Tuesday, July 23, 2013

A Nightmare Scenario

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Most people have no idea that the U.S. financial system is on the brink of utter disaster.  If interest rates continue to rise rapidly, the U.S. economy is going to be facing an economic crisis far greater than the one that erupted back in 2008.  At this point, the economic paradigm that the Federal Reserve has constructedonly works if interest rates remain super low.  If they rise, everything falls apart.  Much higher interest rates would mean crippling interest payments on the national debt, much higher borrowing costs for state and local governments, trillions of dollars of losses for bond investors, another devastating real estate crash and the possibility of a multi-trillion dollar derivatives meltdown.  Everything depends on interest rates staying low.  Unfortunately for the Fed, it only has a certain amount of control over long-term interest rates, and that control appears to be slipping.  The yield on 10 year U.S. Treasuries has soared in recent weeks.  So have mortgage rates.  Fortunately, rates have leveled off for the moment, but if they resume their upward march we could be dealing with a nightmare scenario very, very quickly.
In particular, the yield on 10 year U.S. Treasuries is a very important number to watch.  So much else in our financial system depends on that number as CNN recently explained...
Indeed, since May, just before Bernanke announced a probable end to QE3, the yield on 10-year Treasuries has jumped around almost one percentage point, to 2.6%, wiping out more than two years of interest payments. The markets clearly fear that far higher long-term rates are lurking in the absence of exceptional policies to rein them in.
That's a crucial issue, because those rates are highly influential in determining the future performance of stocks, bonds, and real estate. Investors grant equities higher multiples when long-term rates are lower; both longer-maturity Treasuries and corporate bonds jump when rates decline; and developers pocket more cash flow from their projects when they borrow cheaply, raising the values of office and apartment buildings. When rates reverse course, so do all of those prices the Fed has been endeavoring to swell as a tonic for the economy.
Even though the yield on 10 year U.S. Treasuries has risen substantially, it is still very low.  It has a lot more room to go up.  In fact, as the chart posted below demonstrates, the yield on 10 year U.S. Treasuries was above 6 percent back in the year 2000...
10 Year Treasury Yield
And the yield on 10 year U.S. Treasuries should rise substantially.  It simply is not rational to lend the U.S. government money at less than 3 percent when the real rate of inflation is about 8 percent, the Federal Reserve is rapidly debasing the currency by wildly printing money and the federal government has been piling up debt as if there is no tomorrow...
National Debt
Anyone that lends the U.S. government money at current rates is being very foolish.  You will end up getting back money that has much less purchasing power than you originally invested.
Why would anyone do that?
But if interest rates rise, the U.S. government could be looking at some very hairy interest payments very rapidly.  For example, if the average rate of interest on U.S. government debt just gets back to 6 percent (and it has been far higher than that in the past), the federal government will be shelling out a trillion dollars a year just in interest on the national debt.
State and local governments all over the nation could also very rapidly be facing a nightmare scenario.
Detroit is already on the verge of formally declaring the largest municipal bankruptcy in the history of the United States, and there are many other state and local governments from coast to coast that are rapidly heading toward financial disaster even though borrowing costs are super low right now.
If interest rates start rising dramatically, it would cause a huge wave of municipal financial disasters, and municipal bond investors would lose massive amounts of money...
"Muni bond investors are in for the shock of their lives," said financial advisor Ric Edelman. "For the past 30 years there hasn't been interest rate risk."
That risk can be extreme. A one-point rise in the interest rate could cut 10 percent of the value of a municipal bond with a longer duration, he said.
Many retail buyers, though, are not ready for the change and "when it starts, it will be too late for them to react," he said, adding that he was encouraging investors to look at their portfolio allocation and make changes to protect themselves from interest rate risks now.
In fact, bond investors of all types could be facing monstrous losses if interest rates go up dramatically.
It is being projected that if U.S. Treasury yields rise by an average of 3 percentage points, it will cause bond investors to lose a trillion dollars.
And already we have started to see a race for the exits in the bond market.  A total of 80 billion dollars was pulled out of bond funds during the month of June alone.  If you want a visual of the flow of money out of the bond market, just check out the chart in this article.
We are witnessing things happen in the financial markets that have not happened in a very, very long time.
And junk bonds will be hit particularly hard.  About a decade ago, the average yield on junk bonds was about twice what it is right now.  When the junk bond crash comes, there is going to be mass carnage on Wall Street.
