Why I Don't Buy Magic Beans

I often listen to conservative talk radio in my car for a couple of reasons. First, I like to keep informed of all sides of political arguments and even though most of conservative talk radio is more akin to propaganda than information one can still get an idea of the right wing viewpoint by listening to Rush Limbaugh or Sean Hannity. The good news is that you don’t have to listen for very long in that they endlessly repeat the same talking points ad nauseum (see the definition of propaganda). Second, since I live in an area that is heavily right wing in its general political leanings there is virtually no left wing or progressive radio available without having satellite radio which I don’t happen to have in my car.

I don’t normally have much of a reaction to what I hear on these shows beyond the amusement that comes from realizing how childishly simple and devoid of actual study most of these points are in reality. It is interesting to follow the careful application of facts and editing that Limbaugh employs in trying to make his points. He really is quite masterful at avoiding telling the whole story about anything while at the same time emphasizing and carefully stacking the half truths of his narrative to build his positions. On average I would say that he rarely goes over a sentence or two without badly distorting the truth or taking a half truth and expounding it as irrefutable fact. There is an old maxim that says “a little knowledge is a dangerous thing”; in Limbaugh’s case I would expand this to “a little knowledge combined with a lot of half truths endlessly represented as the whole truth is a dangerous thing” (again, see the definition of propaganda).

As I was listening today I heard Limbaugh launch into his normal ridicule of Democratic positions by one of his favorite tactics of sarcasm combined with satire. The specific issue he was talking around today was the upcoming budget battles and the attempt by Republican’s to cut further into discretionary spending and Medicare programs. What is interesting is that both parties agree that rising health care concerns are an issue that is to a large extent driving much of our national debt problems. Unfortunately, this is about the only thing that both parties agree upon when it comes to health care. Typical of Limbaugh and his tactics he was not discussing the issue today or offering solutions to the problem but rather ridiculing the idea that Obama put forward in his speech yesterday that he was not willing to stand by and let the Republican party do away with Medicare programs that are the only means many Americans have of receiving the health care they need to survive. Limbaugh launched into an insulted tirade describing how Democrats are trying to paint the Republican party as the party that would have these people put out in the street without healthcare.

This is typical of the way Limbaugh operates, avoiding the substance of the issue by concentrating on the satirical implication that Democrats are only interested in demonizing Republicans. He went on to describe how offensive and silly it is to suggest that Republicans don’t care about people, that they are somehow immune to feeling of empathy for the needy. I doubt there are very many people who believe that Republicans want people to suffer or that they desire to somehow punish the poor and needy by denying them health care. The point that Limbaugh purposefully avoids and goes to great lengths to disguise is that this WILL be the result of doing away with Medicare programs and privatizing them with a public voucher system that everyone recognizes will lock people into set benefits at a time when actual health care costs are skyrocketing. Intentions count less than results when it comes to basic necessities of life. The fact that no one intends for people to suffer does not change that fact that people do in fact suffer and die when they can’t get the basic health care they need to survive. While it might be worthwhile in Limbaugh’s opinion to point out this was not the intention of such measures this is actually of no consolation to the people who will be suffering and dying as an inevitable result of the measures themselves. It is neither wrong nor imprudent to point out inevitable results of cutting such programs; it is in fact criminally irresponsible to avoid doing so.

There are two possible ways to interpret this behavior. The first and most obvious possibility is that Limbaugh simply doesn’t know what he is talking about. While it is easy to dismiss this out of hand there is perhaps a grain of truth to it. I would submit that it is hard to understand the concerns of those of us whose families are often at the mercy of such systems when you are as far removed from the cold hard realities of having to make hard choices as Limbaugh currently happens to be. Limbaugh makes some 28 million dollars a year in direct income without including endorsement contracts. This amounts to some 116 thousand dollars a day which probably does make it hard for him to have any understanding of the world that most of listeners deal with every day. It stretches the imagination to believe that someone who makes that much money could have any understanding of what it is like to do without basic needs. I would suggest that it has probably been quite some time since Limbaugh was even directly personally exposed to anyone who is struggling in today’s economy. While this also explains his undying and ridiculously nonsensical ideas about taxation and Reaganomics which preaches that lowering taxes is the best way to stimulate the economy, it doesn’t say much for his ability to be objective when he twists fact and figures so relentlessly to prove such a theory makes any sense economically while pocketing the results of the tax cuts so directly.

The second possibility is that Limbaugh actually is what he appears to be, a willing shill for corporate America who has as little use for truth and factual information as his hero Ronald Reagan. Reagan, who made a living many years being a direct employee of corporate interests as a spokesman in their campaigns to increase profit margins at any cost later graduated to a position in government where he could be even more effective in this pursuit; the President of the United States. It is impossible to know which possibility is correct or even if it is the combination of the two is what drives Limbaugh in his daily rants but it is easy to know the practical results of his choices; a show unmatched in its propaganda value if you are a wealthy American or a large corporation in its ability to influence voter opinions of the very people that such interests routinely abuse to build their wealth and power.

