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    Student Loan Servicer Corruption Rewarded, Covered For in New Round of Obama Executive Actions

    Naked Capitalism - Tue, 06/10/2014 - 02:00

    By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen

    It is student loan week in the Democratic Party. Elizabeth Warren’s bill to refinance prior loans to the current 3.86% rate (including private loans owned by the likes of Sallie Mae), gets a vote on Wednesday. Yesterday, the President endorsed that bill, and threw in his own executive memorandum to, as the White House puts it, “make student loans more affordable.” Today, Obama will show up on Tumblr to further make the sale.

    Personally, I think the goal ought to be to make student loans irrelevant. Low- or no-cost public options for higher education helped create the middle class during the Great Compression, and with the pool of money used for existing student aid initiatives, i.e. tax breaks and grants, you could pay the tuition of every student enrolled in a public university. Student loans are an easier lift politically, but won’t solve the problem.

    But of course, the Warren bill isn’t designed to pass. It is “paid for” (using that term in the parlance of Washington, MMTers) with the Buffett rule, a tax hike on the wealthy which Republicans have rejected multiple times over. I can tell you with specificity that it will get either 53 or 54 votes (depending on Joe Manchin; Harry Reid will vote no in a procedural maneuver in case he wants to reconsider the vote and try again), and fail to break a filibuster. The only point here is to make a contrast between the two parties in the hopes of attracting young people to turn out for the midterms.

    As for these executive actions: the first expands income-based repayment, allowing approximately five million more student debtors with older loans to have their payments capped at 10% of their monthly income. IBR is available on most new loans today, and the balance is forgiven at the end of the payment period. For some people it will represent a modicum of relief, though it remains a loan, and payments would increase as wages increase over time. IBR, which actually has its roots with Milton Friedman (although his proposal was more of an equity investment), also shares similarities with Pay It Forward, the plan that Oregon passed last year for debt-free college with a nominal pre-tax fee on future earnings. But by the way, expanding IBR requires new Education Department regulations, which means nobody will see the benefits of this until December 2015 at the earliest.

    The other pieces, which didn’t get as much notice today, have some odd echoes and contradictions in them. From the Administration’s fact sheet:

    Strengthen Incentives for Loan Contractors to Serve Students Well: The Department of Education administers the federal student loan program through performance-based contracts with private companies awarded through a competitive process. Rather than specifying every step of the servicing process, as was done in the guaranteed loan program that ended in 2010, these contracts provide companies with incentives to find new and innovative ways to best serve students and taxpayers and to ensure that borrowers are repaying their loans. Today, the Department announced that it will renegotiate its contracts with federal loan servicers to strengthen financial incentives to help borrowers repay their loans on time, lower payments for servicers when loans enter delinquency or default, and increase the value of borrowers’ customer satisfaction when allocating new loan volume.

    If you’re like me, you’re thinking, “Hm, financial incentives for servicers to modify the terms of loans for delinquent borrowers, where have I heard that one before?” And yes, this has all the behavioral nudges of a HAMP 2.0. It goes a bit further than that by having carrots and sticks; unlike with private label MBS loans, because the government is the owner, they can set compensation contracts to increase fees for good servicing and reduce them for situations that result in default. Indeed, this is precisely the overhaul that’s desperately needed for mortgage servicer compensation, so the financial incentives finally point in the right direction.

    But the order neglects to mention the fact that student loan servicers have been ripping off borrowers for years, exploiting the fact that the Education Department does not deliver step-by-step standards for servicing loans. The idea of giving these servicers more money to entice them into doing their job correctly should strike everyone as unseemly.

    The star reporter on the role of student loan servicers is Shahien Nasiripour of the Huffington Post. And you only have to read through his back catalog to see the state of the industry. Student loan servicers like Sallie Mae illegally blocked payments from accruing to loans with the highest interest rates, prevented borrowers from learning about cheaper repayment options, overcharged active-duty members of the military, violated discriminatory lending practices, pushed debtors into plans that increase their overall burden, and harassed borrowers after their co-signers died (even if they were current on their loans), to name just a few activities. Sallie Mae and its loan unit Navient just paid $139 million last month in penalties to resolve federal investigations into these and other matters.