But of much greater importance to most Americans is what is happening to mortgage rates.  As mortgage rates rise, it becomes much more difficult to sell a house and much more expensive to buy a house.
According to CNBC, there is an increasing amount of concern that the rise in mortgage rates that we are witnessing could throw the real estate market into absolute turmoil...
The housing recovery is in for a major pause due to higher mortgage rates. It is not in the numbers now, and it won't be for a few months, but it is coming, according to one noted analyst. The market has seen rising rates before, but never so far so fast; there is no precedent for a 45 percent spike in just six weeks. The spike is causing a sense of urgency now, a rush to buy before rates go higher, but that will be short term. Home sales and home prices will both come down if rates don't return to their lows, and the expectation is that they will not.
We have seen the number of mortgage applications fall for four weeks in a row, and at this point mortgage applications have declined by 28 percent over the past month.
That is an absolutely stunning decline, but it just shows the power of interest rates.
Let's try to put this into real world terms.
A year ago, the 30 year rate was sitting at 3.66 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate would be$1374.07.
If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage at that rate would be $2201.29.
Does 8 percent sound crazy to you?
It shouldn't.  8 percent was considered to be normal back in the year 2000...
30 Year Mortgage Rate
This is what we are talking about when we talk about the "bubbles" that the Federal Reserve has created.  The housing market is now completely and totally dependent on these artificially low mortgage rates.  If rates go back to "normal", the results would be absolutely devastating.
But of course the biggest problem with rapidly rising interest rates is the potential for a derivatives crisis.
There are several major U.S. banks that have tens of trillions of dollars of exposure to derivatives.  The following is from one of my previous articles entitled "The Coming Derivatives Panic That Will Destroy Global Financial Markets"...
JPMorgan Chase
Total Assets: $1,812,837,000,000 (just over 1.8 trillion dollars)
Total Exposure To Derivatives: $69,238,349,000,000 (more than 69 trillion dollars)
Citibank
Total Assets: $1,347,841,000,000 (a bit more than 1.3 trillion dollars)
Total Exposure To Derivatives: $52,150,970,000,000 (more than 52 trillion dollars)
Bank Of America
Total Assets: $1,445,093,000,000 (a bit more than 1.4 trillion dollars)
Total Exposure To Derivatives: $44,405,372,000,000 (more than 44 trillion dollars)
Goldman Sachs
Total Assets: $114,693,000,000 (a bit more than 114 billion dollars - yes, you read that correctly)
Total Exposure To Derivatives: $41,580,395,000,000 (more than 41 trillion dollars)
That means that the total exposure that Goldman Sachs has to derivatives contracts is more than 362 times greater than their total assets.
The largest chunk of those derivatives contracts is made up of interest rate derivatives.
I have mentioned this so many times before, but it bears repeating that there are approximately 441 trillion dollars worth of interest rate derivatives sitting out there.
If rapidly rising interest rates suddenly cause trillions of dollars of those bets to start going bad, we could potentially see several of the "too big to fail" banks collapse at the same time.
So what would happen then?
Would the federal government and the Federal Reserve somehow come up with trillions of dollars (or potentially even tens of trillions of dollars) to bail them out?
The Federal Reserve has created a giant mess, and when this current low interest rate bubble ends our financial system is going to slam very violently into a very solid brick wall.
As Graham Summers recently pointed out, entrusting Federal Reserve Chairman Ben Bernanke with control of our financial system is like putting a madman behind the wheel of a speeding vehicle...
Imagine if you were in the car with a driver who was going 85 MPH down a road with a speed limit of 35 MPH (this isn’t a bad metaphor as there is absolutely no evidence that QE creates jobs or GDP growth so there is no reason for the Fed to be doing it in the first place).
The guy is obviously out of control. The dangers of driving this fast are myriad (crashing, running someone over, etc.) while the benefits (you might get where you want to go a little faster assuming you don’t crash) are minimal.
Now imagine that the driver turned to you and said, “I’m thinking about slowing down.” Seems like a great idea doesn’t it? But then a mere two minutes later he says “ we need to continue at 85 MPH for the foreseeable future.”
At this point any sane person would scream, “STOP.” The driver is clearly a madman and shouldn’t be let anywhere near the driver’s seat. Moreover, he’s totally lost all credibility and isn’t to be trusted.
That’s our Fed Chairman.
Sadly, most Americans do not understand any of this.
Most Americans have no idea about the immense economic pain that is going to hit us when interest rates go back to normal levels.
All of this could have been avoided, but instead the American people let the central planners over at the Federal Reserve run wild.
When the bubble finally bursts, the official unemployment rate is going to rocket well up into the double digits, millions of families will lose their homes and America will find itself in the middle of the worst economic crisis in modern U.S. history.
Please share this article with as many people as you can.  We need to help people understand what is coming so that they will not be blindsided by it.

