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Haiti: Gov Facing Political Test

May 13, 2010 Port au Prince. Today UN spokesperson Edwin Mueller said the UN was opposed to President Rene Preval' decision to seek an extra 3 month emergency term now, delaying the elections scheduled for the end of Nov. 2010. He said the GOH could easily wait til November to determine if emergency conditions existed that required such a delay, and that elections have been held in other countries under much more turbulent conditions. He also said the UN is witholding further aid to the GOH, and will channel it only to NGOs, pending improvement in the GOH's administration of the emergency shelter camps, where at least 1.41 million people -- probably more -- are now living under miserable conditions.
Separately, opposition groups have today announced plans for protests next Monday May 17, demanding Preval's resignation. Stay tuned!!!
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Haiti: No Real Shortage of Land -- Just Political Will

En route from Mirabelais to Port au Prince, May 13 2010
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Is Medical Care In Haiti Really Better Now Than Before the Quake? James S.Henry

(HEUH,Port au Prince, May 12, 2010)

On Monday AP carried a story, unfortunately replayed with no editing by the Huffington Post , which baldly claimed that medical care in Haiti is now actually much better and more accessible than it was before the January 12th quake.

Having spent much of the past week in Haiti visiting nurses, doctors, and medical workers at the main hospital and leading clinics in Port au Prince, as well as several of the largest camps here, I've concluded that this report is, at best, highly misleading.

At worst, it is yet another striking example of sloppy AP reporting and the virtually-unedited brave new world of "fast food" Internet journalism.

While the supply of medical care in Haiti has indeed increased since January, mainly because of the temporary influx of foreign volunteers and donations, the fact is that the demand for most kinds of care has increased even more.

For example, in the aftermath of the quake, there was an immediate need to treat traumatic injuries and perform amputations. That need, which had not really existed before Haiti, naturally got most of the world's attention.

By now that specific need has indeed mostly been met, however. Accordingly, most US volunteer surgeons and nurses have either rotated out, or are in the process of leaving.

However, according to more than a dozen nurses, doctors and health workers at HEUH, the main hospital in PauP, and at the leading clinic at the 50,000 person Camp Jean-Louis, this hardly means the country's medical needs are now being better served than before the quake.

The need for the kind of high-visibility, "ER-" type fly-in care has now been replaced by a surge in other maladies, which may be less visually-dramatic to international TV audiences, but no less life-threatening.

Unfortunately, treating these other less glamorous quake-related medical consequences demands a longer term commitment -- plus basic improvements in nutrition and community health that are -- like Adam Smith's "invisible hand" -- for the most part still nowhere to be seen.

For example, since the quake, there's been a sharp rise in under-5 age mortality and physical illnesses and injuries. These include not only infectious diseases like malaria, typhus, and diptheria, but also tetanus (from rubble), accidental poisoning toxic, injuries due to fires.

I spoke with medical workers at Partners in Health, a leading NGO that has been active in Haiti since the mid 1980s, and now operates 15 clinics here, including 4 in PauP. They attribute this surge in infant illness and injuries to the dire living conditions for the 1.412 million (as of this week) still living in temporary shelters. They also attribute many of the health problems they are seeing for kids and adults alike to the increasing prevalance of hunger and malnutrition in the camps. And that, in turn, is due in large measure to the total inadequacy of Government/NGO food and water distribution -- right up to the present.

The PIH clinic workers that I spoke with also report that there has been a serious increase in mental health problems, due to the quake's unusual capacity to inflict severe simultaneous traumas: the sudden loss, not only of one's loved ones and many friends, but also of shelter, job, savings, community, and sense of security. PIH mental health workers described patients who have recurrent feelings that the ground is shaking, irrepressible memories of the sights and smells of death and destruction, acute fears about entering buildings, nightmares and daymares about searching for the missing.

0f course before the quake, this country had a grand total of 17 psychiatrists, only 9 of whom were public doctors, to serve a population of at least 8.5 million. There were more Haitian mental health workers in any one of New York, Miami, Boston, and Montreal than in all of Haiti.

Now, after the quake, dedicated NGOs like Partners in Health are indeed working hard to beef up their community mental health efforts -- PIH will launch mental health services at up to 4 of its clinics this year.