It is hard to imagine a better methodology for enriching the wealthiest amongst us than the talking heads of conservative radio. If I were to suggest a scenario that involved the wealthiest Americans gaining control of the levers of power with the full aid and support at the ballot box of the working class they are pilfering their profits from you would suggest that such a scenario is at best unlikely. However, both Limbaugh and Hannity, who manage to portray themselves as protectors of the common man while collecting millions of dollars each year from the wealthiest corporate interests in this country, are in fact two of the most effective agents for making sure this is exactly what happens. Hannity makes some 22 million dollars a year in salary before endorsements in case you are wondering. Not surprisingly, he is just as adamant that any increase in taxes on the wealthiest Americans would be a disaster of the first order. One basic mantra that all conservative commentators constantly repeat is the idea that tax cuts lead to net increases in revenue.

Budgets as large as our national budget can be extraordinarily complicated instruments but the basic laws of addition and subtraction are not magically suspended when it comes to evaluating them. National budgets, just like personal budgets, are a balance between money coming in (revenue) and money going out (expenditure). While it is possible to increase relative revenue if you cut expenditures enough the net gain is simply a one to one ratio, every dollar saved equals a dollar available to pay against the debt. Common sense tells us that to decrease the deficit we must have a combination of reduced expenditure and increased revenue. Not surprisingly, history does as well. Contrary to the cherished magical myth that conservatives love to repeat about cutting taxes while simultaneously increasing government revenue it simply does not occur and we have proved that on four separate occasions since 1980. Reagan’s first tax cuts drastically reduced government revenue to the point that three later tax increases were necessary to keep us from breaking the government then. The difference is that the later tax cuts worked to shift the largest proportion of the burden from the rich to the middle class. Even with the later tax increases, the deficit doubled during Reagan’s tenure.

When Bush senior came into office with his “read my lips, no new taxes” pledge he soon found that it was necessary to renege on this promise because we were still sliding into a deeper deficit and the only way to begin to pull us out of it was to increase revenue by raising taxes. While this may or may not have cost him the next election, it did manage to begin to increase revenue. With Clinton, we got more of the same in the way of increased taxes along with expenditure cuts that were well on the way to balancing the budget. With Bush junior we got another round of tax cuts that led directly to higher deficits. It is hard to stress this fact enough; tax cuts do not increase revenue. It really is voodoo economics to suggest that it does and recent history has pointed this out repeatedly no matter what conservative commentators say to the contrary. As anyone who has passed third grade math knows you cannot get larger numbers by subtracting no matter how many times you do it.

Beyond the simple mathematics of why this doesn’t work there is also the basics of how capitalism works to explain this more clearly. Capitalism is largely based upon the idea that accumulations of wealth can be used for investment which will spur more economic growth. It is a repeating cycle of continuous growth based upon the idea that one must first have accumulations of capital before there can be investment. If our country was in a situation where there was not enough capital to spur growth temporary tax cuts as a stimulus might be a viable option but we would still have to realize that any tax cut must be offset by expenditure cuts to keep from bloating the deficit. However, everyone agrees that there is a huge surplus of capital in this country right now; although much of it has been hoarded into offshore tax havens so that its owners can avoid paying taxes on it. In other words, cutting taxes on the wealthiest is not only unnecessary , it is actually counterproductive to inducing investment because it has been proven to further reduce the likelihood of investment for the simple reason that there is no inducement to reinvest this capital. This is largely the reason why there was such huge investment in the unregulated financial markets that crashed the economy in the first place. Every time there is a tax cut on the wealthiest Americans along with deregulation of the financial industry there is a corresponding increase in unfeasible financial markets that inevitably crash. Radical tax cuts to the top level of income earners in the twenties (70%-24%) immediately preceeded the rampant speculation that fostered the Great Depression. After the initial Reagan tax cuts we had the Savings and Loan crash. After the Bush tax cuts we had the recent financial crash of the whole US banking system that we are still trying to claw our way out from under. Nothing stimulates the ingenuity of the confidence men amongst us as much as large piles of cash reserves that become available with such tax cuts. In case anyone hasn’t noticed, we as the taxpayers bailed out the wealthiest Americans in each case so we not only don’t get to participate in the party; we have to pay the bill after the party is over.

What is actually needed is not further reductions in capital gains taxes and the income taxes of the wealthiest Americans, but the increase of such taxes to induce them to reinvest the money in industries that produce jobs in this country instead of encouraging further tax havens for shifting jobs overseas. Tax incentives could easily be written to encourage investment in industries that create jobs by tying tax rates directly to the number of jobs created while increasing tax rates on financial markets that do not. In other words, we have plenty of capital for investment. Tax cuts to increase the capital available for investment aren’t what we need. Tax increases with incentives designed to induce investment from existing capital in industries that produce jobs are what we need.

Limbaugh, Hannity, and their ilk would be comical if they weren’t doing so much damage to our political structure by deliberately spreading corporate propaganda. Shills have been a component of the business world since the first halting steps of capitalism but they have rarely been as effective as this new crop of them happens to be. While Reagan himself is their patron saint, they are all cut from the same cloth. It is up to the American public to recognize they are being fleeced by the people who proclaim to protect their interests but I find it especially ludicrous that two men who make 48 million dollars a year between them are widely seen as the protectors of the working class public by a large portion of the voting populace. They remind me of the peddler of the magic beans in the fable Jack and the Beanstalk with the exception that they are peddling “magic tax cuts” instead of “magic beans”. Unfortunately, there is no such thing as “magic tax cuts” that will grow us out of the deficit situation we are in. There are only real numbers and the reality that it takes addition to make larger numbers and tax increases to create more revenue.