A new survey shows how brazenly immoral Wall Street is

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"A particularly troubling and consistent finding throughout the survey is that Wall Street’s future leaders–the young professionals who will one day assume control of the trillions of dollars that the industry manages—have lost their moral compass, accept corporate wrongdoing as a necessary evil and fear reporting this misconduct."
In a shocking new survey commissioned by the Labaton Sucharow law firm, Wall Street insiders say that breaking the law, screwing your clients and covering up crimes is a way of life on Wall Street. The shock is not that cheating is going on. We all know that. The shock is that these financiers would actually admit it on a survey. This should tell us that the Wall Street culture is so brazenly corrupt, so confident of not getting caught, so certain that a passive public won't fight back that those surveyed didn't even bother to lie about the fact that they were living, breathing sociopaths.
Here are some of the key findings of this sample of 250 traders, portfolio managers, investment bankers, hedge fund professionals, financial analysts, investment advisors, asset managers and stock brokers.
Catch me if you can!
"24% of financial services professionals likely would engage in insider trading to make $10 million… if they wouldn’t get arrested.  That figure surges to 38% for individuals with 10 years or less in the industry."
Screw your clients.
"28% of financial services professionals feel that the financial services industry does not put clients’ interests first."
They do it, so we have to do it too.
"More than half of respondents–52%–felt it was likely that their competitors have engaged in unethical or illegal activity to gain an edge in the market; 24% felt employees at their own company likely have engaged in misconduct to get ahead."
Guess what? We still are cheating.
"Misconduct is still widespread in the financial services industry; 23% of respondents  indicated that they had observed or had firsthand knowledge of wrongdoing in the workplace."
To rise in a criminal organization, you have to be a criminal.
"Looking at seniority, 36% of respondents with 10 years or less experience in the industry believed financial services professionals may have to engage in misconduct to get ahead."
The boss loves it when you cheat.
"17% of respondents felt that if leaders of their organization suspected that a top performer was earning large profits from insider trading, they likely would ignore the problem. More alarming, 15% of professionals in the industry believed that if leaders of their organization learned that a top performer had engaged in insider trading, they were unlikely to report that crime to law enforcement or regulatory authorities."
(Bloomberg News columnist Jonathan Weil comes to Wall Street's defense by calling the survey a "worthless smear" because it's not a scientific sample. But "scientific" or not, he has no explanation at all for why sizable percentages of these 250 respondents are so ethically challenged.)  
Are the big banks and hedge funds criminal enterprises?
Given the attitudes of our financial elites, you would expect bad things to happen. The list of high crimes and misdemeanors is mind boggling, and growing every day.
  • Sell billions of dollars worth of bogus insurance policies that are supposed to provide payment protection for ill or unemployed mortgage holders, but actually provide no coverage at all.
  • Illegally trade on insider information. (71 hedge fund traders plead guilty or are convicted in the last two years.)
  • Rating agencies turn tricks for cash by giving out thousands of bogus AAA ratings.
The end of finance as we know it
What more evidence do we need before concluding that "the Street" is beyond redemption? Regulatory enforcement is weak and the new regulations are weaker still. It's a fools errand to think we can control trillion-dollar banks and billionaire hedge fund honchos. The only hope is to destroy finance as we know it.
It's time to think outside the box. We should be demanding what we really want, rather than begging for minor reforms that are certain to fail. Here's a plan that just might work:  
1. Set up 50 state banks like the one in North Dakota. Set the top salary at no higher than five times the median wage within the state. At the Bank of North Dakota, the top officers average less than a chauffeur for a hedge fund mogul.)
2. Nationalize the 20 largest banks and set the top salary at no more than the President of the United States ($400k, $50k expenses, no stock options). "What, live on just $400,000? You must be mad." Just think of how many financiers, young and old, would flee Wall Street for other professions. Just think of how many scams would grind to a halt. After all if you can't make your $10 million on a trade by cheating, why bother?
3. Pass a Financial Transaction Tax—a sales tax on all stocks, bonds, derivatives etc. That would bring the high-frequency trading racket to a grinding halt and slow down the financial hustlers.
Dream on?
When discussing proposals such as these during media interviews, the usual response is incredibly fatalistic -- "The genie is out of the bottle." "Global finance is here to stay and we can't do much about it." "They have the money to buy political power." "They'll always find a way to cheat."....
These are the very words bankers love to hear. These are the thoughts that will allow ever increasing inequality and ever larger financial crashes and bailouts. Sure, we're getting our butts kicked right now, and it's so much easier to ignore the incredible rip-offs than to fight. But our runaway financial system won't leave us alone. They're siphoning away the nation's wealth and they won't let up...ever.  At the very least we should by asking for what we really want, what we really think will work, and what we really think is fair and just.
I'll wager that 100 years from now, people will look back at this period and say, "How the hell did you let these bankers ruin the world? Why didn't you take them over when they were down on their knees begging for bailouts? Why didn't you set up a public financial system that served the country rather than the financial elites  --- just like we have now ....and it works!"