However, even PIH freely admits that they are just beginning to scratch the service -- and to understand how vast the need is for post-traumatic therapy on a community-wide scale as a result of the quake. This will require a long-term commitment on all sides.

It would also be really helpful if foreign journalists would make a long-term commitment to really understanding this country, rather than treating it as an endless source of "unexpected natural disasters" and "amazing recoveries."

(C) SubmergingMarkets, 2010


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Haiti: Getting Food to Hungry People

Outside camp at Croix d S'pres, Port au Prince, May 12, 2010.
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Haiti: "Morning Bath"

"All God's Children" Orphanage, Mirabelais, May 12 2010
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Haiti: "As Hard As It Is, There's Good People Doing Good Things Every Day."

Alfredo Merat, intrepid Hamptons musician and activist, entertaining the kids at an orphanage in Mirabelais, Central Plateu, Haiti, May 11, 2010.

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Haiti: "As Hard As It Is, There's Good People Doing Good Things Every Day."

Alfredo Merat, intrepid Hamptons musician and activist, entertaining the kids at an orphanage in Mirabelais, Central Plateu, Haiti, May 11, 2010.

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Haiti: The UN Defines This as Victory

Jim Henry (Tent camp, road to Mirabelais, May 11 2010.)

At the 8:30 am UN Logbase "transitional housing cluster" this morning, a meeting of (overwhelmingly white, non Haitian) representatives more than 25 NGOs and international aid agencies discussed the ongoing challenges involved in meeting the housing and shelter needs of Haiti's quake victims.

An interesting new progress report was distributed, which indicated that as of right now, countrywide, there are an estimated 1.4127 mm "people in need of shelter," including precisely 282,538 households.

To meet the needs of all these people for housing, the UN says that to date 62,732 tents and 563,558 tarps have been distributed by shelter NGOs. In addition, they have doled out some 58,999 tool kits, 107,735 kitchen sets, 196,053 mosquito nets, 339,151 "hygiene kits," 150,994 sleeping mats, and 490,383 "blankets or sheets."

On the housing front, the UN cluster leaders claim an overall coverage ratio of 113%, defined as the sum of "tents plus (# of tarps passed out, divided by 2)" -- though this ratio is still below 50 percent in a few big communes like carrefour (47%) and grande-goave (38%).

Some NGOs representatives in the audience expressed some discomfort with these metrics, however -- especially given the fast approaching rainy/ hurricane season.

For example, one rep from the Amer Red Cross suggested that perhaps "adequate drainage" or "ability to withstand high winds and rain" might be added to the success criteria. And another NGO rep suggested that perhaps the real answer was to accelerate the relocation of those in the camps back to "green" houses -- in cases where their original homes had been certified as sound -- and to speed up repairs to "yellow" houses, those which have damage, but are deemed repairable. He claimed that in many cases such repairs might be cheaper than the kind of temporary shelters that many NGOs have emphasized.

The UN cluster group leader reminded such critics that his forum was only about "transitional housing," and that such "longer-term" shelter, reconstruction, and, indeed, land tenure issues would have to reserved for (some other unspecified) cluster meeting.

To date the "transitional housing" cluster's efforts have raised about 63 % of the $122 million that was budgeted for all this activity through the end of May. The group expects to start another fund raising effort in June to complete its work on "transitional" shelter.

(c)SubmergingMarkets, 2010

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Haiti: Shelter Situation, May 10 2010

...According to UN temporary shelter coordinators, overall coverage of 283,000 "households in need," with 1.4 mm people, is 113%. But this counts a HH as "covered" if it has been provided with 1 tent or 2 tarps. Quietly, many NGOs -- for example, the Amer Red Cross -- are scared stiff about the lack of preparation for heavy rains and hurricanes. But the focus of this "cluster" was on "transitional" housing; apparently weather resistant housing is someone else's concern.
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Haiti:"Transitional Shelter" NGO Meeting, UN Log Base, May 11 2010

...Lots of white faces, except for Sean Penn, who missed this week's meeting...Little discussion of the flooding threat; some debate about whether people should be encouraged to return to homes marked "green," and whether it is cheaper/safer to help people fix "yellow" (damaged but fixable) housing. One black NGO rep: "Many Haitians are staying in the tents because they think people like you will build them new houses...or are unsure what "green" and "yellow" means, if new quakes are a risk."
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Haiti: The UN Goes in Style!

