Republican governors, including Walker of Wisconsin, Kasich of Ohio, and Daniels of Indiana, were pushing programs to wipe out public sector unions and/or all labor organizations.

Democrats and Republicans serve the bondholders

The installation of local dictators tasked with defending the interests of the bondholders and derivatives mongers at the expense of the people was already gathering momentum under Snyder’s predecessor, former two-term Democratic Governor Jennifer Granholm, whose brief attempt to host a cable television news program on Current TV ended in failure in February 2013 after a year’s run. Granholm imposed dictatorial rule on Ecorse in October 2009, Highland Park from 2005 to 2009, Benton Harbor in April 2010, Pontiac in August 2010, and on the Detroit public schools. Snyder kept most of these dictators in place, increased their powers, and appointed new ones for the Highland Park schools in January 2012 and for Flint in August of 2012.

Emergency manager Kevyn Orr now rules Detroit

Kevyn Orr, Snyder’s choice as resident enforcer for the bondholders in Detroit, is a professional bankruptcy administrator. Representing Chrysler for $700 an hour during its 2009 bankruptcy and reorganization, Orr was instrumental in the asset-stripping of the number three automaker even as he further weakened the UAW to the point where Snyder could attempt to destroy this union with a frontal attack a few years later. One of Orr’s bright ideas was convincing a federal judge to allow Chrysler to suddenly close 800 dealerships -- one quarter its US total -- almost all of which represented not just showrooms but also repair and maintenance capabilities and skilled jobs important for local communities. Orr was a backer of John Kerry in 2004 and of Obama in 2008. He was therefore a logical choice for the Obama policy of forcing General Motors and Chrysler into bankruptcy, eliminating scores of factories and tens of thousands of jobs, cutting retirement and health benefits, and lowering the pay of new hires to the level of non-union Mississippi sweatshops. At his current assignment, Orr will be getting $270,000 per year.

Orr lives in a $1 million mansion in tony Chevy Chase, Maryland. Between 2009 and 2012, the state of Maryland’s Office of Unemployment Insurance filed four separate tax liens on the Orr residence seeking to recover unpaid taxes Orr owed the state from hiring childcare providers to look after his two children and then not paying state taxes related to this household help. At the time that Orr was named Detroit commissar by Snyder, two tax liens totaling almost $16,000 were still pending back in Maryland. Orr described in this situation as “remarkably embarrassing” and “something that fell through the cracks.” (Matt Helms and John Gallagher, “Kevyn Orr Pays On Two Maryland Liens: Snyder Says He Overlooked Taxes, Detroit Free Press, March 18, 2013)

This looks like a typical nannygate problem. One of the surest ways to identify an oligarch from the top 1% in the United States today is that the individual in question can afford domestic servants, something the vast majority of the population cannot even dream of. These elitists, who are lawyers, often hire undocumented foreign workers as domestic help, or else fail to pay state or federal taxes for the servants they employ. Nanny problems have terminated a number of elitist careers, but Orr is likely to remain in power regardless.

Federal lawsuit, constitutional challenge, and protest march against emergency rule

There have been numerous political protests and legal actions against Snyder’s oppressive law. On March 27, 2013, a group of lawyers and civil rights leaders filed suit in the US District Court for the Eastern District of Michigan, naming Snyder and Dillon as defendants. The lawsuit seeks to establish the unconstitutionality of Snyder’s emergency manager procedures as applied under the current Public Act 436. The suit argues that Snyder’s emergency manager law violates the voting rights of Michigan citizens by depriving them of the chance to elect local officials for the purpose of self-government. Supporters of the lawsuit point out is that Snyder’s methods violate the equal protection of the laws which the XIV Amendment to the U.S. Constitution requires every state to provide. The vote of the Detroit resident is worth less than the vote of an inhabitant of the nearby upscale Grosse Pointe because the Detroit resident no longer can elect a mayor and city council. The fact that majority black communities totaling over 50% of Michigan’s Afro-Americans are being singled out for finance dictators also means that civil rights laws are being violated. Public employees in the cities now under dictatorship are having their collective bargaining rights eroded even more than workers in the rest of Michigan.