Detroit bankruptcy filing paves the way for assault on workers

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Michigan Republican Governor Rick Snyder and Kevyn Orr, the emergency manager overseeing the financial restructuring of Detroit, defended their decision to force the city into Chapter 9 bankruptcy at a press conference Friday.
The bankruptcy of Detroit, a city of 700,000 people, is the largest municipal bankruptcy in US history. It sets the stage for draconian attacks on workers and pensioners, the gutting of what remains of city services, and the sell-off of public assets to pay creditors.
The events in Detroit are being watched by local governments across the United States and will set a precedent for a nationwide assault on the pensions of public sector workers. Orr, who was appointed by Snyder last March, is seeking a ruling from a US judge that bankruptcy proceedings can be used to abrogate pension agreements, even those, as in the case of Michigan, that are protected under the state Constitution. The city owes about $9 billion to its retiree pension and health benefit funds.
Shortly after the press conference, a Michigan Circuit Court judge ruled that the bankruptcy filing violated the state Constitution by threatening to diminish the pension benefits of Detroit city workers. The governor’s office is appealing the ruling, which will likely be put on hold while the bankruptcy case proceeds in federal court.
Snyder oozed pious hypocrisy in his opening remarks, feigning concern for the plight of Detroit residents. At the same time, he praised billionaires like Quicken Loans Chairman Dan Gilbert and Little Caesar’s owner Mike Ilitch, who are buying up downtown property on the cheap in the hopes of turning a quick profit as developers pour money into the downtown area.
Both Snyder and Orr repeatedly cited “legacy costs”—that is, the pensions and health care benefits of the city’s 31,000 active and retired workers—as a major factor in the decision to file for bankruptcy. Under a proposal that Orr advanced earlier this year, pension funds would receive just 10 cents on the dollar for billions in the city’s unfunded pension obligations. Orr likewise proposed an immediate freeze on future pension payments and to shift retirees onto Medicare or privately-controlled health care exchanges under Obama’s Affordable Care Act. Current employees would also see drastic cuts in health benefits and the loss of employer-paid pensions.
The Obama administration, while signaling its support for the bankruptcy filing in Detroit, has made clear there will be no federal money made available to assist the city. This despite the $85 billion a month that the Federal Reserve is pumping into Wall Street through its “quantitative easing” program.
When a reporter asked Orr why the city was only offering pension funds 10 cents on the dollar while some banks holding Detroit’s debt were being offered 75 cents on the dollar, the emergency manager defended his actions citing “the realities” of the situation.
Another reporter asked Snyder if city assets like Belle Isle and artwork from the Detroit Institute of Art would be put up for sale as part of the bankruptcy settlement. Snyder replied that “all the assets of the city need to be considered as part of this process.”
A reporter asked Snyder how he and Orr could claim that there was no money for pensions when hundreds of millions of dollars, including public money, are being poured into downtown development. In response the governor first cited years of waste and mismanagement of the pension system. He then cynically claimed to sympathize with the plight of the retirees.
For their part, the city worker unions have refused to mobilize their membership to oppose the moves by Orr and Snyder and only protested that the union leadership was excluded from the process of attacking worker’s pensions. In a statement on the bankruptcy filing, American Federation of State County and Municipal Employees (AFSCME) President Lee Saunders complained that the governor and the emergency manager had acted without first entering into negotiations with the unions. “Despite assurances from Snyder’s hand-picked financial manager Kevyn Orr that AFSCME would have ample opportunity to discuss alternatives, they unilaterally embarked on this treacherous path without meaningful input from those who would be most affected.”