    Labor groups have been trying to get the Education Department to dump Sallie Mae. Yet Arne Duncan has mostly shielded them and other servicers from scrutiny, and even renewed Sallie Mae’s contract after knowing that they cheated servicemembers. In Shahien’s latest story, we find yet more Administration coddling of Sallie Mae:

    The U.S. Department of Education is seriously considering granting a potentially billion-dollar, decade-long contract to a former unit of Sallie Mae, the student loan company the Justice Department last month accused of cheating U.S. soldiers.

    In a previously unreported move, the department said May 30 that Navient Corp., the nation’s largest student loan company, was one of four finalists for a new contract to run its system for originating and disbursing new federal student loans and grants and keeping track of existing ones. The current contract, held by Accenture LLP, was valued at $880 million as of May 19, according to the Education Department.

    If Navient wins the contract, it would have a role in originating new federal loans for borrowers, keeping track of their debts, collecting monthly payments on their loans, and chasing them if they default. In other words, a borrower’s entire interaction with the Education Department — from the moment she takes out a loan to the day she pays it off — could solely be through Navient.

    That billion-dollar contract presumably makes up for the $139 million fine. So with Sallie Mae and its pals basically untouched by their various illegal activities, what makes anyone think that renegotiating their contracts so they really, truly, no-we-mean-it-this-time have to respect their customers will make a difference?

    That brings us to the next piece of the Administration’s fact sheet:

    Ensure Active-Duty Military Get the Relief They Are Entitled to: The Servicemember Civil Relief Act requires all lenders to cap interest rates on student loans – including federal student loans — at 6 percent for eligible servicemembers. The Department of Education… will reduce those interest rates automatically for those eligible without the need for additional paperwork. It will also provide additional guidance to Federal Family Education Loan program servicers to provide for a similar streamlined process.

    This translates to “try to automate the process to end-run student loan servicers so they don’t break the law again.” Maybe don’t hire the same miscreants to do the job!

    Back to the fact sheet:

    Work with the Private Sector to Promote Awareness of Repayment Options: The Secretary of the Treasury and the Secretary of Education will work with Intuit, Inc. and H&R Block, two of the U.S.’s largest tax preparation firms, to communicate information about federal student loan repayment options with millions of borrowers during the tax filing process… In addition, the Administration will work with Intuit to explore ways to communicate with federal student loan borrowers through Intuit’s free personal financial management product,… Too many borrowers are still unaware of the flexible repayment options currently available to them, especially when they run into difficulties in managing their payments. The Department of Education is redoubling its efforts to identify borrowers who may be struggling to repay and provide them with timely information about their options supporting them through the repayment process and helping them avoid or get out of default.

    Hold on, isn’t this the servicers’ JOB? Isn’t the government giving them bunches of money to keep people out of default and inform them of better options? Why are we ALSO paying Intuit and H&R Block for the same task? Why is the Education Department working on their own to identify at-risk borrowers when the servicers have the information in their own databases? Aren’t they the first line of defense, and hasn’t it been proven that they’re blocking alternatives for these borrowers in a bid to increase profits?

    You literally have the Administration going around the servicers to do their job for them, while also paying the servicers more to encourage better performance. And the servicers have already proven themselves to be criminals! Why are they even still in the equation? Why are the same servicers getting the contracts?

    (FYI, the last part of the executive memorandum is about stronger financial literacy for borrowers before they take out the loans, and we all know that simply doesn’t work well.)

    This is another example of this White House working to prop up a broken, corrupt existing system rather than working to overhaul it. The student loan debate is a sideshow compared to actually reducing the cost of higher ed, as organizer Melissa Byrne so compellingly points out. But trusting the same fraudulent actors in the servicing arena to better serve the customers they bilked, and then covering for them with all these add-on efforts, inspires no confidence that we’ll ever get to the meaningful solutions on the other side.