On the day after this lawsuit was filed, a group of protesters featuring the Reverend Al Sharpton of the National Action Network and MSNBC staged a protest march in downtown Detroit from the headquarters of the American Federation of State, County, and Municipal Employees (AFSCME) - which is the largest public employee union in the city - to the federal courthouse. Sharpton correctly noted that “There will be a threat to everyone in this nation if the emergency management in Detroit stands.” Sharpton’s intervention is of course welcome, but it should not be forgotten that he and his associates had contributed relatively little to the struggle against Snyder’s program over the previous two years, and remain subordinated to Obama. Snyder blandly commented that lawsuits like this are “part of democracy” and boasted of his high success rate in getting judges to reject legal challenges to his dictatorial measures.

In effect, Public Act 436 creates a new form of dictatorial government under which cities and municipal corporations are subjected to the arbitrary rule of one unelected and unaccountable official who combines executive and legislative powers, and whose decisions, decrees, appointments, expenditures, and sales cannot be influenced by local voters. (Matt Helms and Joe Guillen,”Lawsuit Challenges Michigan Emergency Manager Law,” Detroit Free Press, March 28, 2013) There is a strong prima facie case that this new form of government is in blatant violation of the U.S. Constitution.

Article IV of the U.S. Constitution guarantees to every state a “republican form of government.” When mayors and city councils in so much of a state are ousted from power and replaced by dictatorial rule, it is clear that republican government has ended.

The XIV Amendment of this same Constitution orders that “no state shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States.” Each state is further forbidden to “deny to any person within its jurisdiction the equal protection of the laws.” As noted, if you live in Ann Arbor you can elect your own local government, but if you live in Benton Harbor or Detroit you cannot, meaning that Snyder has thrown the U.S. Constitution out the window. Obama is charged by the Constitution to “take care” that the laws be faithfully enforced, but so far he and his Attorney General Eric Holder have done nothing in favor of Michigan.

Secrecy and graft under the emergency manager law

The local organization Citizens United against Government Corruption has filed suit in state court claiming that the Michigan Emergency Financial Assistance Loan Board violated the Michigan Open Meetings Law because of excessive secrecy in the way Orr was appointed. This group is also suing Snyder for usurping the authority of the Loan Board by picking out Orr by himself.

One of the perks of being a Michigan emergency management commissar is that you can pay yourself large sums of money without any check or balance. The Michigan Court of Appeals has just upheld a judgment of $333,000 against the former dictator of Highland Park, who had paid himself a handsome $264,000 on his own authority -- something the courts have found illegal. This particular commissar is also under federal indictment for stealing money from the Highland Park school system when he served on their board - indicating that kind of person who gets appointed as emergency manager.

In Detroit, a major focus of resistance to Snyder’s dictatorship policy is the group For a Moratorium on Detroit’s Public Debt: Make the Banks Pay! There is also the Moratorium Now! Coalition to Stop Foreclosures, Evictions, and Utility Shutoffs, where David Sole is one spokesman. This organization demands that Wayne County and other Michigan counties immediately stop all foreclosures due to unpaid back real estate taxes. This includes a demand that Fannie Mae, a privatized agency which was seized by the federal government in September 2008, stop participating in these foreclosures. These actions are key to maintaining the Detroit real estate tax base.

One of the mass leaders of the resistance to Snyder’s commissars in Benton Harbor, on the western edge of the mitten, is the Reverend Edward Pinckney. Pinckney is a leader of the Black Autonomy Network Community Organization (BANCO). This past week, Pinckney organized protest motorcades on the I-94 Interstate near Benton Harbor.

Program to save Detroit and other cities

The most immediate remedy necessary for Detroit and other cash-strapped cities is to declare an immediate and unilateral debt moratorium freezing all payments of interest and principal for at least five years or for the duration of the world economic depression, which ever lasts longer. The survival needs of the Michigan population and economy must take precedence over the demands of the bondholders, which can be sorted out later on. The debt freeze is all the more justified since in large part of Detroit’s debt is represented by toxic credit derivatives which were sold to city officials through fraud, misrepresentation, and other corruption, with the investment bankers blatantly lying about future prospects. This hemorrhaging of cash must come to an end now.