Detroit city workers and residents responded to the proposal to rob them of their pensions with anger and disgust.
Ken, a worker contacted on Friday, said, “By calling workers’ pensions ‘legacy costs,’ they are saying our lives have no value. Jones Day [Kevyn Orr’s law firm] will make a killing off of this. They will handle the bankruptcy, no doubt, and the workers will be on the losing end.”
“The decision to file for bankruptcy is unfair and biased,” said Trandi, a former Ford employee and current city worker. “They are going after the workers but are protecting the businesses.”
“It is pitiful,” said Barbara, a retiree who has lived in the city for eleven years. “I have never seen anything like it. The reason they are doing the bankruptcy to me, boils down to the people who are running the city, the politicians and the rich business people. They are stealing the money.”
She was especially angry about the contrast between the vast investments and public subsidies for upscale downtown development and the savage attack on working class living conditions and city services. “They just take, take, take, take,” she continued. “They never do anything for the city. They want to build up the downtown and let the rest of us starve. How can we stand it?. They have been doing the same thing for 60 years, but it is just now coming to a head.
“Coleman Young was doing the same thing and the white mayor that was in office before him. They all do it. They are just for the rich people— white, black, or whatever. Race does not matter.
“They want Detroit to be just for the rich. They want us, the working people who have lived here all of our lives, to move out. That’s all it is.”

A Letter to Edward Snowden By Rebecca Solnit

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Dear Edward Snowden,

Billions of us, from prime ministers to hackers, are watching a live espionage movie in which you are the protagonist and perhaps the sacrifice. Your way forward is clear to no one, least of all, I’m sure, you.

I fear for you; I think of you with a heavy heart. I imagine hiding you like Anne Frank. I imagine Hollywood movie magic in which a young lookalike would swap places with you and let you flee to safety -- if there is any safety in this world of extreme rendition and extrajudicial execution by the government that you and I were born under and that you, until recently, served. I fear you may pay, if not with your death, with your life -- with a life that can have no conventional outcome anytime soon, if ever. “Truth is coming, and it cannot be stopped,” you told us, and they are trying to stop you instead.

I am moved by your choice of our future over yours, the world over yourself.  You know what few do nowadays: that the self is not the same as self-interest. You are someone who is smart enough, idealistic enough, bold enough to know that living with yourself in a system of utter corruption would destroy that self as an ideal, as something worth being.  Doing what you’ve done, on the other hand, would give you a self you could live with, even if it gave you nowhere to live or no life. Which is to say, you have become a hero.

Pity the country that requires a hero, Bertolt Brecht once remarked, but pity the heroes too. They are the other homeless, the people who don’t fit in.  They are the ones who see the hardest work and do it, and pay the price we charge those who do what we can’t or won’t. If the old stories were about heroes who saved us from others, modern heroes -- Nelson Mandela, Cesar Chavez, Rachel Carson, Ella Baker, Martin Luther King, Aung San Suu Kyi -- endeavored to save us from ourselves, from our own governments and systems of power.