    Categories: political economy

    Ashoka Mody and Michael Walton: Story of a Fraying Capitalism in India

    Naked Capitalism - Tue, 06/10/2014 - 01:00

    Dave here. Regardless of your thoughts about Piketty itself, I like how the authors use the book, and the recent popularity of discussing the inequality problem itself, to discuss the growing inequality within India, particularly through forms of corruption that bear much resemblance to neoliberal policies stateside.

    By Ashoda Mody, Charles and Marie Robertson Visiting Professor in International Economic Policy at the Woodrow Wilson School, Princeton University; and Michael Walton, Lecturer in Public Policy at the Harvard Kennedy School and Senior Visiting Fellow at the Centre for Policy Research, Delhi. Opinion published by the Indian Express; cross-posted at Bruegel.

    French economist Thomas Piketty has written a scholarly tome with the humdrum title, Capital in the 21st Century. The book has become an overnight sensation because Piketty documents an inherent tendency for ever-increasing inequality of income and wealth in capitalist economic systems. It is not an accident, he says, that many will be left behind even as others become richer. The book taps into a collective anxiety, coming as it does amidst the lingering after-effects of the global crisis and slowing global growth.

    India’s capitalist dynamic — as in other emerging economies — is different from that in the richer countries that Piketty focuses on. Yet, the lessons Piketty offers should ring a cautionary bell. Indeed, even more so than in the rich countries, India could find itself in a low growth, high inequality and high insecurity trap. These are the real fears that bubble under the theatrics and ugliness of the ongoing political debate.

    Piketty is not an anti-capitalist. He sees capitalism as central to the innovation and entrepreneurial risk-taking needed for economic growth. But, using conventional tools of economic analysis, he warns that there is no automatic, ultimately benign, broad sharing of income and wealth over the development process. Rather, greater inequality — which perpetuates itself over generations — is the more likely outcome. And deepening inequality can fray capitalism’s virtues.

    Piketty finds that countries are on the path to “patrimonial capitalism”, with inherited wealth increasingly concentrated in few families. As long as the rich earn a return on their wealth that is somewhat greater than the country’s growth rate, inherited wealth will rise relentlessly faster than national income. This process was interrupted, and reversed, in the first half of the 20th century, because the two World Wars destroyed private wealth and then helped create the political basis for the welfare state. But, over the past three decades, the wealth-to-income ratio has steadily recovered much of the lost ground and looks set to keep rising.

    The US was historically different from Europe, with a much lower role for inherited wealth. But in recent decades, it has been a leader in rising income inequality, owing to a combination of soaring salaries for “supermanagers” and rising returns on capital for the richest. These large incomes are being turned into inherited wealth, generating entrenched privilege as in Europe at the beginning of the last century. All the while, for those at the bottom of the rung, it is becoming increasingly difficult to climb the economic and social ladder. As wealth and politics reinforce each other, equality of opportunity is a fading myth.

    India is at risk of forging a potentially more pernicious form of rentier capitalism. Growth in the past few decades has brought gains to most, including the poor. But there is unmistakable evidence of rising concentration of income and wealth at the very top. Piketty and Abhijit Banerjee of the Massachusetts Institute of Technology find that the share in taxable income of the very-very rich (the top 0.01 per cent) was about 2 per cent in 1999. That brought the concentration of wealth back almost to the levels prevailing in the 1920s, the era when the maharajas cornered income and wealth.

    While the Indian calculations do not extend beyond 1999, all indicators point to a stepped-up rise in inequality along the same pattern as in the US and Argentina. The “booming” 2000s witnessed the emergence of Indian billionaires, up from five in the late 1990s to 55 in 2014. The ratio of billionaire-wealth-to-GDP has risen from negligible levels to the 8-10 per cent range, comparable to that in the US and the UK. Add to this soaring land values in urban and peri-urban areas, some of it benefiting lucky farmers, but much of it captured by the wealthy and influential, often in deals between politicians and businesses.