...Countless NGOs (59 big ones), UNICEF, UNCTAD, WFO, USAID...." You can't get enough of what you can't stand."
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Haiti: At Least "There's Partners in Health"

PIH Clinic, near Camp Jean-Louis Vincent, in downtown Paup, 5/11/10. 50,000 people, 15K kids, in this camp alone. Just 2-3k are in school. Haitian gov has stopped free food distribution to the camp since March 31. PIH estimates 40-50 % are hungry. Last week alone its new nutrition center I'd 107 kids with malnutrition, included 40 seriously malnourished.

PIH now has 4 such clinics in Paup, 11 more in the central plateau, where its efforts started in the mid-1980s. Last year, before the quake, its $25 mm budget was 2x the entire Haitian gov's Ministry of Health budget. This year, it will spend $40 mm here, supporting more than 5500 community health workers, more than 200 haitian doctors and nurses, the country's only community mental health services, and 100 foreign volunteers.

Meanwhile, the GOH continues to fall down on the job. Last week it finally managed to pay some of the doctors and nurses on staff at HUEH gen hospital for the first time since Nov. Its own outpatience clinics, mobile medical services, and mental health service are virtually non-existent; there are only 9 publc health psychiatrists in the entire country, and conditions at the badly-damaged mental hospital in Paup are zoo-like. Of course the food distribution calamity noted above -- a concession to the country's private food vendors, big and small -- is a triumph of brutilitarianism over humanity.


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Haiti: At Least "There's Partners in Health"

PIH Clinic, near Camp Jean-Louis Vincent, in downtown Paup, 5/11/10. 50,000 people, 15K kids, in this camp alone. Just 2-3k are in school. Haitian gov has stopped free food distribution to the camp since March 31. PIH estimates 40-50 % are hungry. Last week alone its new nutrition center I'd 107 kids with malnutrition, included 40 seriously malnourished.

PIH now has 4 such clinics in Paup, 11 more in the central plateau, where its efforts started in the mid-1980s. Last year, before the quake, its $25 mm budget was 2x the entire Haitian gov's Ministry of Health budget. This year, it will spend $40 mm here, supporting more than 5500 community health workers, more than 200 haitian doctors and nurses, the country's only community mental health services, and 100 foreign volunteers.

Meanwhile, the GOH continues to fall down on the job. Last week it finally managed to pay some of the doctors and nurses on staff at HUEH gen hospital for the first time since Nov. Its own outpatience clinics, mobile medical services, and mental health service are virtually non-existent; there are only 9 publc health psychiatrists in the entire country, and conditions at the badly-damaged mental hospital in Paup are zoo-like. Of course the food distribution calamity noted above -- a concession to the country's private food vendors, big and small -- is a triumph of brutilitarianism over humanity.


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Haiti: Continuing Medical Crisis

Open air ICU, HEUH general hospital (only public hospital still open in Paup, 5/11/10.
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Haiti: What Would We Do W/O the Olaffson?

...Landmark P aup P "Addams Family" hotel, used as a hospital by the US Marines, 1915-34; frequented by the NY London early jet set, 1950s (Graham Greene, Sir John Gielgud, Anne Bancroft, Truman Capote, Marlon Brando, etc.; young Mick Jagger), given up for dead and revived again and again -- like Haiti. Since 1988, under the tender care of Haitian-American musician Richard Morse and his family.....
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Haiti: Using Your Head

Pacot, May 9 2010
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Haiti: Not All Is Rubble

Dadeski, Pacot, Port au Prince, May 9 2010
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Haiti: Rainy Season Aftermath

Matisan, May 9 2010
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Haiti Once Had Fabulous Architects

Marche en Fer, downtown Port au Prince, May 8 2010.
It recently caught fire for the second time.
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Haiti: Rebuilding

Croix d S'pres, May 8 2010
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Haiti: Most Wooden Houses Survived.

