Monday, September 29, 2008
The Red/Brown Coalition Prevails: Yea 205 No 228
According to one reporter, everyone was in shock on the floor of the New York Stock Exchange when the vote went final. We have just experienced a vote of no confidence in Paulson, Bernanke, Bush and the congressional leadership, with elections forthcoming in just over 2 months. If Obama and the Democrats prevail, one would assume that Reid, Pelosi and Hoyer, among others, would be replaced. If McCain prevails, we will probably see something similar on the Republican side.
But, then again, maybe not: Several Republican aides said House Speaker Nancy Pelosi, D-Calif., had torpedoed any spirit of bipartisanship that surrounded the bill with her scathing speech near the close of the debate that blamed Bush's policies for the economic turmoil. More than two thirds of House Republicans voted against the bill. Was Pelosi inept or Machiavellian? We will soon find out. In any event, stocks are down, but not catastrophically. The last 30 minutes of trading will tell the tale.
My suspicion is that the bailout is dead, and that no amount of back room CPR can revive it. It reminds me of the French vote against the EU constution in 2005, where the proponents unsuccessfully relied upon a similar sort of hysteria to try to frighten a hostile public into supporting it. After they lost, they insisted that there were any number of ways to move the EU constitution forward, but, now, three years later, nothing has happened. Here, Bush and the congressional Democrats possessed the additional advantage of being able to manipulate the public into believing that we faced a financial 9/11 and still failed. Another stake in the heart of neoliberalism, but this vampire is especially resilient.
Representatives received phone calls that went 100 to 1 against the bailout. Even if Congress is able to deliver it to the President's desk within the next week, such an outcome will be a victory of process over substance, a victory that will intensify populist cynicism against a corrupt socioeconomic system. We have just experienced a political earthquake, one that will send aftershocks through the American political and economic system for years. Since last 2006, I have wondered when the bursting of the housing bubble, with its ever expending group of people foreclosed out of their homes, now numbering in the millions, would disrupt the cozy relationship between Wall Street and Federal government. Today, we got the answer.
Friday, September 26, 2008
Does anyone outside of Congress and their enablers really believe that Paulson, Bernanke and Bush are going to accept a bailout that does anything other than saddle the government with the bad debt currently held by global financial institutions? If you have visited this blog recently, you are aware that the proposal is based upon the concept of paying financial instiutions a price for these debt instruments substantially greater than the market one in order to recapitalize them.
Democrats also heard from Laura Tyson, a senior fellow at the Center for American Progress, who advocated for moving legislation that is being negotiated by leaders of the two parties and the White House. Tyson, who headed the Council of Economic Advisers under President Bill Clinton, is dean of the Haas School of Business at the University of California-Berkley and serves on several corporate boards, including investment banking company Morgan Stanley.
Tyson got an earful from a number of liberals including Rep. Peter DeFazio, D-Ore., who advocated a new government fee of .25 percent of every stock transaction to ensure that the government can recoup funds to pay for the aid that it provides to lenders. “If this is truly such a catastrophe, I don’t see how anybody can object to a one-quarter of one percent fee,” DeFazio said. Others who attended the session said that proposal seemed to be gaining little traction.
Tyson rejected DeFazio’s idea and said she believed the government could recoup any funds it pays for troubled investments “deal by deal,” by negotiating terms for financing rather than charging a fee on each transaction.
Pelosi also rebuffed any such short-term step, although she said that future measures may be needed to cover any losses the government ultimately suffers from the acquisition of troubled assets.
“I’m optimistic that it will pay for itself and make money, especially if we take an equity position that makes these companies healthy and they come back and put some money back to the Treasury,” Pelosi said. “That’s a down-the-road thing. But there are some people that seek pay-fors now. I don’t think that position will prevail.”
Unlike Pelosi, Kos gets it, he thinks that the stock transaction fee proposed by DeFazio could be a good mechanism for paying some, and possibly all, of the costs of the bailout. As he correctly observes, Wall Street is culpable and we are not. Many on Wall Street profited obscenely, we did not. Furthermore, such a fee has been applied with success on numerous occasions throughout American history. And, according to Keynes, the fee has the effect of mitigating the predominance of speculation over enterprise. No matter, the Democratic leadership isn't interested, perhaps, because, since the beginning of the Clinton presidency, they have participated in a bipartisan consensus that actually seeks to subsidize such predominance.
Likewise, does anyone really believe that the equity participation advocated by Pelosi is anything other than a means of seducing the public with the illusion of future repayment? Nancy Pelosi will be remembered for her willingness to politically facilitate the implementation of Bush policies that the Bush administration lacked the ability to effectively design and promote by itself. Of course, the fact that Laura Tyson, a Clintonista who headed the Council of Economic Advisors during Bill's presidency, is insistent that the public pay the bill is utterly predictable.
There is good news, however. Yesterday, no deal was reached, preliminary reports to the contrary, as conservative House Republicans sabotaged it. Despite the renewed efforts of the President and congressional leadership to put together a compromise proposal by the end of the weekend, they remain opposed to any proposal based upon the Paulson plan. Conversely, the Democrats are willing to work as long as required, as Pelosi expresed cautious optimism: we hope that it doesn't take long. Naomi Klein and other progressive opponents of the bailout have aptly characterized the willingness of the Democrats to push through such hastily crafted legislation in response to a public emergency manipulated by the White House as a financial 9/11.
Accordingly, we shouldn't be surprised that the Democrats are insistent upon the urgency of passing a bailout, even though the Treasury itself acknowledges that the publicly released $700 billion price tag was not based upon any particular data point, it was just pulled out of thin air. As horrible as it is, it is pretty predictable given the enormity of financial services industry contributions to prominent Democrats, including Obama ($22.5M) and strategically placed House and Senate figures on banking and financial services committees like Chris Dodd ($6M), Barney Frank ($720,000) and Paul Kanjorski ($755,000).
Fortunately, the Democrats are demanding a majority Republican vote in support of the bailout for political cover, and Republican leadership still can't deliver it. Curiously, conservative Republicans seem to be the farthest removed from the pressures of the post-9/11 legislative environment with their confident assurance that we have enough time to thoroughly consider any proposed legislation to deal with the crisis. We can only hope that the red/brown coalition of liberal Democrats and conservative Republicans that derailed the budget deal of 1990, came agonizingly close to defeating NAFTA in 1994, and, more recently, stalled immigration reform in 2007, holds firm enough to kill this measure. They will have to resist an extraordinary amount of pressure to do so.
Thursday, September 25, 2008
Meanwhile, after listening to the testimony of Federal Reserve Chairman Barnanke yesterday, CR is equally dubious:
$700bb will not go too far. Below is a custom chart of loan defaults from all lenders for the State of CA from Jan 2007 to present. CA represents about 40% of the total dollar volume in the nation.
As you can see defaults have leveled off in the summer at record high levels, which is not surprising due to seasonality, hope and the transition out of Subprime into other grades of paper. What you see below is primarily only the ‘Subprime Implosion’. However, the numbers are still near $20bb per month. This means the numbers are closer to $40-$50bb on a national level.
As we exit the Summer season and housing demand falls (surprisingly fell sharply in Aug - See Aug CA Home Sales Report), defaults should pick back up again as values fall. Early signs indicate a severe fall going into Winter. Subprime defaults will continue for much longer given the number of new defaults we are seeing and the 50% recidivism rate amongst modified subprime loans. This is mostly due to negative equity and borrowers simply finding it cheaper to rent.
But the new waive of housing defaults will come from the Alt-A (includes Pay Options), Jumbo Prime and the Second Mortgage universes. This is also due to values being down so much in the bubble states and the negative equity effect. CA prices are off 30-60% depending in the region in the past 16-months.
Of course, the conventional wisdom is that the injection of funds into the global financial institutions holding these nearly worthless securities will result in reinvigorated lending activity. Mr. Mortgage is pessimistic:
And a final point, many people are saying the government can only lose a portion of the $700 billion because there will be offsetting assets. This is true in the Fannie and Freddie conservatorship (the mortgage assets mostly offset the debt of Fannie and Freddie), but it is not true here. Although Paulson and Bernanke are talking about hold-to-maturity prices, they are also talking about both buying and selling securities. A little math will show that if you take a loss (say 30%) on each transaction, it doesn't take many transaction to lose most of the entire $700 billion.