    While superficially similar to that in other countries, the rise in Indian inequality reflects more pernicious forces. Government contracts and relationships play a central role in fostering India’s wealth accumulation and concentration. Influence and connectivity create access to land, construction and mining permits and so-called “public-private partnerships”. Piketty is primarily concerned that if wealth mainly passes from one generation to another, the incentives to invest and grow will be undermined. More injurious, however, than such patrimonial capitalism is India’s rentier capitalism. The lure of easy money through investment in political connections draws entrepreneurship away from productive investment and innovation while it breeds corrosive social consequences.

    India is in a political crucible. As the few with access are extracting resources from the state, the popular demands for broader social provisioning are rising. The unmet demands rouse ang er and create a perennial hunger for such elusive heroes as Anna Hazare and Arvind Kejriwal.

    In the middle of the last century, Europe and America addressed the social and political conflict — to varying degrees — through the rise of the welfare state. But that option is not open to India, where the government lacks the capacity to collect sufficient revenues and is not organised to deliver adequate social services. This impasse, in a theme resonant with Piketty, will not automatically resolve itself. Indeed, precisely because the government cannot provide adequate safety nets, the populist demands become more insistent. This feeds back, at best, into symbolic gestures with little real value. At worst, the symbolic gestures become the grazing ground for more cronyism.

    It is possible to imagine technical solutions to pull out of this trap with sound regulation, effective taxation and smarter delivery of social services. But that will require a different politics and a different bureaucracy. None of the major political platforms, caught up in their own pettiness, have the vision to deal with these challenges.

    Categories: political economy

    Gaius Publius: Did the “Clean Natural Gas” (Methane) Lobby Help Write the EPA “Clean Power Plan”?

    Naked Capitalism - Tue, 06/10/2014 - 00:52

    By Gaius Publius, a professional writer living on the West Coast of the United States and contributing editor at AmericaBlog. Follow him on Twitter @Gaius_Publius and Facebook. Cross posted from AmericaBlog/strong>

    People are still analyzing Obama’s (typically complicated) plan to reduce CO2 emissions from power plants, and both criticism and praise is pouring in. But there’s something almost no one is saying.

    Obama’s “Clean Power Plan” is a huge gift to the methane (“Clean Energy”) industry — we’ll show you how in a minute. And guess who’s big in methane? Big oil, of course (see below).

    Let’s start here, with an analysis by Dr. Robert W. Howarth, David R. Atkinson Professor of Ecology & Environmental Biology at Cornell University. Howarth writes (my emphasis and some reparagraphing everywhere):

    I have carefully read the 645-page Draft Plan. There is much to commend in the Plan’s goals to reduce carbon dioxide emissions and to promote more production of electricity by renewable sources and more efficient end use of electricity.

    However, the Plan has a fundamental flaw: it addresses only carbon dioxide emissions, and not emissions of methane, another critically important greenhouse gas. This failure to consider methane causes the Plan to promote a very poor policy – replacing coal-burning power plants with plants run on natural gas (see pages 33-34) – as one of the major four building blocks of the Plan.

    Let’s consider methane briefly, since the EPA apparently has not.

    Methane is a Greenhouse Gas; When It Burns, It Creates CO2, a Greenhouse Gas

    In case anyone has forgotten, methane is CH4, a burnable carbon-based molecule. When it escapes into the atmosphere as methane, it’s at least 100 times as powerful a greenhouse gas (GHG) as CO2 over its short (9–15 year) lifetime. Over a 20-year span, methane is considered by the IPCC to be up to 86 times as powerful a greenhouse gas as CO2 — up from the IPCC’s previous estimate of 72 times (see Table 2).

    And when methane is burned (combined with oxygen), it creates our friend, airborne CO2.