.... Unfortunately Haiti has been largely deforested. Another libertarian achievement: no land reform+ few national forests+rural poverty + no forestry programs. So they built Port au Prince out of cheap cement and "sable blanc...,designed to survive hurricanes but not even 7.0 quakes. "
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Haiti: The Perfect Free Market Economy

...Downtown Port au Prince: Marche de la Croix des Bossales, May 8 2010. No regulation, few police, no army, no courts, no taxes, no import controls, no environmental laws, no labor laws, no consumer protection, no social security contributions, few public schools, no public hospitals still functioning, no public medical care, no parks, gov buildings mostly destroyed, no foreign exchange controls....and millions of people willing to work for nothing, and, indeed, sell themselves in slavery. Question: did the world's first slave revolt (in the 1790s) ) really succeed?
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Haiti: Cite d' Soleil, end of the dock

May 8 2010
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Haiti: There's Always Football

Croix d'Pres, May 8 2010
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Haiti: Bootstrapping the Country

Croix de S'Pres, May 8 2010
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Haiti: Giving Aid Directly to Hungry People, May 8 2010

My friends "Junior" laForest and Alfredo Merat distributing bags of rice, oil, and pasta in the camps at Croix de S'Pres...out of their own pockets. Most people here have gotten little aid.
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Haiti's Next Disaster?

(Port au Prince, May 8 2010)

Here's an interesting problem -- a great example of the "politics of aid" in Haiti, even though you didn't heard much about it from the mass media, let alone Bill Clinton or Michelle Obama.

Three months after the January 12th earthquake, you've still got at least 1 mm people "living" in Port au Prince, Haiti's capital city, in crowded camps of tents and makeshift shacks.

Furthermore, hurricane season is fast approaching: it lasts from June to November here. And NOAA, the US weather agency, says there could be at least a dozen Caribbean hurricanes this year. While they don't predict land fall more than a few days in advance, we know that Haiti is clearly at risk --
In 2008, it was hit by 4 hurricanes that were Class 3 or stronger.

And that was before the quake, when most people were living in concrete houses. Now those are mostly all gone.

The real problem, in other words, is not just "the rainy season;" it is the hurricane season.

The Preval government has recently received nearly $1 billion from foreign donors. But it is not spending nearly enough of that money on new housing or relocation.

Indeed, not long ago, President Preval was quoted as warning people to stay where they are, because, he said, there was a danger of "new earthquakes."

Of course earthquakes are much more unpredictable than hurricanes. But Preval evidently doesn't want to admit that to relocate a million people to better housing and safer land, he's have to have already started --- mandating relocation to rural areas where people came from, and putting up stronger shelters on gov and private lands near Port au Prince, or in the existing camps, for those who have nowhere to go.

The problem is that such a move was politically unpopular. Preval, a lame duck President, has been fighting for an extension of his term, which was supposed to expire in November. Yesterday he got at least a three month extension -- but in the interim, very little has been done about relocation.

Nor has any one else taken charge of this issue. There's been lots of bold talk from the international community about "reconstructing Haiti," and some efforts to rebuild "places that can be named after donors," like hospitals and government buildings.

But none of this really addresses the looming hurricane threat. Unfortunately, many of the hundreds of NGOs that are still here are still focused on "fighting the last war" -- dealing with the continuing dire impacts of the earthquake.

Of course the Obama Administration has had its hands, but to some extent it has also glossed over this looming hurricane threat. In a tough election year, with many Americans facing tough times, providing more aid to Haiti is not exactly popular -- although dealing with thousands of Haitian "boat people" would also be a nightmare.

Apparently the USG also doesn't want to be perceived as "intervening in internal Haitian affairs" by telling Preval to step it up. The US military, which has been helping with aid, is slated to leave the island in June.

Well, Earth to Obama: the US already crossed the Haitian intervention bridge long ago. (... Just to pick a few examples: the US trade boycott with Haiti in the 1820s-1860s; occupying the island with thousands of Marines in 1915-1930; supporting Papa Doc Duvalier and his son in the 1950s-1980s; supporting Gen. Cedras' 1991 ouster of Aristede, Aristede's first return to power in 1994, and his ouster again in 2004...)

So right now may actually be the time for another US intervention -- a humanitarian one, in the interests of saving lives, perhaps as many as were lost in the earthquake.

There's still time -- not much, but maybe just enough to get some of those empty thousands of FEMA trailers down here for people who can't go bsck to the countryside, plus mount a serious effort, mainly through incentives, to get folks able to move to do so. And right now, before it is too late.

We know that the world's donor community has "Haiti fatigue." It feels that it has already done as much as it can do for Haiti, and that the patient has stabilized. Indeed, the International Red Cross and most its affiliates have already moved on, and many other NGOs are also in the process of withdrawing.