Economist Michael Hudson expands upon Mr. Mortgage's analysis to alarming effect:
Perhaps this program will grease the wheels, everyone will begin lending again and home values will soar making it so home owners can freely sell or refinance. But given the data I see daily, I am betting against that. The problem is, anything short of physical real estate being a liquid asset once again or an across the board principal balance reduction and new terms on every loan in America, and the housing crisis remain front pages indefinitely as the negative equity feedback loop continues and more borrowers are forced into loan default each month.
But are we naive to believe that the bailout is really about resolving a financial crisis that is enveloping the neoliberal world? For example, read between the lines of this excerpt from an article by William Greider, posted on The Nation website:
There is a reason why the banks won’t lend: Housing and commercial real estate already are so heavily mortgaged that there is no rental value available (over and above operating expenses, current taxes and debt service) to pledge to the banks. It still costs more to buy a house than to rent it. No increase in the amount of credit, short of hyper-inflation can cure this. No lowering of interest rate, will lead banks to risk making a bad new loan – that is, a loan that probably will go bad and end up with the bank taking a loss after the borrower walks away or defaults.
Does Congress know what it is being told to do? Suppose that “taxpayers” are to squeeze money out of the “toxic” junk mortgages they buy from the investors that have bought these bad loans. The only way to do so would be for real estate prices to be raised to even higher levels. This means an even higher proportion of take-home pay by prospective homeowners.
Mr. Paulson realizes this. That’s why he’s directed Fannie Mae and Freddie Mac to inflate real estate prices all the more. At least, by the existing mortgage-holders to get paid off by existing debtors selling to the proverbial “greater fool.” The hope in Mr. Paulson’s plan is that there are enough “greater fools” with enough money to borrow from yet more foolish new mortgage lenders. Only Fannie Mae, Freddie Mac and the Federal Housing Agency are willing to make such foolish loans, and that is only because they are being directed to act in a foolish way by Mr. Paulson.
Here’s the problem with following Mr. Paulson’s orders and lending yet more: Every major real estate advisor on record has forecast a further drop of between 20 to 30 percent in property prices over the coming twelve months. This is now the standard forecast. It means that over and above the five million arrears and foreclosures that Mr. Paulson acknowledged already are on the books, yet more families are to give up the fight by this time next year. Is the $700 billion giveaway fund to try and recoup by evicting them too from their houses – to pay the “taxpayer” enough to bail out Countrywide, Washington Mutual and other predatory lenders for loans that state Attorneys General have accused of being fraudulent?
For the government to even begin to recover some of the value of the $700 billion in junk mortgages it has bought would force new homebuyers to pay even more of their income to the banks. And if they do that, they will have less income to spend on goods and services. The domestic market will shrink, and tax revenues will fall at the state, local and federal levels. The debt overhead will deflate the economy, causing shrinkage all down the line.
So here’s where the cognitive dissonance comes in: It is necessary, even inevitable, for the volume of debt to come down – not up – to restore equilibrium. The economy was well on its way to preparing the ground for this last week. As Alan Meltzer of the American Enterprise Institute (of all places!) explained on McNeill-Lehrer, Merrill Lynch was able to be sold at 22 cents on the dollar; and the economy survived Lehman Brothers and Bear Stearns being wiped out.
Such debt writes-offs are a precondition for writing down America’s mortgage debts to levels that are affordable. But Mr. Paulson’s plan is to fight against this tide. He wants the Wall Street to keep on raking in money at the expense of the economy at large.
We can summarize Greider's evaluation of socioeconomic implications of the bailout in one sentence: Paulson and Bernanke hope that the bailout will encourage financial institutions to generously make credit available again, but they want to make certain that the Federal Reserve, the Treasury and investment banking firms like Goldman Sachs and Morgan Stanley retain their dominant roles in the global economy.
Wall Street put a gun to the head of the politicians and said, Give us the money--right now--or take the blame for whatever follows. The audacity of Treasury Secretary Henry Paulson's bailout proposal is reflected in what it refuses to say: no explanations of how the bailout will work, no demands on the bankers in exchange for the public's money. The Treasury's opaque, three-page summary of plan includes this chilling statement:In other words, no lawsuits allowed by aggrieved investors or American taxpayers. No complaints later from ignorant pols who didn't know what they voted for. Take it or leave it, suckers.
"Section 8. Review. 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."
Both political parties may submit to this extortion because they don't have a clue what else to do and bending over for Wall Street instruction, their usual posture, seems less risky than taking responsibility. Paulson and Bernanke evoked intimidating pressure for two reasons. The previous efforts to restore investor confidence had all failed as their slapdash interventions worsened the global panic. Besides, the Federal Reserve was running out of money. Nearly three-fifths of the Fed's $800 billion portfolio is now loaded down with junk--the mortgage securities and other rotten assets it took off Wall Street balance sheets. The imperious central bank is fast approaching its own historic disgrace--potentially as discredited as it was after the 1929 crash.
Despite its size, the gargantuan bailout is still designed for the narrow purpose of relieving the major banks and investment houses of their grief, then hoping this restores regular order to economic life. There are lots of reasons to think it may fail. The big boys are acting, as usual, in self-interested ways since the government allows them to do so. Washington's money might pull firms back from the brink--at least the leaders of the Wall Street Club--but that does not guarantee the banks will resume normal lending, much less capital investing. The financial guys may well hunker down, scavenge the wreckage for cheap profits and wait for the real economy to get well. Likewise, global investors--China, Japan and other major creditors--have been burned and may step back from pumping more capital in the wobbly house of US finance.
Secrecy and opacity are crucial to achieve Wall Street's purposes. It could allow Paulson to overpay his old pals for near-worthless assets and slyly recapitalize the damaged banks while telling public and politicians the money is to save the system. To achieve this, Wall Street needs to keep control of the process whoever is elected president (the Wall Street Journal recommends John Thain, ex-chief of the New York Stock Exchange to succeed Paulson). Not everyone will be saved, of course, but high on the list of endangered nameplates is Goldman Sachs, Paulson's old firm. The high-flying investment house looks doomed by these events. The Fed quickly agreed to convert Goldman and Morgan Stanley into banks. Think of Paulson's solution as Goldman Sachs socialism.
Hudson expands upon Greider's notion that financial guys may well hunker down, scavenge the wreckage for cheap profits and wait for the real economy to get well:
I'm not as sure about this as Hudson, but I do believe that it will move American society in this direction, making day to day life more difficult for the vast majority of Americans, while enhancing the power of the financial interests that are responsible for the crisis. As with the "war on terror" and the Iraq War, failure, and the fear that it engenders among the populace, has become an essential instrument for consolidating political and economic power.
If Congress should be so destructive as to buy out $700 billion of bad loans (for starters), the sellers will do just what Russia’s kleptocrats did. They will take their money and move it abroad to a “hard” currency country. This will help collapse the dollar. Up will go gasoline costs and prices for other imports. America will be turned into a Russian-style post-Soviet economy, having endowed a new domestic kleptocracy of insiders, who use some of their gains to finance the campaigns of American Yeltsins such as McCain.
And the elites behind these policies have succeeded beyond their most exuberant expectations. After 9/11, they persuaded Congress to relinquish much of its power to exercise oversight of law enforcement by passing the Patriot Act, and more recently, the evisceration of FISA. Much of this power is now securely esconsced in the executive branch. By authorizing the invasions of Iraq and Afghanistan, and approving funding for militarized covert operations around the world, Congress has abdicated its constitutional responsibility to restrain the war powers of the presidency. Now, with the impending passage of this bailout, Congress is about to reliquish its responsibility to ensure transparent regulation of the financial markets by permitting the Treasury to secretly intervene whenever it deems necessary to purchase billions of dollars of nearly worthless mortgage backed securities.
Back in 2004, the Retort collective described the current global economic order as military neoliberalism in their seminal work, Afflicted Powers, initially published as a New Left Review article and subsequently expanded into a provocative book. It emphasized that when the US and neoliberal interests cannot impose neoliberal policies, generally defined as fiscal austerity, deregulation, privatization and the free flow of capital, through coercion, by recourse to US controlled global financial institutions like the IMF and the World Bank, they resort to force, as they have done in Iraq, and, to a much more subtle degree, in Venezuela and Bolivia. With the Treasury and the Federal Reserve already massively intervening in financial markets to the tune of hundreds of billions of dollars, with the prospect of hundreds of billions of dollars more available if the bailout is passed, the existing order might be more accurately described as militaristic crony capitalism, because the elites and financial institutions responsible for creating an economic order based upon broadly recognized neoliberal principles have openly repudiated these principles to preserve their hegemony, thus fatally impairing the ideological integrity of the project. Not even the corporate control of much of the media can conceal what has transpired.