The rest of us so often sacrifice that self and those ideals to fit in, to be part of a cannibal system, a system that eats souls and defiles truths and serves only power. Or we negotiate quietly to maintain an uneasy distance from it and then go about our own business. Though in my world quite a few of us strike our small blows against empire, you, young man, you were situated where you could run a dagger through the dragon’s eye, and that dragon is writhing in agony now; in that agony it has lost its magic: an arrangement whereby it remains invisible while making the rest of us ever more naked to its glaring eye.

Private Eyes and Public Rights

Privacy is a kind of power as well as a right, one that public librarians fought to protect against the Bush administration and the PATRIOT Act and that online companies violate in every way that’s profitable and expedient. Our lack of privacy, their monstrous privacy -- even their invasion of our privacy must, by law, remain classified -- is what you made visible. The agony of a monster with nowhere to stand -- you are accused of spying on the spies, of invading the privacy of their invasion of privacy -- is a truly curious thing. And it is changing the world. Europe and South America are in an uproar, and attempts to contain you and your damage are putting out fire with gasoline.

You yourself said it so well on July 12th:

“A little over one month ago, I had family, a home in paradise, and I lived in great comfort. I also had the capability without any warrant to search for, seize, and read your communications. Anyone's communications at any time. That is the power to change people's fates. It is also a serious violation of the law. The 4th and 5th Amendments to the Constitution of my country, Article 12 of the Universal Declaration of Human Rights, and numerous statutes and treaties forbid such systems of massive, pervasive surveillance. While the U.S. Constitution marks these programs as illegal, my government argues that secret court rulings, which the world is not permitted to see, somehow legitimize an illegal affair. These rulings simply corrupt the most basic notion of justice -- that it must be seen to be done.”

They say you, like Bradley Manning, gave secrets to their enemies.  It’s clear who those enemies are: you, me, us. It was clear on September 12, 2001, that the Bush administration feared the American people more than al-Qaeda.  Not much has changed on that front since, and this almost infinitely broad information harvest criminalizes all of us. This metadata -- the patterns and connections of communications rather than their content -- is particularly useful, as my friend Chris Carlsson pointed out, at mapping the clusters of communications behind popular movements, uprisings, political organizing: in other words, those moments when civil society rises to shape history, to make a better future in the open world of the streets and squares. 

The goal of gathering all this metadata, Chris speculates, "is to be able to identify where the ‘hubs’ are, who the people are who sit at key points in networks, helping pass news and messages along, but especially, who the people are who spread ideas and information from one network of people to the next, who help connect small networks into larger ones, and thus facilitate the unpredictable and rapid spread of dissent when it appears.”

Metadata can map the circulatory system of civil society, toward what ends you can certainly imagine. When governments fear their people you can be sure they are not serving their people. This has always been the minefield of patriotism: loyalty to our government often means hostility to our country and vice-versa. Edward Snowden, loyalist to country, you have made this clear as day.

Those who demonize you show, as David Bromwich pointed out in a fine essay in theLondon Review of Books, their submission to the power you exposed. Who stood where, he writes,

“was an infallible marker of the anti-authoritarian instinct against the authoritarian. What was distressing and impossible to predict was the evidence of the way the last few years have worn deep channels of authoritarian acceptance in the mind of the liberal establishment. Every public figure who is psychologically identified with the ways of power in America has condemned Snowden as a traitor, or deplored his actions as merely those of a criminal, someone about whom the judgment ‘he must be prosecuted’ obviates any further judgment and any need for thought.”

You said, "I know the media likes to personalize political debates, and I know the government will demonize me." Who you are is fascinating, but what you’ve exposed is what matters. It is upending the world. It is damaging Washington’s relations with many Latin American and some European countries, with Russia and China as well as with its own people -- those, at least, who bother to read or listen to the news and care about what they find there. “Edward Snowden Single-Handedly Forces Tech Companies To Come Forward With Government Data Request Stats,” said a headline in Forbes. Your act is rearranging our world.  How much no one yet knows.  