Unfortunely the weather gods didn't get the memo about Haiti's "stabilization"....

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Cochon Noir d'Haiti: May 8 2010

...Evidently USAID didn't get them all!
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Haiti, May 8 2010: Pay Day!

...Workers hired by USAID for $4.80 per day to move rubble are lining up to get paid...hired for two weeks at a time... Perhaps we should try the same approach in Detroit, Hartford, Cleveland, Phoenix..!
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Haiti: Croix de S'pres Camp, May 7 2010

...These kids are receiving almost NO help from anyone...the Haitian gov and the top ten families are stealing like bandits...they know who they are, and YOU will too...
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Hait: US rice imports, May 2010

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Croix de S'Pre may 7 2010

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IMG00388-20100507-1332.jpg

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Croix de S'pre, May 7

Home-made camps
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Port au Prince May 7 2010

Croix de S'pre, near huge camps.
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Haiti, Tres Moi Apres

This week we'll be blogging from Haiti about the continuing dire situation here, 3 months after the earthquake, and what the Preval government, the USG, other foreign governments, the UN, and more than a thousand NGOs are doing about it.
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THE GOLDMAN SACHS CASEPart III: "Jokers to My Right"James S. Henry

 

Well, la gente Americano may not know the difference between a synthetic CDO and a snow shovel,  but the masses are clearly frothing for a  taste of banquero al la brasa, fresh from the spit.

"Financial reform," whatever that means, is now far more popular than "health care reform."  And it has only recently  become even more so, in the wake of all the recent investigations and prosecutions -- Warren Buffett  might say "persecutions" -- of the "demon bank" Goldman Sachs.     

Evidently the masses' appetite for banker blood was  only slightly sated by the SEC's April 16th civil charges against Goldman, Senator Levin's  11-hour show-trial  of senior Goldman officials on April  27, and the "entirely coincidental"  announcement on April 30th that the US Justice Department --   which is under  strong political pressure  to bring more fraud cases to trial, but also tends to screw them up -- has launched a criminal investigation into Goldman's mortgage trading.

INSIDE BASEBALL

In the wake of this populist uprising, Senate Republicans have suddenly adopted "financial reform" as their cause too,  allowing the Senate to commence debate this week on Senator Dodd's 1600-page reform bill. 

However, this promises to be a lengthy process.  While reform proponents like US PIRG and Americans for Financial Reform were hoping for final action as early as this week,  Senator Reid  now  expects to have a Senate bill by Memorial Day at the earliest, and Obama only expects to be able to sign a bill by September. 

That's just two months ahead of the fall 2010 elections, so there's not much room for error.  But the beleaguered Democrats may just be figuring  that they'd rather bash banks than run on their rather mixed track record on health care reform,  unemployment, climate change,  and offshore drilling, let alone -- Wodin forbid --  immigration reform.     

In any case,  Senator Dodd's  bill has now been through more permutations than a Greek budget forecast.  The latest one  discards the $50 billion bank restructuring fund as well as new reporting requirements  that would helped to spot abusive lending practices.

These concessions apparently were part of retiring Senator Chris Dodd's Grail-like quest for that elusive 60th (Republican) vote -- rumored to be hidden away and  guarded by an ancient secret order known as "Maine Republicans."  

A GOAT RODEO

Meanwhile, behind the scenes, leading Republicans, aided by several Democrats from big-bank states like New York, California, and Illinois, and countless lobbyists,  have been trying to weaken other key provisions in the bill, which was already pretty tame to begin with. 

The most important  measures at issue pertain to derivatives and proprietary trading, the power of the new Consumer Financial Products Bureau (especially, according to Senator Shelby, the Federal Reserve's shameless power grab over orthodontists),  the regulation of large "non-banks,"  and (interestingly, from a states' rights perspective)  the power of states to preempt federal regulation. 

On the other hand,  the bill has also inspired dozens of amendments  from a cross-section of Senators who appear to be genuinely concerned  -- even apart from the opportunities for grandstanding  -- that the Dodd bill isn't nearly hard-hitting enough.

Some of these amendments are purely populist anger-management devices that don't really have much to do with preventing future financial crises. 