Propaganda or news?

There seems to be quite a discussion in the news since the shootings in Tucson concerning the tone of our political debates in this country. I won’t bother to go into the tone of the rhetoric because I think it misses the real problem that we are facing. In my view, the real problem we are facing is the steady deterioration of the quality of our news sources in this country. News is no longer a fair and measured attempt to discuss the issues. It has devolved into pure and simple propaganda. No longer are media outlets tasked with reporting the issues with a representation of all the views, they are now simply hired guns attempting to control the issues by controlling which information is released to the public. All of this changed in 1987 when Ronald Reagan issued an executive order that directed the FCC to no longer enforce the Fairness Doctrine. The Fairness Doctrine basically charged the FCC with overseeing the content of news that was broadcast over the public owned airwaves to make sure that it was fair and balanced; that both sides of issues were covered. While this is an imprecise and imperfect science the FCC controlled the content previous to 1987 by periodically reviewing content to decide which entities had a license to use the airwaves. I will go into all of this in more detail in my next post but the basic point to remember is that from the 1940’s until 1987 there was a controlling body charged with protecting the American public from propaganda. This probably explains why we had a much more educated voter base previous to 1987 but without question it was not an effort to censor but rather an effort to make sure that all sides of an issue were covered equally.

The best definition of propaganda that I have found is that it is a form of communication aimed at influencing the attitude of a community toward some cause or position. As opposed to impartially providing information, propaganda, in its most basic sense, presents information primarily to influence an audience. This includes the omission of information that might tend to undermine a political position and it is the editorial tendency to control content based upon the furthering of a position as opposed to having an open discussion about the issue that defines propaganda as opposed to reporting the news. It is basically the difference in the effort to inform versus the effort to convince; they are not the same thing. This history of propaganda stretches back centuries and it has seen many diverse uses ranging from religious persuasion to political control with varying degrees of effectiveness.

One of the earliest examples of its use in this country was the Creel Commission or as it was known at its creation the “Committee for Public Information” (CPI). The CPI was formed by Woodrow Wilson under executive order on April 13, 1917. The committee was formed with the sole intent of fostering American support for involvement in World War I. Creel, a journalist, had urged Wilson of the necessity of such a commission in order to fight what he termed German propaganda. Creel believed that the CPI should concentrate on the true original meaning of propaganda which he defined as “propagation of faith.” It was the CPI the originally coined the phrase “Making the World Safe for Democracy.” Creel was joined on the committee by the Secretary of State, the Secretary of War, and the Secretary of the Navy. One of the most important contributors to this effort was a writer named Walter Lippmann. Lippmann was an intellectual who held common beliefs for the upper crust of American society at the time. In large part he believed that the American public was simply too uneducated and uninformed to make correct policy decisions even if indirectly by plebiscite. Lippmann believed that it was up to the "governing class" to correctly formulate and guide the "bewildered herd" of the American public. He wholeheartedly dedicated much of his life to carrying out this responsibility and the CPI was only the first of his organized efforts at influencing public opinion by any means necessary. It was Lippmann's own term of describing this effort as "manufacturing consent" that was later to be used to label such organized efforts of propaganda aimed at forming public opinion. Lippmann's ideas concerning the absence of necessity for truth in news were all built around the basic premise that it was up to the "governing class" to correctly lead the general public in the right direction; right being simply the direction that the well informed deemed most appropriate. The CPI itself was successful in that it managed to change the preponderance of public opinion away from an attitude of isolationism and empathy for the German cause and towards US involvement in WWI.

While it is undeniable that all the major powers in WWI put forth considerable efforts at their own propaganda, each with any eye towards influencing public opinion in favor of the respective governments involved, many observers believe that the US and Britain were much more effective in their methodology; both at home and abroad. It was their ability to totally mobilize the American public in support of the war that was at least in part responsible for the Allied victory. This message was not lost on the Germans who lost the war. As a matter of fact, many Germans believed that it was their inability to mobilize and gain the undivided support of the German people that led directly to their defeat. Regardless if this is a historically accurate view, it was widely believed in Germany at the time. One of the most fervent believers in this explanation was a young corporal who would later perfect the use of propaganda to further his ideology with such success that he gained total control of the German government. His name was Adolph Hitler and he explained these views more fully in a book he wrote called "Mein Kampf":

"Propaganda must always address itself to the broad masses of the people. (...) All propaganda must be presented in a popular form and must fix its intellectual level so as not to be above the heads of the least intellectual of those to whom it is directed. (...) The art of propaganda consists precisely in being able to awaken the imagination of the public through an appeal to their feelings, in finding the appropriate psychological form that will arrest the attention and appeal to the hearts of the national masses. The broad masses of the people are not made up of diplomats or professors of public jurisprudence nor simply of persons who are able to form reasoned judgment in given cases, but a vacillating crowd of human children who are constantly wavering between one idea and another. (...) The great majority of a nation is so feminine in its character and outlook that its thought and conduct are ruled by sentiment rather than by sober reasoning. This sentiment, however, is not complex, but simple and consistent. It is not highly differentiated, but has only the negative and positive notions of love and hatred, right and wrong, truth and falsehood."