Everyone now recognizes that the discipline of the markets is only for people weak enough to have to accept their subjugation to them. If you are economically and politically powerful enough (and, doesn't one necessarily lead to the other?), you can manipulate the processes of the state to exempt yourself from them. The profound effort to transform the capitalist societies of Europe, Asia and the Americas by persuading the populace that markets are superior to the political process in adjudicating disputes associated with the allocation of resources is dead. A post autopsy question remains: will the exposure of the fraudulent nature of this endeavor result in the revival of political processes that have been discredited? If so, there will be opportunities for progressive change. If not, if people are now disgusted with both the markets and the political process, then the road is open to authoritarism. Sadly, I fear that the latter is more probable.
To put it more starkly, the crisis is being manipulated for the purpose of accomplishing the complimentary goal of concentrating power within the dominant capital class. Greider alludes to it, but fails to understand the pulverizing scope of this aspiration, seeking refuge by limiting it to Goldman Sachs and Morgan Stanley. In a fascinating book, The Global Political Economy of Israel, political economists Jonathan Nitzan and Shimshon Bichler interpret the last 50 years of global economic history, at least as it relates to the US, Israel and the Middle East, in terms of what they describe as the capitalisaton of power. Put simply, they contend that a class of dominant capital exists, and that this class will manipulate economic events to concentrate more and more power within itself.
Accordingly, it is the accumulation of economic power that is primary, not the accumulation of wealth. You would think that the two walk hand in hand, but, as demonstrated by Nitzan and Bichler, they don't always do so. If the expansion of the economy is creating greater and greater opportunities for smaller competitors, providing them with returns that threaten the primacy of dominant capital, then it prefers an economic downturn to crush these emerging competitors less able to weather such difficult conditions. To achieve this, dominant capital will accept lower profits, and even losses and reduced size, because it is concerned about reversing a decline in its relative relationship of power. Profits will return another day.
We can only speculate as to what provoked this particular crisis. Did the housing bubble go too far and result in the creation too many small and medium sized competitors with greater returns on investment, thus necessitating the termination of a system of easy access to subsidized credit for them? Is the ensuing credit crunch being manipulated for this purpose? If so, the financial crisis is not a failure, as I have described it, but rather a deliberate policy of creative destruction ignited to eliminate competition. Others have observed that the invasion and occupations of Iraq and Afghanistan can be construed in a similar way. Certainly, if one looks at the current credit freeze, one wonders. Will the expenditures authorized by the bailout serve to benefit the interests of dominant capital over the interests of its competitors? If this is the true purpose, wouldn't it be best accomplished by underfunding the bailout, so that only a privileged few could participate? Indeed, isn't it necessary to structure the bailout so that dominant capital obtains relief, while its lesser competitors asphxiate?
Obviously, answering such questions requires an expertise and research effort beyond my capabilities, although this is clearly the gist of the recent articles by Michael Hudson posted at Counterpunch. I encourage readers to go that site and peruse the last two or three weeks or articles in order to find them, or conduct a web search for them with the terms "Michael Hudson" and "Counterpunch" and any other useful variations. His articles, as with the excerpts from the one that I have posted here today, provide some counterintuitive insights. As already discussed here, one of the most frightening aspects of the crisis is the extent to which dominant capital may have determined that it has no alternative but to instigate extreme social and economic instability to preserve its power.
Tuesday, September 23, 2008
According to Federal Reserve Chairman Bernanke, the markets only err when they inflict pain upon transnational financial institutions by exposing the minimal value of speculative debt instruments. Otherwise, they are accurate when they result in more expensive housing, food, education and medical care for the rest of us.
Originally I expected the plan to have two components: 1) buy troubled assets from institutions, and 2) an RFC type recapitalization plan. However the plan did not include the recapitalization provision, so the clear intent is to pay premium prices (to current market prices) for troubled assets to recapitalize the institutions (with no equity participation for taxpayers).
Finally, the public is begining to recognize the hypocrisy of the neoliberal charade. All over the Internet, message boards are full of angry, belligerent posts. The phone lines to the offices of congressional representatives are jammed with the calls of enraged, otherwise apolitical people. But, in the end, does it matter?
Yes, it does. Every day that this plan is stalled is a victory, another day of more losses for the people that caused this crisis. If it can be stalled long enough, then the markets may exact their revenge upon the malefactors who looted the economy. I am still doubtful that the Congress will act to prevent the grotesque subsidy of wealthy speculators, but the odds are much better today than they were last weekend. At least, we can hope that the speculators are subjected to a more painful, agonizing punishment before they engorge themselves with the largesse of the federal government.
People with good memories will recall that Republicans, not Democrats, expressed alarm about the risks being assumed by Fannie Mae and Freddie Mac over the years. Now, Republicans in close congressional races are being advised to vote against the bailout as so as to distinguish themselves from Bush and the Democrats in Congress.
On Saturday morning, I noted -- quoting Atrios -- the almost complete lack of debate over the ever-changing dictates issued by Treasury Secretary Hank Paulson. Last week, whatever Paulson said on any given day -- no bailouts; only selected bailouts; massive $700 billion bailout plan -- immediately became the unchallenged conventional wisdom.
That has all changed. Prominent economists, who had previously been defending Paulson for the most part, began voicing serious doubts about his plan. As the AP put it yesterday: "Many of the same economists and opinion-makers who'd provided a bipartisan sheen of consensus to Treasury Secretary Henry Paulson's previous moves have quickly begun casting doubts on the wisdom of a policy that would allow Treasury to purchase without oversight hundreds of billions of dollars of difficult-to-price assets from financial institutions." Not only Paul Krugman, who was a skeptic from the start, but conservative economic experts have also now expressed opposition, including former Bush and Romney advisor Greg Mankiw and -- in an excellent column on Saturday -- Sebastian Mallaby, who described the rapid move to embrace Paulson's plan as "extremely dangerous."
And now, some of the most rabid ideologues on the Right are voicing increasingly strident opposition as well. At National Review last night, Newt Gingrich wrote that "watching Washington rush to throw taxpayer money at Wall Street has been sobering and a little frightening" and said he "hopes Congress will slow down and have an open debate." Thereafter, NR's Yuval Levin proclaimed that nobody could read through the Paulson proposal "without concluding that everyone in Washington has lost their minds." In The New York Times today, Bill Kristol said he's "doubtful that the only thing standing between us and a financial panic is for Congress to sign this week, on behalf of the American taxpayer, a $700 billion check over to the Treasury," while Michelle Malkin posted a lengthy alarmist screed warning that "Hank Paulson must be contained."
Right wing Republican opposition is critical to the formation of a majority to delay, and even potentially kill, this bailout. Without it, the Democrats are free to do what they always do, collaborate with the Bush Administration. With it, the Democrats face the prospect of paying a severe political price at the polls. Today, Republican senators like Dole, Bunning and Shelby were especially ascerbic in their condemnations of the plan during an appearance by Treasury Secretary Paulson and Federal Reserve Chairman Barnacke before the Senate Banking Committee.
Hat tip to Gaius at Undemocracy in America.
Monday, September 22, 2008
Spengler has the answers to these questions and more, and his explanations make a lot of sense. His imploring conclusion reveals how debased our political system has become: Where, oh where, is America's Vladimir Putin, who will drive out the oligarchs who have stolen the country's treasure and debased its currency?
Why should American taxpayers give US Treasury Secretary "Hank" Paulson a blank check to bail out the shareholders of busted banks? Why should the Treasury turn itself into a toxic waste dump for their bad loans? Why not let other banks join the unlamented Brothers Lehman in bankruptcy court, and start a new bank with taxpayers' money? Or have the Treasury pay interest on delinquent mortgages, and make them whole? Even better, why not let the Chinese, or the Saudis or other foreign investors take control of failed American banks? They've got the money, and they gladly would pay a premium for an inside seat at the American table.
None of the above will occur. America will give between US$700-$800 billion to the Treasury to buy any bank assets it wants, on any terms, with no possible legal recourse. It is an invitation to abuse of power unparalleled in American history, in which ill-paid civil servants will set prices on the portfolios of the banking system with no oversight and no threat of legal penalty.
Why are the voices raised in protest so shrill and few? Why will Americans fall on their fountain-pens for their bankers? If America is to adopt socialism, why not have socialism for the poor, rather than for the rich? Why should American households that earn $50,000 a year subsidize Goldman Sachs partners who earn $5 million a year?