    So methane still creates carbon emissions, whether leaked or burned. Howarth again:

    The Plan should be revised to reflect the importance of methane and the extent of methane emissions from using natural gas. While phasing out coal is a desirable goal, replacing coal with natural gas [methane] trades one problem for another, reducing carbon dioxide emissions but increasing methane emissions to such an extent as to cause even greater global warming.

    The IPCC measures methane vs. CO2 on 20-year and 100-year timescales (again, Table 2), but focusing on the 100-year timescale minimizes the effect of methane in the short term, which is what we and our immediate children are most concerned with.

    EPA Proposed “Clean Power Plan” Minimizes Methane as a GHG

    The EPA regulations appear to follow earlier IPCC assessments in minimizing methane as a GHG. Howarth:

    “Methane” is mentioned only five times in the 645 pages. The first time is on page 59, where it is stated that EPA could not monetize the consequences of nitrous oxide and methane emissions, and that the Plan therefore focuses only on carbon dioxide emissions.

    The second time is footnote #13 on page 59, where it is stated that “although CO2 is the predominant greenhouse gas released by the power sector, electricity generating units also emit small amounts of nitrous oxide and methane….” Note that in both the first and second mention of methane in the Plan, nitrous oxide comes before methane, even though methane is far more important in global warming (IPCC 2013). Further note that the Plan seems to limit the focus to emissions at electric-power generating plants rather than include full life-cycle emissions.


    Early in the Plan (page 19), the focus on carbon dioxide is justified by stating “CO2 is the primary GHG pollutant, accounting for nearly three-quarters of global GHG emissions[1] and 82 percent of U.S. GHG emissions.[2] These statements do not accurately reflect the most recent and best science on this topic.

    Footnote #1 refers to the [out of date] IPCC (2007) report and is based only on comparing methane emissions and carbon dioxide emissions on a 100-year time scale. In the more recent IPCC (2013) synthesis, the IPCC explicitly states that “There is no scientific argument for selecting 100 years compared with other choices,” and that “The choice of time horizon …. depends on the relative weight assigned to the effects at different times.”

    Because the short-term dynamics of the climate system are far more responsive to methane than to carbon dioxide (UNEP/WMO 2011; Shindell et al. 2012), comparing methane and carbon dioxide on shorter time scales is essential if we are to avoid warming the Earth to temperatures that greatly increase the risk of tipping points in the climate over the coming 15 to 35 years (see Howarth et al. 2014 and references therein).

    At these shorter time scales, the IPCC (2013) states that the global emissions of methane are actually greater than (slightly, for the 10-year time frame) or 80% of (for the 20-year time frame) those of carbon dioxide in terms of their influence on global warming; at both of these shorter time scales, carbon dioxide is responsible for less than half of global GHG emissions, not three-quarters.

    The Plan, Dr. Howarth concludes, is blind to methane and should be revised with methane in mind.

    Why Would the “Clean Power Plan” Ignore Methane Emissions?

    Note that the “Clean Power Plan” doesn’t ignore methane-burning power plants; but ignores methane itself as a pollutant (greenhouse gas), which undermeasures the damage done by methane as a power source. The Plan also slants the table in favor of methane-burning power plants by using the measurable “emissions per megawatt-hour produced” rather than just “emissions.” The former measurement is more favorable to methane plants than the latter.

    But methane is not only a powerful carbon pollutant; its leak rate is greater than government or industry is willing to recognize. Forbes (of all places):

    Underestimated Methane Leaks Make Natural Gas Dirtier Than Previously Thought, Says Study

    Methane emissions are worse than the conventional wisdom would have you believe, according to a new study by researchers at Stanford University.

    Methane, which is the primary component of natural gas, is an especially powerful greenhouse gas, packing more than two dozen times as much global warming potential than carbon dioxide.

    Traditionally, environmental regulators and energy industry groups have estimated methane emissions by multiplying the amount of methane emitted by a specific source – e.g., belching cattle or methane leaks at natural gas processing plants – by the number of that source type in a geographic region.