As to the methods to be employed, he explains:

"Propaganda must not investigate the truth objectively and, in so far as it is favorable to the other side, present it according to the theoretical rules of justice; yet it must present only that aspect of the truth which is favorable to its own side. (...) The receptive powers of the masses are very restricted, and their understanding is feeble. On the other hand, they quickly forget. Such being the case, all effective propaganda must be confined to a few bare essentials and those must be expressed as far as possible in stereotyped formulas. These slogans should be persistently repeated until the very last individual has come to grasp the idea that has been put forward. (...) Every change that is made in the subject of a propagandist message must always emphasize the same conclusion. The leading slogan must of course be illustrated in many ways and from several angles, but in the end one must always return to the assertion of the same formula."

Hitler was able to use this methodology very effectively in his rise to power and later in his ability to control Germany and her armies to a degree that no one would have thought possible previously. The effective use of propaganda which united Germany while at the same time placing blame for her post WWI collapse on the international banking community and Jews was the cornerstone of his strength. While he certainly modified propaganda techniques specifically to garner all political and military power in Germany to himself, it is the methodology of propaganda and how it corresponds to what is going on today that I am writing about in this post.

After WWI there was a great deal of study carried out on propaganda techniques. This study included those used by the Allies as well as the Axis powers that faced them. Both the US and her allies used propaganda techniques to support the war effort with great effectiveness. It was generally accepted that such techniques are necessary in times of war or national emergency but the idea that they were to be used in national news media as opposed to fair and balance reporting is relatively new in this country.

In case anyone doubts that such techniques have gained usage in the national new media in this country since Reagan's executive order of 1987 perhaps it would be useful to look at some of the recognized techniques of propaganda that came out of studies done after WWI and see if we can spot any of these tendencies in modern news media coverage. I will list some of them and give some specific examples of how they are utilized today. Propaganda in and of itself isn't necessarily that big of a problem as long as it is understood to be propaganda. It is the confusion of propaganda techniques with fair and balanced reporting that lends itself to public manipulation and it seems that we have an overwhelming abundance of this purposeful deceit implicit in some, if not most of our national media outlets today. Biased reporting is one thing, organized systematic propaganda disguised as reporting the news is a much more dangerous and sinister proposition.

In 1937 a group of American social scientists, historians, educators, and journalist formed the Institute for Propaganda Analysis (IPA). The purpose of the IPA was to spark rational thinking and provide a guide to help the public have will informed discussions on current issues; to teach people how to think rather than what to think. This group's main focus was to discern and point out the differences between information and propaganda. The founders of the IPA believed that organized propaganda was a dire threat to democracy since one of the basic foundations of any democracy is an informed and educated populace. Propaganda by its very nature is a tool of disinformation specifically designed to prevent the spread of accurate information. Although the IPA eventually folded in the face of the necessity of propaganda to support the war effort one of its first goals was to list the main propaganda techniques in vogue at the time. I don't believe this is a complete list as the proponents of propaganda have increasingly improved their techniques in the years since but we will start with the list published by the IPA:

1. Name-calling
2. Glittering generalities
3. Transfer
4. Testimonial
5. Plain folks
6. Card stacking
7. Bandwagon

Name calling is pretty self explanatory but the specific use of name calling to denigrate people isn't the focus of this tool in propaganda. For this usage name calling is more specific in that it entails the usage of derogatory terms to attack the personality of political or social opponents. By attacking the person one avoids having to even discuss the issue which is one of the basic tenets of propaganda techniques. After all, the last thing that is desired is to have a fair and open discussion of the issues as this removes the possibility of being able to present the truth only as it pertains to one side of the issue. You will find lots of this rhetoric today on Fox News or talk radio. Socialists, Communists, Liberals, Leftists, and Statists are just some of the key words used but you will usually hear at least one of these titles applied with religious frequency to anyone who happens to disagree with the right wing conservative agenda that Fox news was formed to propagate. Again, propaganda itself is not an insidious thing but when it is passed off as fair and balanced reporting of the news it is both damaging to the spread of information and antithetical to the formation of an informed populace.

Glittering generalities is the practice of forming discussions around vague inherent generalities that everyone agrees with. By basing discussions and making the assumption that one side of the argument is based upon such an inherent generality the idea is to identify opposing arguments with views that oppose these generalities. A few examples one might hear daily expounded on Fox news or any number of talk radio hosts are freedom, patriotism, courage, strength, and democracy. By identifying themselves and in effect their arguments with such terms in advance propagandists intentionally strive to equate anyone who disagrees with opposite terms such as dictators, cowards, freeloaders, and socialists. While the technique is slightly different from name calling the goal is the same; to remove the possibility that opposing views will be openly discussed. One way to completely avoid such discussions is to effectively identify opposing views with positions that are inherently undesirable in advance. Not only does the usage of this tool tend to invalidate discussion, it can be done without explicitly resorting to name calling if framed properly in advance.