Yes, even the Russian political process responds to crises more rationally than does the American one.
Sunday, September 21, 2008
Proposed legislation in its current preliminary form indicates that the same processes of secrecy that have been developed for the Pentagon and the intelligence services are about to be extended to governmental involvement in the financial markets. Apparently, the lessons learned from the collapse of the NASDAQ bubble, the need for public transparency and accountability, have been totally abandoned in the belief that covert dealings between the Treasury, the Federal Reserve and the world's major financial institutions is a more effective way of dealing with the crisis. Crony capitalism over Adam Smith, in other words.
Don't expect the Democrats in Congress to stop it. Faced with an election in less than two months, they will do as they did with the authorization for the Iraq War in October 2002, give a Republican President what he wants in the hope that they will prevail on other issues. As then, they will not take the risk of being blamed for a crisis because they have refused to immediately pass legislation demanded by the President. And, of course, there's the dirty secret that they someday expect to be in control of the White House, and want such powers for themselves, to exercise for the benefit of interests associated with them.
Friday, September 19, 2008
Being more politically and socially inclined, with a limited artistic and cultural sense (and that's being charitable), my boss thought that the book shouldn't be published at all, even though he had never read a word of it, a classic liberal, identity politics infected, response that one experienced quite a lot back then. As someone more culturally oriented, with an awareness that you can't preselect quality works, or even define what they are, and how they will be perceived over time, I said that I thought Simon & Shuster was making an embarassing mistake. After all, if you don't like it, don't read it. My boss was one of those types that was always on the look out to protect others from things, even if no one else was asking him to do so.
I've never read American Psycho, except for a brief passage that one of my friends showed me where the protagonist, if he can be called such, was musing about the lastest Whitney Houston CD. I did, however, just finish reading a later Ellis novel, The Informers, which is more accurately described as a series of linked short stories. From the vantage point of the present, it makes a interesting read. Aspects of the work that invoked criticism in 1994, the nihilism of his characters, the disposition of some of them to dispassionate violence, the amorality of their personal relations, strike one as, does one dare say it?, nostalgic.
It is difficult to be outraged by Ellis' willingness to non-judgmentally portray such people when we are now confronted with real life horrors like US soldiers raping and killing a young Iraqi girl, subjecting her to burns all over her body in the process, and US Marines killing villagers in Haditha with shots to the head, execution style. If only we lived in a time where such violence was more random, more personal, less out in the open. It is unpleasant to admit, but Ellis chronicles a subculture of a particular time and place that would be an improvement upon the deranged state sanctioned violence inflicted upon people in Iraq, Afghanistan, Lebanon, Pakistan and Gaza. It is as if we are living in an age where the most sociopathic characters of his novels now run the country, and gratify their perversities through their control over the US military.
But this evades more serious questions about the merit of the novel and the craftmanship on display. It is initially important to observe that one of the major themes is the nature of cultural production and way that such intangible production is consumed. Sociologists like Bourdieu and subsequent postmodernists have revealed the processes of cultural production in our society, and the ways that it facilitates the disintegration of class identity, community bonds and personal independence.
Ellis, though, holds it up for our fascinated observation through the creation of a finely detailed fictional world far more compelling than the abstract analysis of sociologists and post-Marxist philosophers. His characters are either involved in the film and music video business in Los Angeles, the Los Angeles of the early 1980s, or circulate on its periphery as groupies, drug dealers, friends and family members. Music and film videos are interwoven into their daily lives, substituting aural and visual stimulation for human, emotional contact and interaction. Scenes involving the participation of characters in the film and music business highlight, through a paradoxical understatement, the puerile nature of their enterprise.
Characters are therefore linked to one another through perceived needs, something that Henri Lefebvre, if he were still alive, would appreciate. Wealthy enough not to worry about their basic material necessities (unless the availability of a reservation at the upscale Valley restaurant, Spago's, qualifies as one), they seek out each other for drugs, sex, ephemeral attention and social status or just to pass the time. None of them ponder external social and political conditions, they rarely engage in self-reflection, and, when they do, it is of the most superficial kind. Fear of acknowledging bonds of affection and attachment is always just beneath the surface.
Many find these sorts of characters alienating when they appear in contemporary fiction, but Ellis humanizes people outside the literary mainstream. Authors often write about people like them, people from the social world which is most familiar to them, which is why there are so many novels about attorneys, professors, docters, stock brokers, basically, the white upper middle class. Curiously enough, Ellis is writing about similar kinds of people associated with the entertainment industry, directly and vicariously, that he knows from growing up in Los Angeles, except that they turn out to be self-centered, nihilistic and incapable of seeing a few days over the horizon.
With most authors, there is some hint of optimism, no matter how subdued, that somehow the characters will get their lives in order, or at least benefit from the insight of their experiences. After all, isn't this one of the core beliefs of the American upper middle class, that their lives develop along an evolutionary path, no matter how difficult, towards enlightenment and personal fullfilment? Ellis, quite courageously, deprives us of this security blanket, exposing us to the elements of a world that will always remain inherently uncertain, day by day, minute by minute. By doing so, he unearths the disturbing amorality that has become central to the American social experience.
I would be remiss if I did not draw attention to one of Ellis' special gifts as a writer, his ability to develop character and reader identification with his subjects through an obsessive description of the most mundane aspects of their lives. He literally builds character through an accumulation of personal detail as to what people ate, what drugs they took, what music videos they watched, what kind of decor adorns their homes and apartments. His characters are defined by their association with the material and intangible cultural world around them, and Ellis is extraordinary for his ability to infuse such characters with a human dimension. Reading about their experiences in the early 1980s with the hindsight attained by living in 2008, it almost makes me wistful.
Thursday, September 18, 2008
It's easier getting gold out of men than out of rivers:Indeed. But one doubts that Palin will receive the puritanical frontier justice meted out to Jimmy, or that the social order of provincial crony capitalism in Alaska will disintegrate any time soon. One is, however, rendered breathless by the nerve of the Times for posting such a critique of Alaskan socioeconomic culture, no matter how enjoyable, given that the Times, along with the Wall Street Journal, is one of the primary voices for the denizens of the capital of global crony capitalism, Manhattan.
Wednesday, September 17, 2008
Consistent with my post last week, I am fearful that Ali is wrong about this. While prominent political figures like Obama are befuddled, incapable of distinquishing between the Taliban, al-Qaeda and local tribal resistance, I am worried about the possibility that there is a neoconservative group that is well aware of the consequences of these measures, and actively encourages them in the hope of destroying the Pakistani state for the perceived geopolitical advantage of the US.
The decision to make public a presidential order of last July authorizing American strikes inside Pakistan without seeking the approval of the Pakistani government ends a long debate within, and on the periphery of, the Bush administration. Sen. Barack Obama, aware of this ongoing debate during his own long battle with Sen. Hillary Clinton, tried to outflank her by supporting a policy of U.S. strikes into Pakistan. Sen. John McCain and vice presidential candidate Sarah Palin have now echoed this view, and so it has become, by consensus, official U.S. policy.
Its effects on Pakistan could be catastrophic, creating a severe crisis within the army and in the country at large. The overwhelming majority of Pakistanis are opposed to the U.S. presence in the region, viewing it as the most serious threat to peace.
Why, then, has the U.S. decided to destabilize a crucial ally? Within Pakistan, some analysts argue that this is a carefully coordinated move to weaken the Pakistani state yet further by creating a crisis that extends way beyond the badlands on the frontier with Afghanistan. Its ultimate aim, they claim, would be the extraction of the Pakistani military's nuclear fangs. If this were the case, it would imply that Washington was indeed determined to break up the Pakistani state, since the country would very simply not survive a disaster on that scale.
In my view, however, the expansion of the war relates far more to the Bush administration's disastrous occupation in Afghanistan. It is hardly a secret that the regime of President Hamid Karzai is becoming more isolated with each passing day, as Taliban guerrillas move ever closer to Kabul.
When in doubt, escalate the war is an old imperial motto.
Iraq, Iran, Pakistan . . . all have been problematic from a US perspective because of their varying degrees of independence. Even a client state like Pakistan conducts its own foreign policy in Afghanistan and the Punjab. Have the neoconservatives concluded that a radical destruction of the existing political order is required to render the region complaisant? If so, who will stop them? As with the proposed attack upon Iran, the answer is probably the Pentagon.