    For example, imagine that a cow emits 1/10 of a metric ton of methane every year. If the United States has 10 cows, the total methane emissions attributable to cattle is one metric ton annually. By adding the total methane emissions from cattle with the totals from every other source of methane emissions, we can derive the total methane emissions for the United States.

    That is how the U.S. Environmental Protection Agency has traditionally calculated methane emissions since the 1990s. If the methane emissions rates (e.g., how much methane does a cow emit in a year?) are wrong, the total estimated methane emissions are also wrong.

    Several studies have tested the accuracy of these traditional methane emissions estimates by using airplanes and towers to measure actual methane in the air.

    The new study, “Methane Leakage from North American Natural Gas Systems,” evaluated more than 200 of these atmospheric studies and concluded that the EPA’s methane emissions estimates are too low.

    The key take-away: the EPA is likely underestimating U.S. methane emissions from natural gas by at least 50% or more.

    And methane leakage — from power plants, from transmission lines and trucks, from liquid natural gas facilities and transportation, and from fracking fields — appears wildly under-reported. Joe Romm writing in ClimateProgress:

    A major new study in Geophysical Research Letters by 19 researchers — primarily from NOAA and the Cooperative Institute for Research in Environmental Sciences (CIRES) — suggests natural gas may be more of gangplank than a bridge.

    Scientists used a research aircraft to measure leakage and found:

    The measurements show that on one February day in the Uintah Basin, the natural gas field leaked 6 to 12 percent of the methane produced, on average, on February days.

    The Environmental Defense Fund (EDF) called the emissions rates “alarmingly high.” While the researchers conducted 12 flights, “they selected just one as their data source for this paper,” ClimateWire reports. Researchers actually measured higher emissions on other flights, but atmospheric conditions during those flights “gave the data more uncertainty.”

    The Uinta Basin is of particular interest because it “produces about 1 percent of total U.S. natural gas” and fracking has increased there over the past decade.

    Apparently, the only people who think methane is the way out of our carbon emissions problem are those in the methane arm of the carbon industry, and Obama’s EPA.

    What’s the Relationship Between the EPA and the Methane Industry?

    Why would industry underestimate leakage from methane (“America’s natural gas”)? To sell more methane.

    But why would the EPA perform the same underestimation? Could it be they’re captured by industry, the way the Interior Department’s Mineral Management Service, for example, is captured? We can’t know until we look. But to my untutored eye, a very cozy relationship seems to exist between the methane (“Clean natural gas”) industry and the EPA. (Either that, or the level of collusion is even higher; not a pretty thought.)

    Consider this from the ANGA, the industry front group:

    American Natural Gas Alliance wants you to know that methane is “clean” energy.

    And this from the EPA:

    The EPA also wants you to know that methane is “clean.”

    And this methane-friendly, nicely branded “Obama emissions plan”:

    The EPA wants you to know that its methane-friendly Power Plan is as “clean” as methane is.

    Methane has been industry-branded as “clean,” primarily in comparison to coal, and primarily because it kicks out less sulfur emissions than coal. That’s a very low bar — which totally ignores the polluting effects of fracking to get it — but still, “clean” succeeds at confusing the citizens. And Obama in his speeches, and his EPA in their writing, are repeating that branding almost endlessly.

    To the industry, that’s money in the bank; free advertising; paid-spokesman material. (Presidents, of course, are paid only by the people. Until they leave office, that is.)

    I really do want to know if the EPA was meeting with the methane (“America’s natural gas”) industry ahead of the release of its draft plan. Or is it just that this division of the EPA is controlled at the upper levels by former industry employees and lobbyists? I really do want to know.

    Who Owns America’s Natural Gas? Big Oil

    Just a taste of who benefits from the pivot to methane. Forbes again:

    Meet Rex Tillerson, the CEO of oil and gas superstar ExxonMobil Corporation—the largest natural gas producer in these United States of America

    Among the ten largest U.S. natural gas drillers are:

    1. ExxonMobil
    5. BP (“Beyond Petroleum”)
    7. ConocoPhillips
    9. Chevron

    No carbon left behind, by any carbon company.