Transfer involves using symbolism to take the attributes of positive imagery and apply them to individuals involved in policy debates. To be honest, this is a technique the politicians have been utilizing for so long that it is normal behavior in political circles. This is exactly why politicians of all sorts love to be photographed in front of flags, monuments, and patriotic backdrops. The more emotional the response to any symbol the better this technique works and the more you will see it done. A few examples are Sean Hannity's usage of the Martina McBride "Let Freedom Ring" song numerous times each day. Who can hear the part of that song that is utilized without feeling a little lump in their throat? A good rule of thumb for judging the likelihood that a program is propagandist in nature is the amount of symbolism apparent in its introduction. This methodology is chapter and verse of Hitler’s description of using basic feelings and consistent repetition to control opinion.

Testimonial usually involves a written or spoken statement extolling the virtue of a position or product. While this technique is most easily identified in the advertising arena with the usage of spokespersons for products it is also extensively used in political debate. One of the more common modern usages of this technique is the propensity for conservative commentators to quote the “founding fathers” of this country out of context. Any real student of history understands that the “founding fathers” was a diverse group with many different agendas and it is not hard to find quotes supporting any ideology by selectively seeking out those that agree with one view while ignoring those that disagree. This is a tool especially favored by Sean Hannity and Ron Levine. Again, it is technique utilized to prevent open discussion by identifying respected historical figures views with those expounded by the host. Interestingly, as an aside one can get a feel for how artful talk show hosts are at propaganda by listening to their advertisements for products that serve as sponsors on their show. These hosts don't just advertise for the products of their sponsors they frequently give ridiculously energetic and fervent personal testimonials not only for the quality of these products but for the absolute necessity of purchasing them. Their wholesale acceptance of the techniques of propaganda in their social and political commentary leads directly to testimonial advertising on steroids when they start hawking products.

Plain folks propaganda is simply identification. The practitioner of this technique attempts to inherently identify himself with a specific social group, most often as an “ordinary Joe”. This identification is attempted so that the speaker can form a bond with his target that will allow them to believe he understands their concerns instinctively. It is a method of using emotional appeal to blunt intellectual discussion. Two of the most artful practitioners of this methodology are Rush Limbaugh and Glenn Beck. Each constantly prefaces their views by contrasting their opponents as “elitists”, “intellectuals”, or “silver spooned Liberals” who they surmise are not identifiable social companions to most of their listeners. This form of propaganda might best be represented by the meteoric rise on Fox News during the 2008 presidential election of “Joe the Plumber.” Sarah Palin is another politician who makes full use of this form of propaganda and not surprisingly Fox news hired her recently as well as a political consultant.

Card Stacking is the technique of emphasizing one viewpoint while simultaneously ridiculing the other. It is a well recognized and universally used technique in political campaigns but it has recently spilled over into national media outlets and is being passed off as news. The propagandists who practice this technique have sharpened it considerably in recent years by setting up panels for supposedly open discussions where both the agenda and the end result are carefully choreographed to make sure that the audience reaches the right conclusion. Fox news is especially adept at this technique and regularly features opposing viewpoints from the most vapid and uninformed commentators they can find. Bill O’reilly and Sean Hannity are also avid practitioners of this technique and you will regularly hear such counterpoint discussions on their shows.

Bandwagon techniques consist of convincing the audience that the great preponderance of the general public agrees with the views expressed by the commentator or political candidate. It is an emotional appeal to our basic herd instinct and usually goes along the lines of “everyone else can’t be wrong.” In other words, if the audience can be convinced that the majority of informed people hold one viewpoint it eliminates the need for them to go gather information from other sources because the great majority of people have already done that and made their decision accordingly. It is simply another tool to avoid an open discussion where opposing viewpoints can be put forth which is the root basis for the usage of all propaganda. This is exactly why Fox News concentrates so heavily on conservative victories while ignoring any instance whereby conservative agenda is refuted by the voting population. Just listen to any of the intros to talk radio’s conservative shows and you will get a perfect example of this type of propaganda; from Sean Hannity’s “Stop Obama express” to Ron Levine’s leadership reports from a hidden bunker.

I don’t believe that conservative media is the only type of media practicing propaganda in today’s world. What I do believe that ALL propaganda is injurious to the spread of information and the disguising of propaganda as fair and balanced news reporting is an effective tool being used to advance agendas in this country that informed discussions would arrest. It has gone well beyond the control of networks, which although lucrative, are small gears in a much bigger machine.

As in any agenda there are reasons for why it is being so effectively advanced and the larger picture in this case is the control of national politics and thereby control of the national government. The truth of the matter is that corporate entities controlled by the upper 1% of the wealthiest Americans are managing to gain control of the government to a degree that has never happened in this country before. Every economic study points out that since Reagan the wealthiest Americans have steadily gained control of the national wealth while the rest of the American public has actually lost buying power as their standard of living decreases and the middle class of this country absorb the nation’s debt. It is no accident that this has happened. What is a little amazing is that they have managed to do much of it with the voting consent of the very people they are squeezing out of existence, the American middle class. Propaganda, as Hitler well understood, is an invaluable tool where someone is intent upon spreading an agenda opposed to the general well being of the populace. This is especially true in a society where the voting populace controls who runs the government. Think about this the next time you hear someone on Fox rail against the very idea of the “Fairness Doctrine” as an attempt by the government to censor free speech. Who is going to be hurt by a fair and equal representation of issues over the nation’s airwaves?