Tuesday, September 16, 2008
Few people on the left possessed his knowledge and insight when it came to financial issues, so I was disappointed when I never heard back from him. I had looked forward to hearing him explain how the easy extension of credit, and its securitization, along with an increasing emphasis upon services and the disempowerment of people in the workplace, had laid the groundwork for the current crisis. I'm certain that he would have been presicent about what has subsequently transpired. Alas, it was not to be.
Camejo's background in finance, and his willingness to incorporate that experience within a social activist perspective, was somewhat of a rarity. Over the years, I have encountered many leftists with roots in movements associated with civil rights, resistance to globalization on terms imposed by finance capital, anti-imperialism, the necessity for affordable housing, and peace. But, generally, they were unaware of Chomsky's purported comment about the importance of reading the business section in the newspaper, because there, unlike in the news and commentary sections, you discovered what the capitalists really thought.
I follow this dictum, whether real of manufactured, and it has worked well for me. For example, during the period prior to congressional approval of NAFTA, the political coverage was mild and evasive, while business articles were shockingly candid as to why corporations strongly supported it. A news reporter may well have been fired for writing what a business one filed with his editor without a second thought.
In any event, I have met many activists with just a muddled liberal perspective on economic issues (sometimes, even conservative to libertarian ones), and few that understood their importance to left activism as Peter Camejo did. No doubt this phenomenom mirrors the transition away from evaluating society in terms of explicit class conflict, and the marginalization of anarchism, Marxism and even Keynesianism as a means of understanding economic relationships between people, institutions and countries.
To his credit, Peter Camejo resisted it to the end. Having worked for Merrill Lynch and, later, as an independent investment advisor, he was able to strongly advocate for universal health care, the living wage and farmworker rights within the framework of his financial expertise. He rightly condemned California Governor Grey Davis for entering into ridiculously expensive long term contracts for electrical power during the blackouts of late 2000 and early 2001, arguing that the bubble would soon burst, and that power would be available much more cheaply on the open spot market.
My local municipal electrical utility, the Sacramento Metropolitan Utilities District, followed his advice, which was proven correct, while the state did not, saddling consumers with costs for power that were wholly unnecessary. As a consequence, I voted for Camejo for governor twice, first in the fall election of 2002, when Davis was running for reelection against Bill Simon, and then, again, in the recall of 2003. I was also impressed by his clarity and candor in expressing his political views, his ability to compare and contrast himself to others, especially during debates, without demeaning his opponents.
Camejo's conduct during the 2003 recall was in marked contrast to the deviousness of the so-called progressive candidate, Arianna Huffington. One was required to vote on two questions in regard to the recall, one as to whether Davis should be recalled, and the other one as to what individual should replace him. While Camejo emphasized his leftist stance on the issues, Huffington ran interference for Schwarzenegger, condemning the mainstream Democratic candidate on the ballot, Cruz Bustamonte, for taking large amounts of tribal donations, thus playing not one, but two, race cards against him, by frightening the public about the prospect of a Latino governor funded by Native American casino operators. At the last minute, when feminists freaked out over the realization that Schwarzenegger was really going to become governor, she crudely attacked him for a number of alleged groping incidents, knowing full well that it was too late to change the outcome.
But that was back when I was more naive, and actually believed that the electoral process could really bring about fundamental change in this country. Camejo never lost that naivete. For a positive personal recollection of Camejo, please read this one by the As'ad Abukhalil, the Angry Arab. Turns out that Camejo had the intelligence and integrity to solicit Abukhalil as a candidate to run against Diane Feinstein for the Senate.
Abukhalil appreciated the offer, but being an anarchist, declined. His explanation resonates with my current attitude about the political process: Furthermore, I do not, as an anarchist, believe in the American political and electoral systems, and thus do not harbor hopes, or illusions, of change "from within" so to say, although I remain optimistic of the prospects for progressive change on a global scale, affecting us here in the US. For this reason, and others, I will kindly decline the offer but hope that we manage to maintain contact and dialogue, and to cooperate on future projects.
Monday, September 15, 2008
With Obama having opened the door to unilateral US military action in Pakistan against al-Qaeda, the Bush administration is typically pressing the concept to maximum advantage, exploiting the confusion on the ground, the inability to distinguish between al-Qaeda, the Taliban and local tribal resistance to the US military presence in this region, as well as domestic confusion about the nature of the occupation of Afghanistan. Would Obama, if elected President, rescind Bush's recently reported executive order authorizing US Special Forces operations in Pakistan? It doesn't sound likely, does it? Perhaps, if I can find the time, I will e-mail the campaign and ask about it. Not surprisingly, NATO is declining to participate.
If you are old enough, you have the disquieting feeling that you've seen this movie, before, or, at least, something very much like it. In 1969 and 1970, during the Vietnam War, President Nixon authorized, first, the carpet bombing of eastern Cambodia in an attempt to destroy North Vietnamese forces that used that sparsely populated area adjacent to South Vietnam as a sanctuary, and then, when that failed, ordered a full scale invasion. Of course, one cannot compare the relatively limited US military operations in Pakistan with an invasion of Cambodia that required thousands of American and South Vietnamese troops, but it is not commonly known that US intervention in Cambodia started with the types of military action that we now see in Pakistan.
For example, the carpet bombing of Cambodia and subsequent invasion was preceded by an extensive bombing campaign and special forces operations that commenced in 1965:
The failure of the bombing campaign initiated by LBJ presented Nixon with a stark choice: accept the unfavorable contours of a negotiated settlement of the war, or escalate with the use of ground forces. As already mentioned, we know the decision that he made, and the people that were killed within Cambodia, and even within the US, at Kent State, because of it. Even the ideologically friendly wikipedia entry concludes with this evaluation of the consequences:
Thanks to the Air Force database, we now know that the U.S. bombardment started three-and-a-half years earlier, in 1965, under the Johnson administration. What happened in 1969 was not the start of bombings in Cambodia but the escalation into carpetbombing. From 1965 to 1968, 2,565 sorties took place over Cambodia, with 214 tons of bombs dropped. These early strikes were likely designed to support the nearly 2,000 secret ground incursions conducted by the CIA and U.S. Special Forces during that period. B-52s -- long range bombers capable of carrying very heavy loads -- were not deployed, whether out of concern for Cambodian lives or the country's neutrality, or because carpet bombing was believed to be of limited strategic value.
Let's repeat that: Cambodia (like neighboring Laos) would be sacrificed for the withdrawal of the Americans and the future existence of the Republic of Vietnam. It is hard to read this sentence in the current context of Afghanistan and Pakistan without feeling a distinct chill. If the airstrikes and special forces raids fail, what will the next President do? Pull back? Or, like Nixon, escalate with more ground forces? Momentum would clearly be with the escalation option, given that no one has politically prepared the American public for a pragmatic reduction in the US presence in those countries.
The Cambodian people, whose fate was the most dramatically effected by the results of the incursion, were basically ignored by all but a few historians listed below. The incursion, about which the Cambodian government was not even informed until it was under way, heated up what was basically a low-key civil war and irrevocably widened the boundaries of the conflict. The withdrawal of U.S. forces, after only a 30-day campaign "left a void so great that neither the Cambodian nor the South Vietnamese armies were able to fill it."
Lon Nol's forces would then have to contend with not only PAVN and the NLF, but with an ever-growing indigenous insurgency, which was now fully supported by Hanoi and its armed forces. The Nixon administration, callous of the weakness of the Cambodian regime and its military, pushed its new ally into a conflict that it had no possibility of winning. Cambodia (like neighboring Laos) would be sacrificed for the withdrawal of the Americans and the future existence of the Republic of Vietnam. Millions of Cambodians would pay the ultimate price as a result of those decisions.
In this instance, US leadership is much more ambitious, even if it is increasingly aware of the deterioration of conditions under the Afghan occupation. Unlike in Southeast Asia in the early 1970s, the US is not trying to find a way to put a positive face upon a major defeat, but, rather, still considers an unconditional victory essential. Pat Buchanan has properly observed that an incremental increase in the number of US forces in neighboring Afghanistan, as proposed by Obama, can only lead to an escalation imposed by adverse external events. Likewise, it is also hard to imagine any other outcome in neighboring Pakistan.