These include Senator Sanders' proposals to revive usury laws and audit the Federal Reserve, a proposal by Senators Barbara Boxer and Jim Webb  for a one-time  surtax on bank bonuses, Senator Mark Udall's proposal for free credit reports, and Senator Tom Harkin's proposal to cap ATM fees.

The very first amendment adopted was also in this performative utterance  category: Senator Barbara Boxer's bold declaration that "no taxpayer funds shall be used" to prevent the liquidation of any financial company in "receivership." 

Cynics were quick to point out that in any real banking crisis, this kind of broad promise would be unenforceable, since it would also be among the very first measures to be repealed. 

STRUCTURAL REFORM?

Other proposed amendments sound like more serious attempts at structural reform.

These include  the Brown-Kaufman amendment that tries to limit the number of "too big to fail" institutions by placing upper limits on the share of system-wide insured deposits and other liabilities held by any one bank holding company, and the Merkley-Levin amendment, which  attempts to  "ban" proprietary trading and hedge fund investments by US banks, and also  defines tougher fiduciary standards for market-makers.  

But so far neither of these measures has received the imprimatur of the Senate Banking Committee, let alone Senator  Reid.  This means that for all practical purposes they are may amount to escape valves for venting popular steam,  but little more. 

This is especially true, given the delayed schedule that Reid, Dodd, and the Obama Administration seem to have accepted, which will relieve the pressure for such reforms.

Furthermore,  upon closer inspection, both proposals leave much to be desired.  Indeed, one gets the distinct impression that they dreamed up by Hill staffers on the midnight shift to appease the  latest  cause célèbre,

For example, the Brown-Kaufman amendment,   highly touted by  chic  liberal "banking experts" like Simon Johnson, doesn't mandate the seizure and breakup of any particular large-scale financial institutions directly.  Nor does empower the FTC to set tougher standards for competition in this industry, as it might have done, or even specify what kind of industry structure would be desirable from the standpoint of avoiding banking crises. 

To a large extent that simply reflects the paucity of knowledge about the relationship between structure and behavior in financial services. As a bootstrap, the amendment  specifies arbitrary caps on bank activities that may or may not be related to actual misbehavior -- for example, the share of "insured deposits" managed by any one bank holding company (≤ 10%), and the ratio of "non-deposit liabilities to US GDP" (≤ 2%).

This has arbitrary consequences. Under the limits in the amendment,  for example, Wells Fargo and Citigroup, the # 4 and #1 banks in the country by asset size, would  nearly avoid any breakup, while JPMorgan and BankAmerica would feel much more pressure. 

Meanwhile, evil Goldman Sachs' minimal .3% shares under both limits would leave it plenty of room to grow -- perhaps even by acquiring the extra share that the "Big Four" would have to spin off.

Furthermore,  even the largest US institutions might be able to avoid  the caps by devoting more attention to  large-scale private banking customers, whose deposits and other investments would avoid these regulations,  or by conducting more of their risky business through offshore banking centers.

Indeed, this also suggests a key problem with the Merkley-Levin amendment as well: it is a  US  solo act. It  completely ignores the fact that  even our largest banks, and the US financial system as a whole, are part  of a competitive global financial market.

As  this week's Greco-European financial crisis has underscored, to be effective,  bank regulation and structural reform must be conducted on a coordinated international basis. Unilateral initiatives only drive bad behavior to the myriad of under-regulated offshore and onshore financial centers.

From this perspective, I'm  surprised that  Senator Levin,  a long-time critic of offshore financial centers, has proceed in such a ham-handed way  with this.  This  was his year to finally round up global support to crack down on offshore centers -- a precondition for effective global bank regulation.  Instead he decided to  target Goldman and pursue this wayward, sloppy attempt  at unilateral reform -- as if  the Isle of Man, Guernsey, Jersey, Bermuda, and the Cayman Islands, let alone London and Zurich and Singapore and Hong Kong, are not waiting in the wings. 

WHAT HAVE WE LEARNED?   

If we step back from this political goat rodeo, what have we learned about the political economy of financiali reform? 
 

CONSOLIDATION (UNDER BOTH PARTIES)

First, as shown in the above chart, the US banking industry has indeed undergone a major structural transformation, especially December 1992. The following 15 years became the era of Wild West banking, when all the lessons that should have been learned from the Third World debt crisis were forgotten.  It became an era of rampant deregulation, rising US public and private debt levels, and asset speculation.