What You Love

What’s striking about your words on video, Edward Snowden, the ones I hear as your young, pale, thoughtful face speaks with clarity and incisiveness in response to Glenn Greenwald’s questions, is that you’re not talking much about what you hate, though it’s clear that you hate the secret network you were part of. You hate it because it poisons what you love. You told us, "I understand that I will be made to suffer for my actions... [but] I will be satisfied if the federation of secret law, unequal pardon, and irresistible executive powers that rule the world that I love are revealed even for an instant." You love our world, our country -- not its government, clearly, but its old ideals and living idealists, its possibilities, its dreamers, and its dreams (not the stale, stuffed American dream of individual affluence, but the other dreams of a better world for all of us, a world of principle).

You told us where we now live and that you refuse to live there anymore:

"I don't want to live in a world where everything that I say, everything I do, everyone I talk to, every expression of creativity or love or friendship is recorded. And that's not something I'm willing to support, it's not something I'm willing to build, and it's not something I'm willing to live under. America is a fundamentally good country. We have good people with good values who want to do the right thing. But the structures of power that exist are working to their own ends to extend their capability at the expense of the freedom of all publics."

Which is to say you acted from love, from all the things the new surveillance state imperils: privacy, democracy, accountability, decency, honor. The rest of us, what would we do for love?

What is terrifying to the politicians at the top is that you may be our truest patriot at the moment. Which makes all of them, with their marble buildings and illustrious titles, their security details and all the pomp, the flags, the saluting soldiers, so many traitors. The government is the enemy of the people; the state is the enemy of the country. I love that country, too. I fear that state and this new information age as they spread and twine like a poison vine around everything and everyone. You held up a mirror and fools hate the mirror for it; they shoot the messenger, but the message has been delivered.

“This country is worth dying for,” you said in explanation of your great risks. You were trained as a soldier, but a soldier’s courage with a thinker’s independence of mind is a dangerous thing; a hero is a dangerous thing. That’s why the U.S. military has made the Guardian, the British newspaper that has done the key reporting on your leaks, off limits to our soldiers overseas. Whoever made that cynical censorship decision understands that those soldiers may be defending a set of interests at odds with this country and its Constitution, and they need to be kept in the dark about that. The dark from which you emerged.

When the United States forced the airplane of Evo Morales, Bolivia’s democratically elected head of state, to land in Austria, after compliant France, Spain, Portugal, and Italy denied him the right to travel through their airspace, all South America took it as an insult and a violation of Bolivia’s sovereignty and international law. The allied president of Argentina, Cristina Fernandez de Kirchner, tracked the incident in a series of tweets that demonstrated an openness, a principledness, and a strong friendship between Morales, Ecuadoran president Rafael Correa, and her. It was a little window onto a really foreign continent: one in which countries are sometimes headed by genuinely popular leaders who are genuinely transparent and governed by rule of law. It’s a reminder that things in our own blighted, corrupted, corporate-dominated country could be different. 

Building a Bridge to the Nineteenth Century

How did we get here? In 1996, President Bill Clinton and Vice President Al Gore pushed the dreadful slogan “building a bridge to the twenty-first century.” It was a celebration of Silicon Valley-style technological innovation and corporate globalization, among other things. At the time, I put “building a bridge to the nineteenth century” on my letterhead. It turned out that we were doing both at once: erecting a massive electronic infrastructure that outpaces our ability to democratically manage it and shifting our economy backward to recreate the chasms of class divide that marked the nineteenth century. The two goals intertwined like serpents making love.

The new technologies made a surveillance state that much more powerful and far-reaching; the new technologiesreplaced many jobs with few; the new technologies created new billionaires without principles; the new technologies made us all into commodities to be sold to advertisers; the new technologies turned our every move into something that could be tracked; the new technologies kept us distracted and busy. Meanwhile, almost everyone got poorer.

