9.23.2008

random, frightening thoughts on the u.s. economic crisis

It can be very hard to focus on what's happening in the world. There's a lot of it, and it comes at us from all sides and all angles, and we're already trying to focus on our own lives, and if those lives are very busy, the whole thing can turn into an overwhelming noise.

My mind has felt overloaded lately. Overloaded with my own work, and my desire to help the war resisters, and the political situation in Canada. Baseball playoffs are about to start, and I'm usually completely obsessed by now, but right now I barely think about baseball unless I'm watching a game. This is not my preferred mode of being.

But I focus on issues and events more than most people, as, probably, do you. I don't have children, and I'm a very political person, which compels me to keep up with current events to the extent that I can.

How do people whose lives are taken up with work and children, who don't necessarily have political priorities, keep up? How do people who are struggling with their health, or with trying to figure out how to keep children clothed and fed on their Wal-Mart paycheque, keep up?

They don't.

At best, they get a vague sense of things from a mainstream media outlet. That sense of things has been reduced to tiny, predigested sound bites, it mixes local "human interest" stories with major world events, it offers no context, and it doesn't represent the many forces effecting the person's life and their future.

At worst, they tune out altogether, exchanging news for celebrity gossip.

* * * *

Wmtc has a lot of new readers now, so you may not be familiar with my sense of what's going on in the US. You may have the mistaken impression we left the US "because of Bush".

Sometimes people still ask me about absentee ballots, or want to talk about Obama. I just shrug. I'm done. I've checked out of that system. I can't participate in it anymore. It's too corrupt, too bankrupt. It's broken beyond repair.

But it's beyond that. Two presidential elections were stolen, 2000 and 2004. Massive questions surround the midterm elections of 2002 and 2006. And nothing has changed. No, that's not true. It's gotten worse. So why would the 2008 election be fair?

I'm not trying to prevent anyone from voting. I'm just doing what I feel I must.

Several people have told me that if anyone will fight for a fair election, it's Barack Obama. I don't know why that would be true, why "this time it's different" makes any more sense now than the last 50 times the Democrats slammed their dutiful abused wives - the voters - against the wall. But if it's true, it will be an unprecedented wonder, and I'll cheer it all the way.

Beyond fraud - which is a big thing to be beyond - I'm actually unconvinced there's going to be an election in the US.

I'm not in the business of predicting the future. But I won't be altogether surprised if no election takes place. In the history of the world, has any group of powerful people ever accumulated, expanded and consolidated so much power, only to hand it over peacefully to someone else? (And to a black man, no less!)

If I'm wrong, I'll be inexpressibly relieved.

We didn't leave the US because of Bush. We left the US because we don't think it's a democracy any more.

* * * *

I'm writing this off the top of my head, in the middle of my work day. My blogging is usually very methodical - I often know the subjects of my next three or four posts in advance - but right now I'm just banging out my thoughts. Maybe later I'll go back and add links. For now, you can click on the categories "fascist shift", "election fraud" and "US regression" for that.

What brought all this on? The US financial crisis, the "bailout" and Glen Greenwald.

Who in the US can focus on this? What ordinary person can understand it, let alone complain about it? Who would they complain to and what would happen? And besides the overwhelming realities of everyday life, the quadrennial circus is in town. How can anyone hear anything else above the din?

My friend and long-time wmtc commenter James sent me a piece from Good Math, Bad Math, written by Mark Chu-Carroll, part of ScienceBlogs. Chu-Carroll attempts to explain what's going on to the non-economist, which is most of us. Here's an excerpt from the end of his post.
Once upon a time, banks had to keep the bank money (i.e., deposits) separate from other things. In fact, they had to keep the entire business of banking separate from the investment business. There were rules about what they could invest in. And so on.

All of this was torn down by the conservatives in our government. And as new financial products came onto the market, instead of making rules to make sure that people were being fair and honest, they insisting on maintaining a strict hand-off policy.

Free markets are great things. But the big catch is that like anything else run by human beings, they're easy to abuse if you're not honest. The purpose of regulation is to try to limit the kinds of abuse people can get away with. If someone sells you an investment and tells you that your principal is absolutely safe, then damn it, it should be safe. If it's not, they should be required to tell you what the risks are.