    What You Can Do

    If you’d like a Jimmy Olsen award, research the histories of high-level EPA employees responsible for this “Clean Power Plan.” Barring that, the strongest pushback, though, will come via public comment during the comment period. Your first question:

    Should the EPA count methane emissions as “carbon emissions” for the purpose of regulation?
    (Answer: Yes.)

    The EPA wants you to know you can Get Involved:

    Attend a public hearing
    Comment on the Clean Power Plan

    Not a bad idea. Why don’t you (and a hundred of your friends) write a little letter? I plan to.

    Categories: political economy

    Yanis Varoufakis: Europe’s Crisis –The Rise of the Ultra-Right is the Left’s Fault

    Naked Capitalism - Tue, 06/10/2014 - 00:15

    By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his blog

    Europe’s appalling handling of a euro crisis that was always going to happen, given its faulty architectural design,[1] has triggered an electoral result in the recent European Parliament elections that is a clarion warning that Europe is decomposing. And it is decomposing precisely because of the Left’s spectacular failure to intervene both during the construction phase of Europe’s economic and monetary union and, more poignantly, after the latter’s crisis had begun.

    The international press has summed up the 2014 European Parliament election outcome as a sign that the economic crisis plaguing Europe has caused voters to be lured by the two ‘extremes’, meaning the ultra right and the extreme left. This is a verdict that the European elites, whose shenanigans are responsible for Europe’s deconstruction, are comfortable with. They see it as evidence that, despite ‘some errors’, they are on the middle road, with some wayward voters straying off the ‘right’ path both to the left and to the right. And they hope that, once growth picks up again, the ‘strays’ will return to the fold.

    This is a misrepresentation of current economic and political reality. Europeans were not lured by the two extremes. They drifted to one extreme: that of the racist, xenophobic, anti-European right. Extreme, anti-European, leftwing parties saw no surge in their support anywhere in Europe.[2] For four years now, European institutions are the field on which incompetence and malice compete with one another in a bid to win the prize for the most inconspicuous obfuscation of the truth: (a) that the Eurozone’s construction was faulty; and (b) that, once the never-ending crisis had began, the elites were solely interested in shifting banking losses from the banks’ asset books onto the shoulders of the weaker citizens.

    If the financial sector has been stabilised, it is because the combination of massive central bank liquidity and stringent austerity propped up finance, shielded bankers (without cleansing the banks), and reflated many of the burst bubbles. And this at the cost of untold damage on Europe’s real economy, social fabric, and democracies. The interesting question, however, is: Why has the Left not benefitted from the trials and tribulations of the Eurozone’s neoliberal design and from the great pain inflicted upon the majority by the neoliberal ‘cure’?

    The obvious reason is that, prior to 2008, Europe’s ‘official’ Left had invested considerable energy so as to be… co-opted into the neoliberal cabal that designed and implemented the faulty Eurozone architecture. Post-2008, once the neoliberal design began to crumble, the parties carrying the torch of the social democratic tradition did not recoil from playing an enthusiastic role as enforcers of ruthlessly reactionary economic policies. It is, therefore, not a great wonder that they are now paying the electoral price.

    The Greek socialist party, whose government sought out and celebrated the first Eurozone ‘bailout’ (which was to act as template for Ireland’s and Portugal’s ‘bailouts’, not to mention the fiscal straightjacket and labour market reforms that followed elsewhere, especially in Spain and Italy), has been diminished from 43% of the popular vote to less than 8%. Spain’s PSOE and the Portuguese socialists were similarly beaten into a pulp by a despondent electorate that refuses to vote for them even though the conservative governments that took over in 2011 are even more despised. Ireland’s Labour Party is in strife for having legitimised the wholesale ransacking of the Irish people by unscrupulous European bankers, under the brutal watch of the ECB and the troika. Holland’s Labour Party, engenderer of the ‘Polder Model’ and guarantor of Dutch social democracy for fifty years, is languishing at 10% of electoral support.