The impacts on financial structure were far reaching and rapid. Back in December 1992,  there were more than 13,500 banks, and the top four US banks accounted for less than 10 percent of the sector's jobs. 

Already by 1998, there was a decided increase in this concentration level, to more than 20 percent.  Today there are fewer than 8000 banks. The top 4 alone  -- Citigroup, JPMorganChase, Bank of America, and Wells Fargo -- now employ more than 800,000 people, over 40 percent of the US total. Indeed, together with the failed banks they acquired, the top four banks have accounted for almost all the sector's employment growth;  the rest of the sector has shrunk.

Tiny Goldman has also been growing, but it now only accounts for about 18,900, less than 10 percent of any one of the top four.  

 

This growing concentration is also reflected in most key US banking markets, especially the markets for deposits, overall bank loans, real estate loans in general, home mortgages, and credit derivatives. As indicated, in each of these markets, the market share commanded by top four banks  has increased from less than 10 percent in 1992 to 40-50 percent or more by 2010. In the case of the credit derivatives market, the share now approaches 90 percent.

Nor has this increasing concentration been accounted for by superior performance. Indeed, the "big four" also now account for more than 78 percent of all bad home mortgages -- behind in payments, or suspended entirely. While some of that is accounted for by the acquisition of failing institutions, most of it is not.   

THE ECONOMICS OF GOLDMAN BASHING

Third, once again, for the sake of Goldman bashers in the audience, as indicated above, its share of each of these key market indicators is trivial. Even in credit derivatives, the segment for which Goldman has taken such a beating, its market share today is just 8 percent, compared to the "Big Four's" commanding 88 percent. And Goldman's share of real estate loans, home loans, insured and uninsured bank deposits, and bad home mortgages are even lower.

Just to pick one example: today the "top 4" banks have more than $204 billion of bad home loans, compared with Goldman's $0.0 of such loans.  

From this standpoint, the Levin hearings were a stellar example of  completely ignoring industry economics. They singled out a smaller,  more successful,  widely-envied target for political scapegoating, while ignoring the much more economically  much more important financial giants. 

THE MORTGAGE-INDUSTRIAL COMPLEX

The  key driver on the domestic side of all these developments is a political-economy complex that in the long run has had perhaps as profound an influence on our nation's political and economic system as the  legendary "military industrial" complex.  This is  what we've called (in the first chart above) the "US mortgage-industrial complex," including financial institutions, real estate firms, and insurance companies. From 1992 to 2010, in comparable $2010, this industry spent an average of $2793 per day per US Senator and Congressman on federal campaign contributions and lobbying -- far more than the corresponding levels in the 1970s and 1980s.  

Except for the insurance industry -- where health care reform efforts by Clinton and Obama tilted the giving -- Democrats and Republicans have more or less divided this kitty pretty evenly. It is also important to note that more than 71 percent of total federal spending by these industries  from 1990 to 2010  was on lobbyists, not campaign contributions. While  cases like the recent Citizens United decision may affect this balance,

  

Furthermore, within the financial services industry, the top four US  banks alone have accounted for at least 20 percent of all spending on federal lobbying and campaign contributions (in comparable $2010) from 1992 to 2010. Investment banks as a group -- including Goldman, Lehman Brothers, Bear Stearns, Morgan Stanley, UBS, Credit Suisse, and their key predecessors, especially Paine Webber and Dean Witter -- added another 8 percent.   But once again, by comparison, and contrary to its reputation as the premier political operator in Washington,   Goldman Sach's share of total "real" spending on lobbying and contributions was relatively small -- just 2.2 percent. 

This was just 40 percent of what Citigroup spent, and less than 60 percent of what JPMorganChase spent during  this same period.  

C'mon guys -- Is it any really wonder that Jamie Dimon gets invited to the Obama White House for dinner while Lloyd Blankfein gets served for dinner on a spit up on the Hill?  

Ironically,  if it were just a question of a given institution's loyalty to the Democratic Party, Goldman -- and indeed Lehman Brothers and Bear Stearns as well -- would have clearly had the inside edge. As shown below,  these investment firms clearly preferred Democrats over the long haul.
 