CRA and the Collapse Part 2

The Community Reinvestment Act of 1977 is often tossed around these days as the source of the economic collapse we are still experiencing in this country. If you think it sounds a little strange that an act passed in 1977 caused an economic collapse in 2008 you are correct. It would be strange if that is what happened but the truth of the matter is that it isn’t that strange because that is not what caused the recent collapse no matter what Sean Hannity and Rush Limbaugh would have you to believe. In my last post, I pointed out that the actual numbers concerning the real estate mortgage industry didn’t add up to the collapse we experienced and I will go further into what actually happened in later posts on this subject but I thought it would be worthwhile to look at what actually did happen to the real estate market first.

The Community Reinvestment Act was passed with the express intent of eliminating unfair lending practices in inner cities. As far back as the thirties when the government became involved in assistance for home mortgages the mortgage industry has discriminated against one factor, perceived risk. In the early years of government involvement there were maps drawn up wherein were lined off with colored lines based upon the projected amount of risk associated with mortgages in different areas. Historically, the inner cities which were largely populated by minorities were “redlined” or outlined in red as the highest risk areas to loan money. Up until the early sixties such maps were the rule in the industry and it was very hard to convince mortgage companies and banks to loan money in these areas for the simple reason that there were plenty of other areas considered less risky in which to loan their money.

In 1968 the Fair Housing Act was passed to fight this problem. This act prohibited the policy of redlining areas based upon race, religion, gender, familial status, or ethnic origin. While the act was aimed at specifically limiting the ability of lending institutions to discriminate based upon these criteria the industry continued to be slanted away from lending in these areas because of perceived risk. While the Fair Housing Act specifically made it illegal to discriminate based upon these factors the lending institutions simply had to avoid having it proved that their bias was based upon these factors to fall outside of the control of this act.
The Community Reinvestment Act was passed to encourage investment in these areas. What the act does in effect is to require banks under the FDIC to maintain equal opportunity for loans in all areas where they are chartered to do business including lower income areas. In other words, if a bank has depositors in low income areas it is required to offer equal opportunity for loans in these same areas. There were no specific requirements to how this was to be effected but it was to be enforced by the same FDIC auditors who take care of making sure that such banks do safe and legal business under the protection of the FDIC. The Act specifically states that all such banks are to maintain due diligence and follow accepted criteria for determining that loans made under this act are fiscally sound. As with the other constraints in the act, these decisions are to be audited and enforced by the FDIC auditors.

The teeth of the enforcement of the act came from the FDIC’s recommendations as to how member institutions were graded according to their compliance with the provisions of the act. In other words, the FDIC would either give thumbs up or thumbs down to member institutions who applied for mergers and acquisitions with other banks based upon their compliance with the CRA. A good rating for compliance was the carrot on the end of the stick and member banks were to respond accordingly. The specific regulatory agencies who made these judgments were the Office of the Comptroller of Currency, the Office of Thrift Supervision, and the FDIC. The Federal Financial Institution Examinations Council was charged with coordinating these reports and publishing the findings for a bank’s compliance with CRA regulations.

While that Act itself was aimed at increasing the ability of people in lower income areas to attain financing for buying homes in these areas it was not very successful in changing the status quo. The Act itself was continuously modified to make it more effective. Changes in 1989, 1992, 1994, 1995, 1999, and 2005 were made to the Act to make it more effective in increasing this ability by giving the regulatory agencies more teeth in enforcing the act. Still, as late as 2007 there were conversations in government about further strengthening the Act to increase the amount of access to such loans for the simple reason that it never successfully impacted the markets in large numbers.

According to independent studies by the Cato Institute, and the Competitive Enterprise Institute the Act itself could never be shown to improve home ownership in low income areas. There are those who disagree of course but the reality is that the Act itself played a very small part in the growth of loans in low income areas. The overwhelming consensus of such studies is that the loans that were made under the CRA were loans that to a large extent held to term and were much less likely to threats of foreclosure than those made by private entities which were not under the jurisdiction of the CRA. As a matter of fact, some 80% of the loans that came into foreclosure during the 2007 crisis and later were made by private mortgage companies that were not in any way associated with the Community Reinvestment Act because they were not under its jurisdiction in any form.

Sub Prime Mortgages and other exotic entities that actually led to the housing bubble collapse were the overwhelmingly the creation of private enterprise mortgage companies. Why? For the same reason that all such schemes are hatched; PROFIT.

In the recent past in this country the overwhelming majority of home mortgages that were made were simple financial agreements wherein one party made a loan and the other party held onto the loan as an investment. The profit was in collecting the interest rate over a long term and it was a pretty handsome profit at that. The standard rule of thumb for such mortgages is that a 30 year note usually pays off some 300% over the term of the loan. As most homeowners understand this means that a $50,000 dollar mortgage usually costs some $150,000 by the time it is paid off if it goes the full term of the loan. Obviously, a loan that defaulted was bad business for everyone. The homeowner lost his home and the money he had invested up to the point of foreclosure and the mortgage holder lost the projected profits of the long term interest payments so it was in no one’s best interest to make bad loans.

Securitization changed the whole industry in a drastic way in the late 1990’s. Just as the Dot Com collapse of the late 90’s started to crash the financial markets securitization of mortgages began to take over these markets which is basically the way we avoided an economic collapse at that time. I will go more into the details of Securitization and how it works in a later post but for now I will give the short version explanation.