Debt freeze

As the website For a Moratorium on Detroit’s Public Debt sums up the case: “Why should the same banks who destroyed the tax base of our city, who drove over 200,000 people out of the city of Detroit with their criminal, fraudulent foreclosures and evictions, who were bailed out by taxpayers and the Federal Reserve with trillions of our dollars, get paid first? The banks owe Detroit billions in reparations for the destruction they have caused. A suspension in debt service payments would immediately resolve the city’s fiscal crisis and allow for the restoration of city services and the recall of laid-off workers.”

1% federal wall street sales tax with revenue sharing for states and cities

Detroit and other Michigan cities would also benefit from the enactment of a 1% Wall Street Sales Tax on speculative turnover in financial markets. As of now, most Wall Street banks and hedge funds pay little to nothing in the way of federal corporate income taxes, and not a dime on their quadrillions of trading. A 1% Wall Street Sales Tax might produce as much as $1 trillion of revenue for the United States. Half of this should go to the federal government, but the other half should be apportioned to the states and localities through revenue sharing. This is where of Michigan and Detroit could find more needed liquidity to maintain police, fire, health, highway, education, and other vital services during the process of economic reconstruction and recovery.

Outlaw credit swaps and other derivatives

The role of toxic credit derivatives in destroying Detroit’s financial position reminds us of the need for outright bans -bright line prohibitions backed up by criminal penalties - on the sale of Credit Default Swaps, Collateralized Debt Obligations, and other types of derivatives. The CDS and CDOs just mentioned played the central role in the 2008 collapse of the US banking system, and outlawing them is long overdue. The US economy did much better when these instruments were unheard of. Credit default swaps are inherently illegal. If they are gambling, that violates the law. If they are insurance, those who issue them are not properly registered an issue policies. All payments on credit derivatives must cease.

Fed must provide $3.6 trillion credit stimulus to build infrastructure

Finally, Detroit is now a city in urgent need of having its entire infrastructure rebuilt. The pressures on the federal and state budget to maintain the social safety net are already considerable, so it is not advisable to attempt to finance an infrastructure program through on-budget spending. At the same time, the principal money center banks have earned their title of zombie banks because of their inability to engage in normal commercial banking through their insolvency due to derivatives. The only available source of large-scale liquidity to finance the economic reconstruction and recovery of the US economy is therefore the Federal Reserve. Political forces must now force Bernanke to open an infrastructure window empowered to purchase $3.6 trillion of 0% century bonds issued by US states, municipalities, and regional authorities for modern superhighways, bridges, high speed rail, water and canal projects, modern energy production and distribution, public housing, schools, hospitals, public buildings, and telecommunications. (The $3.6 trillion corresponds to the most recent estimate by the American Society of Civil Engineers of the expenditures necessary to restore an adequate infrastructure in this country over the next few years.) This credit stimulus is indispensable to restart the US economy. Detroit would benefit from such a program by receiving a 21st-century infrastructure. At the same time, much of the construction equipment and transportation rolling stock would be produced in Detroit’s factories. The target is full employment, which will require at least 30 million new productive jobs over the years ahead.

Dr. Webster Griffin Tarpley was born in Pittsfield, Massachusetts, 1946. A philosopher of history, Tarpley seeks to provide the strategies needed to overcome the current world crisis. He first became widely known for his book George Bush: The Unauthorized Biography (1992), a masterpiece of research which is still a must read. During 2008, he warned of the dangers of an Obama presidency controlled by Wall Street with Obama: The Postmodern Coup, The Making of a Manchurian Candidate and Barack H. Obama: The Unauthorized Biography. His interest in economics is reflected in Surviving the Cataclysm: Your Guide Through the Worst Financial Crisis in Human History Against Oligarchy. His books have appeared in Japanese, German, Italian, French, and Spanish. Tarpley holds a Ph.D. in early modern history from the Catholic University of America.

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