But for now, they don't. There's no legal framework for creating or enforcing rules. No one can be punished for the damage they've done. No one loses the huge rewards that they pocketed by screwing people over - because there's no rules, no legal mechanism, that says that they can't. As I'm finishing this article, I just came across a news story. Lehman Brothers is one of the big investment firms that was involved in this. They were forced into bankruptcy as a result. As they're starting to liquidate and sell off their assets, we learn that one of the last things they did before filing for bankruptcy was setting aside two and a half billion dollars for performance bonuses for the staff of the New York office. The very people who put the firms money into worthless investments, who ran a hundred year old company into the ground, made sure that before they filed for bankruptcy, they squirreled away more of their investors money to pay themselves bonuses. And that's legal - they can take that money out of the pool of liquidated assets to pay themselves, instead of leaving it to pay back the people who are owed.

Then read this, by Glenn Greenwald. Greenwald opens with a series of quotes, which I'll skip, but you might want to go back and check the original. I'm using the Common Dreams link because a lot of people have trouble accessing Salon.
First, the fact that Democrats are on board with this scheme means absolutely nothing. When it comes to things the Bush administration wants, Congressional Democrats don't say "no" to anything. They say "yes" to everything. That's what they're for.

They say "yes" regardless of whether they understand what they're endorsing. They say "yes" regardless of whether they've been told even the most basic facts about what they're being told to endorse. They say "yes" anytime doing so is politically less risky than saying "no," which is essentially always and is certainly the case here. They say "yes" whenever the political establishment -- meaning establishment media outlets and the corporate class that funds them -- wants them to say "yes," which is the case here. And they say "yes" with particular speed and eagerness when told to do so by the Serious Trans-Partisan Republican Experts like Hank Paulson and Ben Bernake (or Mike McConnell and Robert Gates and, before them, Donald Rumsfeld and Colin Powell).

So nothing could be less reassuring or more meaningless than the fact that the Democratic leadership has announced that what they heard scared them so much that they are certain all of this is necessary -- whatever "all this" might be (and does anyone think that they know what "this" even is?). It may be "necessary" or may not be, but the fact that Congressional Democrats are saying this is irrelevant, since they would not have done anything else -- they're incapable of doing anything else -- other than giving their stamp of approval when they're told to.

Second, whatever else is true, the events of the last week are the most momentous events of the Bush era in terms of defining what kind of country we are and how we function -- and before this week, the last eight years have been quite momentous, so that is saying a lot. Again, regardless of whether this nationalization/bailout scheme is "necessary" or makes utilitarian sense, it is a crime of the highest order -- not a "crime" in the legal sense but in a more meaningful sense.

What is more intrinsically corrupt than allowing people to engage in high-reward/no-risk capitalism -- where they reap tens of millions of dollars and more every year while their reckless gambles are paying off only to then have the Government shift their losses to the citizenry at large once their schemes collapse? We've retroactively created a win-only system where the wealthiest corporations and their shareholders are free to gamble for as long as they win and then force others who have no upside to pay for their losses. Watching Wall St. erupt with an orgy of celebration on Friday after it became clear the Government (i.e., you) would pay for their disaster was literally nauseating, as the very people who wreaked this havoc are now being rewarded.

More amazingly, they're free to walk away without having to disgorge their gains; at worst, they're just "forced" to walk away without any further stake in the gamble. How can these bailouts not at least be categorically conditioned on the disgorgement of ill-gotten gains from those who are responsible? The mere fact that shareholders might lose their stake going forward doesn't resolve that concern; why should those who so fantastically profited from these schemes they couldn't support walk away with their gains? This is "redistribution of wealth" and "government takeover of industry" on the grandest scale imaginable -- the buzzphrases that have been thrown around for decades to represent all that is evil and bad in the world. That's all this is; it's not an "investment" by the Government in any real sense but just a magical transfer of losses away from those who are responsible for these losses to those who aren't.