Basically, Securitization involves bundling groups of mortgages into bond type instruments that are traded on the market as assets. In other words, it is a little bit of hocus pocus magic whereby a Debt in the form of a mortgage is changed into an Asset in the form of a Collaterized Mortgage Obligation (CMO). Of course the rules and regulations for this little bit of magic are hazy and open ended which is exactly why such regulations are needed but for now it is worth noting that this industry grew at an astronomical rate in the late 1990’s and early 2000’s.

Securitization instantaneously created a market for mortgages, lots of mortgages. The people producing the mortgages sold them immediately after creating them to a group who would bundle them into CMO’s and sell them again. Each transaction created a profit margin so that such mortgage bundles often actually increased in value with each trade, sometimes in margins that ended up being in the range of 50 to 100 times over the initial value. It was magic. A debt instantaneously becomes an asset and then multiplies in value and everyone was making lots of money. Of course there is really no such thing as magic. A debt is still a debt, no matter how you bundle it or what you name it but that is something we still don’t seem to recognize as a nation and another point for another post later on.

As Securitization grew mortgage companies became more and more creative with the types of loans they created. They also pushed harder for approval of higher risk loans. After all, the mortgage company wasn’t going to hold the loan to maturity and the next person in line who was doing the securitization wasn’t either. Instead of long term profit on sound loans the real money was now in short term profits on large volumes of loans and no one really cared how safe the loans themselves were. After all, as the market boomed the home values increased so that a person could always just refinance if they couldn’t pay the mortgage. It was the classic case of paying the piper later and the US economy boomed.

The Housing industry became a pyramid scheme and as long as the home values kept increasing there was no end in sight. As in most such schemes the jig is eventually up. Someone notices that the emperor isn’t actually wearing any clothes and reality starts to set in. As in all pyramid schemes that inevitably collapse the people on the bottom lose and we are seeing the effects of this one now. It wasn’t the fact that the government forced banks to make bad loans it was the fact that banks found a way to make it profitable to make bad loans. Through control of Congress and the gradual dismantling of the regulations put in effect after the last great collapse in 1929 from rampant speculation greed found a way to create even more rampant speculation in the last 15 years.

Casinos make a lot of money off of people’s belief that they can beat statistical certainty but at least most people who play in Casinos have to use their own money. The banking industry in the US has created their own Casino but they are using our money to gamble with. As long as the general public doesn’t understand what just happened to our economy we have no way to prevent it from happening again. It doesn’t really matter if the economy comes back or not if we don’t fix the problems that caused it to collapse in the first place and we simply have not done that so far.

We have allowed a system to be created where it was profitable to make bad loans and it was the pursuit of these profits that crashed the economy. Don’t expect the people who made all the money to abandon the system that was so profitable for them any time soon. It is fairly easy to just buy media outlets if you have a lot of money and spread propaganda that blames everyone but the people who created the problem. After all, most Americans are so stupid that they can be convinced that poor people buying homes they couldn’t afford crashed the world economy. Oh how those poor bankers must have anguished over being forced to make loans to people they knew couldn’t pay them back by the big bad government. As my dad used to say, “they must have cried all the way to the bank.”

Tea Party to the Rescue.....

I sometimes wonder if the Tea Party is more dangerous for the naive ignorance its supporters and candidates or the wholesale buying of elections that is currently underway by Corporate America under the guise of a grassroots movement. In either case it is abundantly clear that the Tea Party itself is actually a multi-headed organization that is being used as a tool to get out the vote for conservative ideas while at the same time disguising itself as a movement of the people. I am quite sure there are many people who are ardent supporters at the grass roots level but these people don’t even seem to realize who is pulling the strings and providing the money at the top. It is almost the perfect storm for political conservatives with the recent unfathomable ruling by the Supreme Court that corporations can take money from their operating coffers and put as much as they want into political campaigns aligning with this phantom movement that has no real leadership. I think we will see the results in the upcoming election in the form of even more corporate control of government policy which is after all the real goal to begin with.

While all of this is disturbing and somewhat depressing it isn’t exactly surprising. The recent economic collapse hurt a lot of mainstream Americans where they can feel it the most; in their pocketbook. It isn’t surprising that they would react with anger at the establishment that brought this about but it is a little surprising that these same people could be so naïve as to throw their support behind the party that caused it to happen in the first place through de-regulation of the banking industry and support of fiscal Ponzi schemes. Propaganda has always been a powerful tool and since Americans lost what was implicitly their ownership of the airwaves where most Americans get their news under the Telecommunications Act of 1996 without even noticing a takeover was in process it has become a reality in this country. No one should be surprised that the “Free Market” that news media outlets were clamoring for has turned into a monopoly since government regulations about who owns such outlets were abandoned. If you own all the media outlets you have a great deal of control over what kind of news they broadcast so there is little wonder that such a takeover was attempted but it is a little surprising that such an attempt was successful and it is even more surprising that more people don’t see the problems it is presently causing.

If that isn’t bad enough we now have evidence that TARP money that was given to financial concerns in this country is now being used to leverage political campaigns by these concerns. This would be comedic if it wasn’t so tragic. In other words, companies that CAUSED the economic collapse and were bailed out by taxpayers are now using taxpayer money to try to buy elections. I wonder how long after the elections it will be before they attack the recent regulations put in place to keep this from happening again. It doesn’t matter that the regulations themselves were toothless and didn’t go far enough to change the policies that caused the collapse; they are an irritant to the people who were stealing all the money and they will be done away with as soon as possible. Expect to see them high on the agenda of incoming Republicans.