At this point, at such an early stage of intervention (but, is it really that early, how many raids and airstrikes have conducted in Pakistan since 2001?), there is only a succession of troubling questions. Is a bipartisan consensus being formed, based upon the grotesquely cynical belief that, through the expansion of the conflict, both Pakistan and Afghanistan can be refashioned in a way more favorable to US interests? With the liberals and conservatives, walking on two legs to form a coalition to ensure its implementation? Liberals would, of course, perform their usual role, promoting a more purportedly surgical intervention, a magical one, if you will, that will kill fewer people, while the conservatives, ever the realists, acknowledge the force required, evidencing a willingness to see it through to the end, no matter how bloody. If so, we need to remind the proponents that Pakistan, unlike Cambodia in the 1970s, has a nuclear weapons arsenal.
Friday, September 12, 2008
Not surprisingly, the US ambassador has expressed sympathy for the demands of the elite. In response, President Evo Morales has ordered him to leave the country:
After registering astonishing levels of support in the referendum, the MAS government declared that it was going to bring forward for popular referendum the draft of a new constitution approved by the Constituent Assembly in Oruro several months ago.
In celebration, indigenous peasant and working-class supporters of the government set off on August 29 for a peaceful march to the Plaza 24 de Septiembre, in the centre of the city of Santa Cruz. A gathering of autonomists, organized in part by the Unión Juvenil Cruceñista (Cruceño Youth Union, UJC), were there to greet them.
According to the mainstream daily La Prensa, one UJC speaker at the autonomist rally declared: “We are not going to permit [the entrance of the masistas] into the Plaza. When we go to their communities, they treat us like dogs. We want independence. We don’t want this damned race in our territory.” Other chants and phrases used that day, according to the vociferously anti-Morales La Razón newspaper, included: “shitty collas,” (colla is a racial epithet used in Santa Cruz to refer to indigenous people from the western highlands), and, “Indians return to your lands.”
After the speeches, the racists when on a rampage against the unarmed trade unionists and peasants, as well as any visibly indigenous person in proximity of the plaza. Indigenous women wearing the traditional pollera, or gathered skirt, were particularly vulnerable to beatings and racist taunts. One autonomist youth leader, Amelia Dimitri, was captured in video footage and photographs whipping an indigenous woman wearing a pollera. This occurred immediately after Dimitri addressed the crowd of autonomist thugs in a rousing speech. She’s only the latest face of hatred on the autonomist right.
On national television, Bolivians watched as racist teenagers wielded clubs, whips, and two-by-fours against unarmed indigenous workers and peasants. Images of men and women with broken noses and shirts literally drenched in blood quickly made their way to You Tube, private and national state media, and the front pages of the local newspapers. These are the “democracy supporters” supported by imperialism against the “dictatorship” of Evo Morales.
But where were the cops? Where was the military? The MAS government refused to act, calling instead for negotiations.
And in the following weeks things intensified further, such that in the last two days Bolivia has been perched on a precipice, below which lies the defeat of left-indigenous power – on the rise since the wave of insurrections between 2000 and 2005 – and the conquest of power by imperialism and the rich and the white-mestizo elite who have long-ruled the country, and who retain control of economic power despite Morales’ electoral victory.
Now, this morning, we learn that rightists have killed seven peasants in Santa Cruz province:
President Evo Morales said Wednesday that he is expelling the U.S. ambassador in Bolivia for allegedly inciting violent opposition protests.
Morales' announcement came hours after his government said a pipeline blast triggered by saboteurs forced the country to cut natural gas exports to Brazil by 10 percent.
"Without fear of the empire, I declare the U.S. ambassador 'persona non grata,'" Morales said in a speech at the presidential palace. He said he asked his foreign minister to send a diplomatic note to Ambassador Philip Goldberg telling the American to go home.
"We don't want separatists, divisionists," Bolivia's leftist president added.
In Washington, U.S. State Department spokesman Gordon Duguid called the accusation "baseless" and said the U.S. government had not yet received a note about the ambassador.
As this article indicates, the escalating conflict is centered around control of Bolivia's resources, with the white mestizo elite, supported by the US, resorting to violence in an attempt to overturn the referendum result in favor of Morales. It is reminiscent of the shutdown of the Venezuelan state owned oil industry by the oil workers union in late 2002 and early 2003 in an effort to prevent Chavez from using industry profits to fund social programs. It is, of course, also frighteningly reminscent of US covert operations within Chile in the period leading to the military coup in 1973.
At least eight people were killed as violent anti-government protests flared in Bolivia Thursday, creating havoc in the natural gas industry and raising tensions with the United States.
Washington ordered out the Bolivian ambassador in response to Bolivia's move a day earlier to oust the U.S. envoy whom President Evo Morales blamed for the escalating violence.
Opposition activists shot dead seven peasant farmers in the remote Amazon region of Pando, a government official said, describing the incident as a massacre. An employee of the opposition-led regional government was also killed.
"We're talking about a real massacre and the person responsible is the Pando governor," said Deputy Minister of Social Movements Sacha Llorenti.
Morales' leftist government blames the unrest on rightist governors who control four of the impoverished country's nine regions.
The opposition demands greater autonomy and energy revenue and opposes plans by Morales, a former coca farmer and Bolivia's first indigenous president, to rewrite the constitution and distribute land to the poor.
Clashes also erupted in Tarija, a region rich in natural gas, and anti-Morales demonstrators occupied public buildings in the eastern city of Santa Cruz, an opposition stronghold, for a third day.
The most disturbing aspects of the deteriorating situation in Bolivia are the extent to which the US is supporting violence that has crossed the threshold into death squad activity, as well as the enthusiastic expression of racism against indigenous people as means of inciting a rebellion. No doubt, we will soon hear someone from the State Department blame the government for the deaths and injuries inflicted upon the indigenous communities of the country, much as they blame Iraqi and Afghan insurgents for the deaths of civilians caused by US military operations in their countries.
While bigotry towards indigenous people and the poor more generally have also been important aspects of the opposition to Chavez in Venezuela, I don't recall that it has ever been expressed this crudely, this violently, on a mass basis. US policy in Bolivia, and, to a lesser degree in Venezuela, is taking on more and more of the features of white supremacy. If the rightists prevail, the prospect of out of control, indiscriminate killings of indigenous people looks very plausible, with the country spiraling into an irreversible cycle of violence similar to the one that plagues Colombia.
Morales appears to be hesitating to use force against the secessionists because it could provide a justification for US intervention. But it doesn't look he has any choice. The Bush administration is bent upon settling old scores before leaving office, as also indicated by the intensification of hostility between the US and Chavez in Venezuela as well, or, at least, leaving behind a policy of confrontation that will be difficult for Obama to change if he becomes President, assuming, of course, that he would even have the inclination to do so.
More abstractly, US elites may have also decided that there is an urgency for a more blatant policy of seizing control over hydrocarbon and mineral resources around the world in light of the ongoing collapse of the financial system. Unable and unwilling to obtain these resources at the market rate, they may have concluded that the implementation of a neo-mercantile policy through local surrogates, like the elites in Santa Cruz province, for example, is required. While the market remains, the empowerment of such elites by the US provides it with a means to manipulate the market to its advantage that it no longer possesses. Speculative musings, no doubt, but ones that may lead to a clearer understanding of the situation with the passage of time.
Thursday, September 11, 2008
On 9/11, they got it, and they quickly focused their attention upon what they considered to be most important, Iraq:
By the afternoon of 9/11, the victims were no longer very important, except to the extent that they could be exploited to initiate open-ended conflicts around the world.
With the intelligence all pointing toward bin Laden, Rumsfeld ordered the military to begin working on strike plans. And at 2:40 p.m., the notes quote Rumsfeld as saying he wanted "best info fast. Judge whether good enough hit S.H." – meaning Saddam Hussein – "at same time. Not only UBL" – the initials used to identify Osama bin Laden.
Now, nearly one year later, there is still very little evidence Iraq was involved in the Sept. 11 attacks. But if these notes are accurate, that didn't matter to Rumsfeld.
"Go massive," the notes quote him as saying. "Sweep it all up. Things related and not."
9/11 remains central, however, to the neoconservative attempt to create an enduring symbolism, the equivalent of a national holiday, like Veterans Day or Memorial Day, to fuse the American civic identity with overt wars of conquest. If yesterday was any indication, that effort has failed.
All around the country, rememberances were subdued, with lower attendance than in the first years after the attacks. By and large, it appears that they were deliberately depoliticized. From the accounts that I have seen, there were few, if any, attempts to associate the war in Iraq with 9/11. It seems that, paradoxically, the administration and their allies in the media are permitted to dishonestly defend the invasion of Iraq as necessitated by 9/11 every day of the year except 9/11 itself.