And all of this was both foreseeable as well as foreseen -- see the 2002 grave warnings from Warren Buffett on pages 14-15 of his shareholders letter (.pdf), among many other things -- and it's also happened before, when the Federal Government bailed out the S&L industry that (with John McCain's help) was able to gamble recklessly and then force the country to protect them from their losses. The people who did this have no fear of anything -- they completely lack the kind of healthy fear that impedes reckless behavior -- because they know how our Government works and that they control it and thus believe that their capacity to suffer is limited in the extreme. And they're right about that.

What's most vital to underscore is that the beneficiaries of this week's extraordinary Government schemes aren't just the coincidental recipients of largesse due to some random stroke of good luck. The people on whose behalf these schemes are being implemented -- the true beneficiaries -- are the very same people who have been running and owning our Government -- both parties -- for decades, which is why they have been able to do what they've been doing without interference. They were able to gamble without limit because they control the Government, and now they're having others bear the brunt of their collapse for the same reason -- because the Government is largely run for their benefit.

If there is any "pitchfork moment" -- an episode that understandably would send people into the streets in mass outrage -- it would be this. Nobody really even seems to know how much of these losses "the Government" -- meaning working people who had no part in the profits from these transactions -- is undertaking virtually overnight but it's at least a trillion dollars, an amount so vast it's hard to comprehend, let alone analyze in terms of consequences. The transactions are way too complex even for the most sophisticated financial analysts to understand, let alone value. Whatever else is true, generations of Americans are almost certainly going to be severely burdened in untold ways by the events of the last week -- ones that have been carried out largely without any debate and mostly in secret.

Third, what's probably most amazing of all is the contrast between how gargantuan all of this is and the complete absence of debate or disagreement over what's taking place. It's not just that, as usual, Democrats and Republicans are embracing the same core premises ("this is regrettable but necessary"). It's that there's almost no real discussion of what happened, who is responsible, and what the consequences are. It's basically as though the elite class is getting together and discussing this all in whispers, coordinating their views, and releasing just enough information to keep the stupid masses content and calm.

Can anyone point to any discussion of what the implications are for having the Federal Government seize control of the largest and most powerful insurance company in the country, as well as virtually the entire mortgage industry and other key swaths of financial services? Haven't we heard all these years that national health care was an extremely risky and dangerous undertaking because of what happens when the Federal Government gets too involved in an industry? What happened in the last month dwarfs all of that by many magnitudes.

The Treasury Secretary is dictating to these companies how they should be run and who should run them. The Federal Government now controls what were -- up until last month -- vast private assets. These are extreme -- truly radical -- changes to how our society functions. Does anyone have any disagreement with any of it or is anyone alarmed by what the consequences are -- not the economic consequences but the consequences of so radically changing how things function so fundamentally and so quickly?

Other countries are debating it. The headline in the largest Brazilian newspaper this week was: "Capitalist Socialism??" and articles all week have questioned -- with alarm -- whether what the U.S. Government did has just radically and permanently altered the world economic system and ushered in some perverse form of "socialism" where industries are nationalized and massive debt imposed on workers in order to protect the wealthiest. If Latin America is shocked at the degree of nationalization and government-mandated transfer of wealth, that is a pretty compelling reflection of how extreme -- unprecedented -- it all is.

But there's virtually no discussion of that in America's dominant media outlets. All one hears is that everything that is happening is necessary to save us all from economic doom. And what's most amazing about that is that the Natural, Unchallenged Consensus That Nobody Questions can shift drastically in a matter of days and still nobody questions anything. This is what Atrios observed as I was writing this post:

It's fascinating to watch how easily consensus is manufactured. A few days ago elite opinion seemed to be cheering Paulson's "no bailout" line, and now they're cheering a trillion bucks thrown down the crapper. All the Very Serious People will spend their days coming up with their pony plans, oblivious to the fact that the pony plan is not an option. The Bush administration's plan is the option.

The way it works is that Bush officials decree how things will be, and then everyone -- from Congressional Democrats to the Serious Pundits -- jump uncritically and obediently on board, even if they were on board with the complete opposite approach just days earlier, and then all real dissent vanishes. That's how the country in general works. As Atrios says: "We've seen this game played before."