In recent days as campaigns wind to a close we are seeing the effects of aligning ideals with fringe groups; groups that under normal circumstances are distanced from the central arena of political discourse. The Tea Party movement in its efforts to show numbers of supporters has done two things that are relatively dangerous in any political movement. They have heated up the rhetoric to a fever pitch while at the same time invoking imagery aimed at stirring up people’s anger at targets of their choosing. As a citizen of Alabama I am not a stranger to asinine and illogical fundamentalist religious rhetoric and its usage by corporate entities to support their real agenda but we are seeing it across the country this election and it is just as ugly there as it has always been here.

A candidate for the Senatorial seat in Alaska closely aligned with the Tea Party reacts to questions that bring into doubt his integrity by having para-military type private security forces handcuff a reporter and physically remove him from the event. It sounds strange but in reality it is even stranger than it sounds. The private security firm he hired, Drop Zone, is closely aligned with the Alaskan Militia which was founded by the Michigan Militia leader who was forced out of that state for his alignment with Timothy McVeigh of Oklahoma City fame. Miller, the candidate who hired Drop Zone, asserts that he was forced to hire private security because the function was on public property. Never mind that this excuse is complete and utter nonsense according to local officials, the hiring of Drop Zone actually corresponds with Miller’s decision that he is not going to answer any more personal questions for the remainder of the campaign. With his lead slipping in the polls and more and more evidence from his past coming to light that he is indeed nothing like he campaigns to be he decided that he just wasn’t going to answer such questions. It is his prerogative to decide what questions he will or will not answer but it is not his prerogative to decide to put people in handcuffs and physically remove them if they decide to ask them anyway. This is the same candidate who earlier responded to questions as to the veracity of the effectiveness of building a fence at the Mexican Border by responding that it worked pretty well in Berlin.

Perhaps he doesn’t understand the difference between keeping oppressed people in a country and keeping economically oppressed people out. In any case, he leaves out the fact that the wall itself didn’t keep people in Berlin, it was the machine guns and guards on top of it that were effective deterrents.

Mr. Miller's official response to the handcuffing incident was that the Drop Zone security people didn’t realize the man they handcuffed and restrained was a reporter. This leads one to believe that Mr. Miller believes such tactics would be acceptable if he was just a private citizen asking questions the candidate didn’t want to answer. While this would be perfectly acceptable behavior in East Germany where the wall Mr. Miller seems to have admired so much existed it isn’t acceptable in this country; at least not presently. That could all change after the Tea Party gets in power, especially if they continue to seek the support and muscle of groups like the Alaskan Militia.

Meanwhile, in Kentucky previous to a scheduled debate pitting the Tea Party candidate for Senate, Rand Paul, against his opponent there is a scuffle between a political activist from the Move on.org group and some of Mr. Paul’s supporters. It turns out that the activist was intent upon handing Mr. Paul a mock award for his achievement of vast economic support from corporate entities as he got out of his car at the event. Paul’s supporters, sensing something was up with the woman attempted to get the police to remove her from the scene. Unfortunately, the police officers happened to understand that the right to free speech trumps the innate sense of future embarrassment that Paul’s supporters seemed to possess so they declined to intervene. Maybe Paul’s supporters should have actually read one of those copies of the Constitution they are so proud of carrying in their back pockets before deciding to attack someone who might embarrass their candidate but that would assume they would take the time to read anything instead of letting Rush Limbaugh and Shaun Hannity pour half truths straight into their heads through their self anointed halos for many hours each day.

In any case, two of the more heroic Rand supporters ripped her wig off, forcibly tackled her and pinned her to the asphalt against the curb. Just to make sure she couldn’t utter something to embarass Mr. Paul while she was crammed into a fetal position with one man on top of her another man proceeded to put his foot on her neck and roughly stomp down on her. It was a perfect metaphor, the angry Tea Party advocate with his foot on the neck of someone with differing views. Unfortunately for Mr. Paul and his Tea Party supporters there happened to be a camera rolling at the time.

This is just the latest example of how Mr. Paul’s association with radical fringe elements has come around to embarrass him as there have been several others already. It is worth noting that the man who literally stomped on the woman to protect him from possible embarrassment is not exactly that much of a fringe element as far as Mr. Paul is concerned. He was in fact the head of Mr. Paul’s organizing committee in that part of Kentucky and a man Mr. Paul had proudly brandished the endorsement of previously. As it turns out, both he and the man who tackled the woman were senior officials in the Tea Party movement Mr. Paul is so proud to receive support from.

The man who infamously stomped the woman’s head into the concrete curb had several excuses for his actions. The first one was that he had tried to get the police to remove her before it “came to that.” Maybe he should have hired Drop Zone for security instead of trying to depend on the police who are actually familiar with the Constitution his party claims to be protecting. His second excuse was that it wasn’t as bad as it looked on camera and had a lot to do with the fact that he has a bad back. Presumably, if he hadn’t had a bad back he could have bent over far enough to punch her in the face or physically apply a gag in her mouth instead of having to rely on just stomping her head into the curb to keep her quiet.