Needless to say, such reticence is not conducive towards the creation of a new patriotic holiday to inspire the populace towards greater and greater sacifices in the prosecution of the purported war on terror. The media is, naturally, apprehensive about this development. In the days before 9/11, reporters emphasized, with an undercurrent of anxiety, that most people were disinterested.
While tempting, it is not possible to solely explain this phenomenon in terms of the catastrophic failure of the invasion of Iraq. Going back to the infamous PNAC quote, the neoconservatives would have liked the public to embrace 9/11 as a generation embraced remembrances of Pearl Harbor, but they have fundamentally misunderstood the context of the public commemorations of what happened in Hawaii on December 7, 1941.
Pearl Harbor is not something that the post-World War II generation remembered as a defeat, as a moment of victimization, but rather, they understood it as an event that ignited the participation of the US in World War II. Pearl Harbor set in motion the US victories in both the European and Pacific theatres of the conflict. Pearl Harbor is therefore an episode, albeit a very important one, within a large, grand narrative of US success, a success so great that the US, upon the conclusion of the war, was one of the world's two remaining superpowers.
By contrast, one cannot incorporate the attacks of 9/11/2001 within such a story. 9/11 is a manifestation of defeat and despair, a defeat in Iraq that worsens with each passing day, and despair over the inability to capture Osama Bin Laden, an embarrassment that he underscored with the release of a video tape and an audio message.
If there was any unifying theme in the 9/11 remembrances that took place all around the country, it was the helplessness of individuals involuntarily caught up in the intensification of global violence over which they have no control. The victims of 9/11 are therefore the kindred spirits of the people who have died in US airstrikes and suicide bombings in Iraq, the dirty wars of the Caucasus, Israeli airstrikes in Lebanon and the religious turmoil in Kashmir.
Wednesday, September 10, 2008
To survive, as ascerbially described by Roubini, they have adopted policies against which they have historically rebelled, those associated with a strong state role in the economy, such as regulation of financial activity, public subsidy and, in emergency situations like the one that faced Freddie and Fannie, nationalization. Indeed, they have undertaken actions far beyond those of their enemies that they successfully confronted in the past. As during the Russian Civil War, extreme threats apparently require extreme measures in response:
All for the benefit of the wealthy, of course. All to ensure that the hierarchy of existing social relations, and the power that goes with it, is preserved. Unfortunately for the neoliberals, Barnacke and Paulson have done nothing to suggest that they possess the pragmatism of Lenin and Trotsky, or even, say, J. P. Morgan in 1907.
The ideologue “regulators” who literally held a chain saw at a public event to smash “unnecessary regulations” are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression, to bail out non-bank financial institutions, and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgage for banks willing to reduce their face value).
Tuesday, September 09, 2008
For a good summary, I recommend this article by Hal Bonddad Stewart. In the article, he highlights four major aspects of the seizure;
The plan for salvaging Freddie and Fannie is extremely controversial because of the reason that the Treasury Department provided to justify the infusion of government funds into them:
(1) The government is going to shrink the size of Fannie Mae and Freddie Mac by selling off mortgage backed securities (hereinafter "MBS") held by the institutions, starting in 2010.
(2) The government is going to ensure that Fannie Mae and Freddie Mac maintain a positive net worth by purchasing preferred stock from the two institutions as required. Shareholders will take the losses while the holders of Fannie Mae and Freddie Mac debt will be protected.
(3) The government is additionally providing a secured line of credit in the event that the issuance of preferred stock is inadequate to address the liquidity needs of the institutions.
(4) The government is going to buy, on a temporary basis, MBS from Fannie Mae and Freddie Mac in an attempt to reduce the spreads (difference in interest rates) between treasuries and MBS that has constrained the ability of people to purchase homes.
Let me translate: it is essential that American taxpayers assume the risk of debt previously issued and guaranteed by Fannie and Freddie, instead of the entities that purchased them, such as mutual funds, hedge funds and the central banks of foreign governments, because they were lead to believe that they were risk free as a result of government support. Now, mind, you, they didn't get risk free returns over the years, because the market priced them as having a higher risk of non-payment than treasuries, so they pocketed those higher returns, probably somewhere in the range of half a percent to a full percent, depending on market conditions. No, they were just lead to believe that they were entitled to higher returns because of market risk without assuming that risk because of ambiguities created by the government.
These Preferred Stock Purchase Agreements were made necessary by the ambiguities in the GSE Congressional charters, which have been perceived to indicate government support for agency debt and guaranteed MBS. Our nation has tolerated these ambiguities for too long, and as a result GSE debt and MBS are held by central banks and investors throughout the United States and around the world who believe them to be virtually risk-free. Because the U.S. Government created these ambiguities, we have a responsibility to both avert and ultimately address the systemic risk now posed by the scale and breadth of the holdings of GSE debt and MBS.
Of course, this is absurd. Here is a typical example of what a prospectus for these securities said:
It's pretty ambiguous, isn't it? Fear not, American taxpayers are still going to guarantee the survival of Fannie and Freddie, and interest payments upon their debt securities, because investors persuaded themselves that they were backed by the US government despite clear language to the contrary in the prospectus. The possible cost of these measures?
The Debt Securities, together with interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or of any agency or instrumentality hereof other than Fannie Mae.
Exactly! It's not the responsibility of the central bank to rescue investors from their greedy mistakes, it's yours and mine. The regulators of late stage capitalism are so brazen that they don't even bother to conceal that its operation is dependent upon requiring the politically and economically powerless to subsidize the speculative activities of global investors. Such self-assurance arises from the knowledge that both political parties will acquiesce in whatever the finance sector and financial regulators decide to do. And we should not forget that $300 billion may well be a conservative estimate of the exposure, as the risk is dependent upon the extent the institutions are stabilized and the prospect for favorable economic conditions going forward. You may recall how often Treasury Secretary Paulson, the initiator of this rescue operation, told us that the subprime mortgage crisis had been contained last year.
William Poole, former president of the Federal Reserve Bank of St. Louis, said taxpayers may face a $300 billion bill to revive Fannie Mae and Freddie Mac, the mortgage giants being taken over by the Federal government.
``I would not be surprised if their total losses aggregate about 5 percent of their obligations'' of about $6 trillion, Poole said today in an interview on Bloomberg Radio. ``Five percent does not seem to me to be an outrageous guess.''
Poole welcomed the decision to put the companies into conservatorship by the Federal Housing Finance Agency, calling it preferable to action by the Federal Reserve. He said financial fallout from Fannie and Freddie was likely to be a long-term drain on the Treasury.
``It's extremely healthy that it's now the Congress and the Treasury and not the Federal Reserve putting funds in,'' he said. ``It's not the purpose of a central bank to put funds in to save or bail out failing companies.''
Indeed, the remarkable aspect of these actions by regulators is their complete lack of transparency. As with the purchase of Bear Stearns by J. P. Morgan, subsidized by the Federal Reserve, this decision was announced over the weekend. Details were provided through press conferences conducted by government officials, and there was nothing, other than the assurances of these officials, that the plan would stabilize Fannie and Freddie and reduce the cost of funds for the provision of home mortgages.
Meanwhile, there is the impolite question of fraud at the two institutions. Federal regulators decided to take action to seize them after encountering serious accounting irregularities. According to Gretchen Morgenson and Charles Duhigg of the New York Times, the government decided that the seizure of Fannie and Freddie was unavoidable because Freddie, and to a lesser extent, Fannie, had overstated their capital base, creating a more serious risk of default than either had acknowledged. Furthermore, Fannie and Freddie already had a history of manipulating earnings through questionable accounting practices, such as here and here and here and here. To date, I haven't heard any reports of a criminal investigation.
All of this raises the question, why is such aggressive action so important? Why is such a blatant bailout and nationalization of the market for home mortgages and MBS, a repudiation of the neoliberal economic principles of the last 30 years, necessary? Bonddad Stewart, giving due credit to the Angry Bear, provides some insight with the title of his article on the subject: Freddie and Fannie Bailout: Our Foreign Masters Have Spoken. In case you have forgotten, China and Japan, among others, hold a lot of these securities with their central banks. Economist Michael Hudson also has some interesting things to say about it, and I will post some excerpts from a recent interview of him by Mike Whitney in the next day or so.
Saturday, September 06, 2008
Fannie Mae and Freddie Mac: The Biggest Bailout in History?