    Austria’s and Germany’s social democrats are equally incapable of speaking out against self-defeating austerity or in serious defence of their constituents. As for the French socialists, the less said the better: Having made a song and dance about the need for a European New Deal, Mr Holland capitulated to Mrs Merkel before one could say ‘fiscal compact’. Tragically, the day after his party collected a pitiful 15% of the votes in the 2014 European election, to the National Front’s worrying 25% (!), Mr Holland’s Prime Minister promised… tax cuts to a baffled socialist party audience.

    Be that as it may, the question remains: Why? What explains European social democracy’s slide into reactionary policies and, thus, oblivion? My answer is that, some time in the 1990s, Europe’s ‘official’, social democratic Left fell into the trap of believing that the welfare state need no longer be financed from a portion of profits exacted by political means from industry and commerce. Instead, they could finance the welfare state by tapping into the rivers of privately minted money that the financial sector was printing (while waged labour was being squeezed and real estate prices soared).

    Rather than constantly clashing with industrialists and merchants in order to extract from them a share of their profits, social democratic parties of government believed that a Faustian bargain with financiers could: (a) yield more funds for social programs, (b) end their conflict-ridden relationship with industry, and (c) allow them to hobnob with the rich and powerful, as partners, while still lavishly funding public hospitals, schools, unemployment benefits, the arts etc. It seemed like a dream come true for suited men who did not want to abandon the working class to its own devises but who had had enough of… class struggle.

    Faustian bargains come, alas, with clauses written in blood. Europe’s social democrats, lured by the cacophony of money-making in the financial sector, numbed by the myth of some ‘Great Moderation’, and excited by the mystical notion of ‘riskless risk’, agreed to let finance free to do as it pleased in exchange for funds with which to prop up welfare states that were relics of a bygone post-war social contract. That was the social democrats’ game. At the time, it seemed to them a better idea, more fathomable, than having to be constantly in conflict with industrialists, seeking to tax them to redistribute. In contrast, they found a cosy relationship with bankers more amenable and easy going. As long as the ‘leftist’ politicians let them do as they pleased, the financiers were happy to let them have some crumbs off their gargantuan dinner table.

    Alas, to be allowed these crumbs, social democrats had to swallow financialisation’s logic hook, line and sinker. Including the Eurozone’s neoliberal design. And so, when in 2008 the tsunamis of capital produced by Wall Street, the City and Frankfurt evaporated, Europe’s social democratic side of politics did not have the analytical tools, or moral oeuvre, with which to subject the collapsing system to critical scrutiny. They were, thus, ripe for acquiescence, for total capitulation, to the toxic remedies (e.g. the ‘bailouts’) whose purpose was to sacrifice working people, the unemployed, and the weak on the altar of the financiers. Indeed, they even volunteered to implement the ‘necessary’ cruel policies as if in denial of their acquiescence to a Faustian bargain that was to prove their demise.


    European social democracy cannot survive its pre-2008 historic analytical error and its post-2008 complicity in organised misanthropy.

    Europe, at the same time, cannot be saved without a revival of a Left capable of subjecting the Eurozone’s construction to critical reason.

    Unless a reinvigorated Left, along the lines of Greece’s SYRIZA, can inspire Europeans to challenge the toxic policies at the heart of Europe’s deconstruction, the only winners will be racism, nationalism and the emerging regime that I refer to as Bankruptocracy.


    [1] ‘Inevitable’ due to our monetary union’s faulty architecture that could never sustain the shockwaves of the global financial implosion of 2008.

    [2] To portray Greece’s SYRIZA as anti-European, or as extreme, is disingenuous. SYRIZA is a party that has its roots in the eurocommunist movement of the early 1970s, consistently arguing in favour of the EU (even of the Eurozone), and committed, to this day, and in spite of the catastrophic effects of EU policies on the Greek people, to seek a solution to the crisis within the EU and within the Eurozone.

    Categories: political economy

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