What the neoliberals amassing mountains of wealth for the already super-wealthy forgot, what the tax-cutters and child-starvers never learned in school, is that desperate people do not necessary simply lie down and obey. Often enough, they rebel. There is no one as dangerous as he or she who has nothing to lose. The twentieth century’s welfare states, their pumped-up, plumped-up middle classes, their relative egalitarianism and graduated tax plans pacified the once-insurrectionary classes by meeting, at least in part, their needs and demands. The comfortable don’t revolt much. Out of sheer greed, however, the wealthiest and most powerful decided to make so many of the rest of us at least increasingly uncomfortable and often far worse.

Edward Snowden, you rebelled because you were outraged; so many others are rebelling because their lives are impossible now. These days when we revolt, the new technologies become our friends as well as our enemies. If you imagine those technologies as the fire Prometheus stole from the gods, then it works both ways, for us and for them, to create and to destroy.

Those new technologies are key to the latest rounds of global organizing, from the World Trade Organization actionsof 1999, put together by email and epochal in their impact, to the Arab Spring, which used email, cell phones, Facebook, Twitter, and other means, to Occupy Wall Street. The technologies are double-edged: populist networks for creating global resistance are vulnerable to surveillance; classified reams of data are breachable by information saved to thumb drives or burned onto CDs by whistleblowers and hackers. They can spy in private; we can organize in public, and maybe the two actions are true opposites.

Meanwhile there is massive upheaval in Egypt and in Brazil, and in recent years there have been popular rebellions in many parts of the Arab world, Turkey, Iceland, Greece, Spain, Britain, Chile, and the U.S. itself with Occupy. The globe is on fire with popular outrage, with fury over economic injustice and, among other things, climate change spurred by the profits a few are piling up to the detriment of the rest of us, generations to come, other species, and the planet itself. It seems that, surveillance or not, people are not about to go quietly into the nineteenth century or accept the devil’s bargains of the twenty-first either.

Prometheus and Being Burned

I think of a man even younger than you, Edward Snowden, who unlike you acted without knowing what he did: 26-year-old Mohammed Bouazizi, whose December 2010 self-immolation to protest his humiliation and hopelessness triggered what became the still-blooming, still-burning Arab Spring. Sometimes one person changes the world. This should make most of us hopeful and some of them fearful, because what I am also saying is that we now live in a world of us and them, a binary world.  It’s not the old world of capitalism versus communism, but of the big versus the little, of oligarchy versus democracy, of hierarchies versus swarms, of corporations versus public interest and civil society.  

It seems nearly worldwide now, which is why revolts all over the planet have so much in common these days, why Occupy activists last month held up signs in New York’s Liberty Plaza in solidarity with the uprising in Taksim Square in Turkey; why Arab Spring activists phoned in pizza orders to the uprising in Wisconsin in early 2011; why Occupy spread around the world, and Greek insurrectionaries learned from the successes of Argentina in the face of austerity and economic collapse. We know our fate is common and that we live it out together and change it together, only together.

There were rumblings that you had defected, or would defect, to China or Russia, but you had already defected when we became aware of your existence: you had defected from them to us, using the power you had gained deep within the bowels of their infernal machines to empower us. What will we do with what you’ve taught us? That’s up to us, but for anyone who thinks what you did was not threatening to those in power, just look at how furious, how upset, how naked our emperors now are.

And you, Prometheus, you stole their fire, and you know it. You said, "Being called a traitor by Dick Cheney is the highest honor you can give an American, and the more panicked talk we hear from people like him, [Senator Dianne] Feinstein, and [Congressman Peter] King, the better off we all are. If they had taught a class on how to be the kind of citizen Dick Cheney worries about, I would have finished high school."

Someday you may be regarded as a Mandela of sorts for the information age, or perhaps a John Brown, someone who refused to fit in, to bow down, to make a system work that shouldn’t work, that should explode. And perhaps we’re watching it explode.

The match is sacrificed to start the fire. So maybe, Edward Snowden, you’re a sacrifice.  In the process, you’ve lit a bonfire out of their secrecy and spying, a call to action.

I fear for you, but your gift gives us hope and your courage, an example. Our loyalty should be to our ideals, because they are a threat to the secret system you’ve exposed, because we have to choose between the two. Right now you embody that threat, just as you embody those ideals. For which I am grateful, for which everyone who is not embedded in that system should be grateful.

Love,

Rebecca