The consequences for the value of US treasuries, the global reserve currency, could be significant. Inflation and a substantial decline in the standard of living in the US just over the horizon? I will try to post updates on this story next week, one of the most important economic events of the last 50 years, as time permits, with links to analysis by Mr. Mortgage and Calculated Risk. CR anticipates that the details of the plan will be leaked on Sunday afternoon.
Thursday, September 04, 2008
Obama, of course, has frequently emphasized the need to withdraw from Iraq in order to confront the Taliban and its supporters in Afghanistan and Pakistan:
At approximately 3 AM this morning, US helicopters landed in a tiny village in South Waziristan, not far from the Afghanistan border. Troops emerged and opened fire on the villagers, killing at least 20 civilians according to North-West Frontier Province Governor Owais Ahmed Ghani. Governor Ghani condemned the attack as “cowardly” and urged the Pakistani military “to defend the sovereignty of the country” with a response to the attack.
And while neither NATO or American spokesmen would comment officially on the incident, CNN quotes a senior US official as having confirmed the operation, which was reportedly linked to recent attacks on US troops in Afghanistan. The New York Times quotes another official who was briefed on the incident predicting that this “is perhaps a stepping up of activity against militants in sanctuaries in the tribal areas” and that there is potential for further such moves. NATO missile and artillery strikes against targets in Pakistan’s tribal areas are not uncommon, but this is the first confirmed operation involving US ground troops in Pakistan.
Yesterday's attack is precisely the kind of action that will form the centerpiece of Obama policy, his incomprehensible distinctions between al-Qaeda, the Taliban, terrorists and insurgents aside. Isn't it rather odd that only McCain is characterized as ignorant about basic facts associated with the region, when Obama promiscuously conflates resistance to the US presence to al-Qaeda and the Taliban, which he then, quite naturally, conflates as well. You would have thought that his anthropologist mother would have provided him with more nuanced methods of analysis beyond this sort of crude reductionism.
Instead of being distracted from the most pressing threats that we face, I will harness all elements of American power to overcome them. My first order as Commander in Chief will be to end the war in Iraq and refocus our efforts on Afghanistan and our broader security interests. Let me be clear--my plan would not abandon Iraq. It is in our strategic interest to maintain a residual force that will go after al-Qaeda, train Iraqi security forces and protect U.S. interests. But we must recognize that the central front in the war on terror is not in Iraq, and it never was. The central front is in Afghanistan and Pakistan. It is unacceptable that almost seven years after 9/11, those responsible for the attacks remain at large. If another attack on our homeland occurs, it will likely come from this same region where 9/11 was planned. Yet today we have five times more troops in Iraq than Afghanistan.
I will send at least two additional combat brigades to Afghanistan and use this commitment to seek greater contributions--with fewer restrictions--from NATO allies. I will focus on training Afghan security forces and supporting an Afghan judiciary. I will once and for all dismantle al-Qaeda and the Taliban. The solution in Afghanistan is not just military--it is political and economic. That is why I would also increase our nonmilitary aid by $1 billion. These resources should fund projects at the local level to impact ordinary Afghans, including the development of alternative livelihoods for poppy farmers. And we must demand better performance from the Afghan government through tough anticorruption safeguards on aid.
Finally, we need a stronger and sustained partnership between Afghanistan, Pakistan and NATO to secure the border, to take out terrorist camps and to crack down on cross-border insurgents. We should condition some assistance to Pakistan on their action to take the fight to the terrorists within their borders. And if we have actionable intelligence about high-level al-Qaeda targets, we must act if Pakistan will not or cannot.
In fact, the tendency to characterize resistance to the US/NATO occupation of Afghanistan as instigated solely by a highly coordinated, hierarchically structured al-Qaeda and Taliban organization is rather dubious:
Accordingly, in some instances, participation in the Taliban is a gesture of nationalist, or even local and regional, resistance, while, in others, it is ideological in character. Or, to put it differently, participants in the resistance often bring their pre-existing motivations to the Taliban, frequently hostility to the US/NATO occupation and the subordinates through which it governs, instead of the Taliban imposing a coherent, ideological perspective upon them. It therefore resists the sort of simplification imposed by Obama, McCain and US foreign policy analysts, a Cold War projection dictated by the imperatives of our culture, the need to characterize conflicts in simple shades of black and white, good and evil, not theirs. The fragmentation of the resistance is its greatest strength, and one that makes it virtually impossible to overcome through the indiscriminate application of military force.
Analysts from the 40-nation, US-led coalition are realising that the insurgency is much more complicated than they had thought. Hundreds, if not thousands of groups are ranged into a complex and shifting pattern of alliances of interest. Groups fight the coalition, and contest each other's authority and influence. Their nature also varies enormously.
"It is probably better to talk about insurgencies than an insurgency," said one specialist with the United Nations in Kabul. "Some of these groups are just six guys and they hate the six guys from the next village."
Local people have long been aware of this. At a community level, the names of local Taliban commanders are well known and few are unaware of the complex local power struggles that led one minor warlord to fight while another stays neutral or sides with the government.
Degrees of ideological commitment differ. Interviews conducted through intermediaries with the Taliban reveal that older commanders, many of whom fought the Soviets, often see the current situation as the latest phase in a long and chaotic power struggle. But a younger generation is more influenced by the jihadi or takfiri hardline ideology closer to that of al-Qaida and see their struggle as part of a global war against the west.
Overlaying this web of allegiances, calculation of interest, and ideological and generational difference are lines of loyalty to men such as Hekmatyar in the north-east, the clan of veteran warlord Jalalauddin Haqqani in the east and to the core of the Taliban who seized power in 1996 and are now based in Pakistan.
Even the last are by no means united. Western and Afghan intelligence sources in Kabul describe feuds and disputes over strategy and ideology among the Taliban higher command. There are fierce arguments over the justification of suicide bombing or attacks on aid workers. One commander, interviewed indirectly, said he condemned killing Afghans. Another justified the deaths of "hypocrite collaborators".
Interestingly, both the 2004 and 2008 Democratic Party platforms promote an increased reliance upon the special operations forces that carried out yesterday's attack. The cross border incursions contemplated by Obama would invariably involve their use as well. Here, we encounter the romance associated with the Green Berets in the early stages of the Vietnam War, a sentimental belief that we can create a uniquely trained counterinsurgency force of a small number of people that can achieve great military and geopolitical successes without killing very many people. For awhile, RFK was seduced by it, until the facts on the ground in Southeast Asia disproved it.
Sadly, there is no elite constituency in this country (except, perhaps, in the Pentagon) for addressing Afghanistan and Pakistan through a policy of conscious deescalation. As Seamus Milne has observed, the consequences of a policy of continued escalation are dire, the spread of this violent conflict throughout the region. Pat Buchanan sees the peril as well:
Not surprisingly, being a nationalist, Buchanan neglects to mention that it will also lead to a dramatic increase in civilian casualties as well. Milne, however, has suggested a rational alternative:
"We have to be as careful getting out as we were careless getting in," says Barack Obama of the U.S. war in Iraq. Wise counsel.
But is Barack taking his own advice? For he pledges to shift two U.S. combat brigades, 10,000 troops, out of Iraq and into Afghanistan, raising American forces in that country from 33,000 to 43,000.
Why does Barack think a surge of 10,000 troops will succeed in winning a war in which we have failed to prevail after seven years of fighting? How many more troops is he prepared to commit? Is the Obama commitment open-ended?
For, without any visible strategy for victory, Barack is recommending the same course LBJ took after the death of JFK. Johnson bombed North Vietnam in 1964, landed Marines in 1965 and built U.S. forces from 16,000 advisers on Nov. 22, 1963, to 525,000 troops in January of 1969.
Gradual escalation, which is exactly what Barack is recommending.
Down this road lies the prospect of collective security that could reduce attacks upon Americans, and diminish, if not eliminate, the prospect of future Islamic fundamentalist violence within the US. Conversely, increased militarization increases the risk that we will experience such attacks in the near future.
The only way to end the war is the withdrawal of foreign troops as part of a political settlement negotiated with all the significant players in the country, including the Taliban, and guaranteed by the regional powers and neighbouring states. A large majority of Afghans say they back negotiations with the Taliban, even in western-conducted opinion polls. The Taliban themselves insist they will only talk once foreign troops have withdrawn. If that were the only obstacle, it could surely be choreographed as a parallel process. But given the scale of commitments made by the US and Nato, the fire of the Afghan war seems bound to spread further.