Ironically, to paraphrase Senator Levin, especially in Goldman's case the Democratic Party appears at least so far to have "put its own interests and profits" first, basically turning a blind eye  -- at least so far -- to the substantially much larger potential misbehavior of the "big four."

Meanwhile, when President Obama traveled to New York two weeks ago to give a speech on the urgent need for financial reform, the peripatetic Mr. Dimon could be found in Chicago.  He was rumored to have met with CME and/or Board of Trade executives to prepare to invest in an exciting new "derivatives exchange," should JPMorgan need to transfer its substantial share of that business -- several times Goldman's market share, even in credit derivatives -- to an open exchange. 

JOKERS TO MY RIGHT 

So all this concentration of political and economic power in US financial markets would appear to make a strong prima facie case for a serious structural reform, perhaps even along the lines of the Brown-Kaufman amendment,  n'est pas?  Unfortunately, no.

As we argued earlier, that amendment sets very crude targets that bear little immediate relationship to bank misbehavior or even political influence. At worst, the caps might just force bad behavior like risky derivatives and hedge fund investing offshore. And the bill's  current caps would, at best, just force banks like Cit, JPM, and BankAmerica to shed less than 10 percent of their market shares, setting them back to -- say -- 2005 levels.

In other words, they're not a substitute for effective regulation. But that puts us back in the chicken-egg problem with "regulatory capture."

My own particular solution to these dilemmas is suggested by the following chart -- although it also suggests
that the most opportune time to implement it has already come and gone.  In terms of the current  banal  American political  discourse,   it would be probably be  quickly dismissed as  'socialist,"  although that term is such a catch-all that it has really become virtually useless, except as a device for red-baiting timid liberals.  

THE CHILEAN MODEL

So don't take my word for it; let's ask the ghost of Chile's General Pinochet, whom I'm quite certain no one ever accused of being a "socialist," at least not to his face. For years he was best known among economists as one of the key political proponents of Milton Friedman's so-called "Chicago School" of ultra-free market economics.  But in February 1983, during a severe crisis when all the banks in Chile failed, Pinochet showed that he could be quite pragmatic -- with a little arm-twisting from from leading US banks, which threatened to cut off his trade lines if he didn't nationalize the banks' debts.

So, after swearing up and down that private debts and private banks would never be nationalized, Pinochet's government did so. Three to six years later, after restructuring the banks and cleaning them up,  and privatizing their substantial investments in other companies, they were sold back to the Chilean people and the private sector -- for a nice profit. (Similar policies were also followed by "socialist" Sweden in the case of a 1990s banking crisis, but the Pinochet example provides a more instructive example for so-called conservatives. Much earlier, General Douglas MacArthur, a lifelong Republican,  also employed similar pragmatic tactics in restructuring Japanese banks in the early 1950s.) 

Now this is the plan that the US Treasury (under Paulson and then Geithner) might have adopted in the Fall 2008 - Spring 2010, if only it had not been so hide-bound -- and in the case of the Obama Administration, so wary of being termed a "socialist." 

In hindsight, the economics of such a pragmatic temporary government takeover and reprivatization would have been compelling. At its market low in March 2009, the  combined "market cap" of the "big four" banks was just $120 billion -- including $5 billion for Citi and $15 billion for Bank of American.  This was a mere fraction of the capital and loans that were ultimately provided to them. (At that point Goldman's market cap had fallen to $37 billion from $80 billion a year earlier -- not as steep a decline as the giants, but clearly no picnic for its shareholders, either.)

Only a year later, while the "demon bank" Goldman has recovered to more or less where it was in June 2008, before the crisis, the market cap of the "top four"  US banks is now nearly six times higher than its low in March 2009, and, indeed, at an all time high -- well above both previous peaks.

Too bad the US taxpayers have only captured a small fraction of that $500 billion industry gain.

Too bad the US Treasury hasn't exercized strong "socialist" control over these institutions, changing the way they behavior directly, and restructuring them in the interests of the economy as a whole before selling them back to the private sector.

Too bad that "big four" lobbyists are now back in force on the ground in Washington DC, influencing the fine print of the "financial reform" bill in ways that we will probably only understand years hence. Despite its woes, undoubtedly this will be a bumper year for political spending by the  financial services industry.  

Of course, President Obama  IS now being widely demonized as a "socialist"  -- anyway.

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(c)JSH, SubmergingMarkets, 2010