I don't pretend to know anywhere near enough -- in terms of either raw information or expertise -- in order to opine on the necessity or lack thereof of The Latest Plan in terms of whether the alternatives are worse. But what I do know is that an injustice so grave and extreme that it defies words is taking place; that the greatest beneficiaries are those who are most culpable; and that the same hopelessly broken and deeply rotted institutions and elite class that gave rise to all of this (and so much more) are the very ones that are -- yet again -- being blindly entrusted to solve this.

UPDATE: Here is the current draft for the latest plan. It's elegantly simple. The three key provisions: (1) The Treasury Secretary is authorized to buy up to $700 billion of any mortgage-related assets (so he can just transfer that amount to any corporations in exchange for their worthless or severely crippled "assets") [Sec. 6]; (2) The ceiling on the national debt is raised to $11.3 trillion to accommodate this scheme [Sec. 10]; and (3) best of all: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency" [Sec. 8].

Put another way, this authorizes Hank Paulson to transfer $700 billion of taxpayer money to private industry in his sole discretion, and nobody has the right or ability to review or challenge any decision he makes.

And finally, a link from Allan, a piece by Larisa Alexandrovna, who agrees with Naomi Wolf: it's the end of America. Welcome to the Final Stages of the Coup.

16 comments:

James said...

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

That really says it all, doesn't it?

L-girl said...

Yes. It does.

redsock said...

From what I have read of Greenwald, he's a clear-eyed columnist who does not overstate things for effect. And he's pulling no punches on this -- he's saying it's the most criminally brazen act of the Cheney administration.

If how he perceives this crisis is correct -- and he's not the only person I've read who sees it as a clear transfer of hundreds of billions of dollars of private assets into the pockets of the government -- then I have to agree with his assessment.

...

And isn't it odd how the US government can suddenly find $700,000,000,000 to "bail out" its cronies, but cannot fund health care, the public education system, the country's infrastructure, et fucking cetera...

L-girl said...

And isn't it odd how the US government can suddenly find $700,000,000,000 to "bail out" its cronies, but cannot fund health care, the public education system, the country's infrastructure, et fucking cetera...

And claims that national health insurance would be creeping socialism, but has no problem nationalizing the financial industry.

James said...

And claims that national health insurance would be creeping socialism, but has no problem nationalizing the financial industry.

I don't remember which commentator said this, but it boils down to "privatizing the profits and socializing the losses".

A number of people are excusing the Wall Street players, claiming it was all just honest business hit by bad luck. But UBS (associated with Phil "Mental Recession" Graham) had $20 billion in instruments insured by a company that had $200 million in assets in order to fake an AAA rating. It was mathematically impossible for the insurer to actually cover the instruments -- the claim that these instruments were AAA was simply fraudulent. The execs at UBS who oversaw this should be facing criminal charges.

James said...

Rep. Marcy Kaptur doesn't mince words.

deang said...

For more on the roots of the kind of government that would do this sort of thing, read Thomas Frank's "The Wrecking Crew: How Conservatives Rule" and Dean Baker's "The United States Since 1980."

James said...

Mark Chu-Carroll has posted his follow-up to the article quoted above. It's a bit more mathy than its predecessor: Bad Probability and Economic Disaster; or How Ignoring Bayes Theorem Caused the Mess.

James said...

And another good comment on the mess, this time by slactivist.

Kim_in_TO said...

That "slactivist" post is terrific.

L-girl said...

Here's another good one James sent me: the "bailout" as Nigerian spam scam.

L-girl said...

I just went and read that Slacktivist post, too. Excellent stuff - thank you, James.

James said...

That "slactivist" post is terrific.

Fred Clark's blog is always excellent.

James said...

Another nice -- if crudely drawn -- explanation in The Subprime Primer.

Amy said...

James, I think the privatizing profits and socializing losses came from Paul Krugman's piece in the NYTimes. At least that is where I saw the line.

And didn't Bushie's little lecture last night on how the all happened make you all feel SO much better?

It really is very frightening and maddening.

James said...

Mark Chu-Carroll's third post on the financial crisis.