Politics

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Uncharted Territory

Well here we go.

The House of Representatives has rejected the so-called bailout bill. As a consequence, as of now, the country’s markets are in free fall. Here is the latest from the New York Times:House Rejects Bailout Package, 228-205; Stocks Plunge

This is a moment of great importance. I am not sure that many people truly understand what’s at stake. They see phrases like ‘bailout of Wall Street’ and viscerally react. Why, they ask, should the common folk all across America pay for a bailout of the fat cats on Wall Street? Well: who are you going to borrow from when you want to buy your next house? Or car? Or anything? Where do you think that money comes from?

The whole financial system is interconnected. The local bank on high street lends and borrows to and from the big city banks. They in turn get money, when they need it, from the so-called money markets. Companies borrow to build factories. People borrow to own a home. The whole edifice is one big complicated system. And at the center sit the banks. Let the banks go down and the entire thing goes down. So getting the banks back on their feet is the same as getting the economy back on its feet.

Simple.

Except when people don’t see that connection. And when some Republicans think that saving their precious free market ideology is more important than saving the economy. Why there were so many Democrats voting against the bill I don’t know, except many seem to have fallen prey to the populist notion that there weren’t enough draconian provisions to punish the ‘fat cat CEO’s’ who made fortunes on the funny money that they are now foisting on the public.

Frankly I don’t care about the CEO’s. They are fools. There is no way we can get the money they robbed from their shareholders, and in any case those self-same shareholders did not cry when the days were good.

That’s not the issue in my mind. What counts now is getting some stability back into the financial markets. Without that order the next few years look incredibly bleak.

This ‘bailout’ bill may not have been perfect. I read the entire thing last night and saw many flaws, but I thought all could be fixed as we go along. To reject it outright was a disaster. We have been through this scenario before. It was called the Great Depression. Why do we want it again? Are we that dumb?

So now we plunge into the dark. I imagine the bill will be re-presented later this week. Quite what can be done to get more support I don’t know. Perhaps more help for the average homeowner threatened with foreclosure. Homeowners are already a very privileged lot: they get huge tax breaks on their mortgage payments … renters don’t get anything similar. And many homeowners have made a killing by sitting on homes bought back ten or twenty years ago. They have ridden a wave of inflation, done nothing, collected their government subsidy, and now cry when their home prices dip a bit. The tragedy is that they don’t see the devastation they have wrought. They think this is simply a Wall Street problem.

Oh well. I cannot predict what will happen now any better than anyone else. The experts were basically behind some form of intervention, although not all liked this plan. Some of them thought that a simple nationalization of weak banks was better. I did too. Now that may be the only plan left!

As John Donne said: “No man is an island entire of himself …. so, therefore, ask not for whom the bell tolls. For it tolls for thee.”

Was he talking about the American economy today?

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McCain and Morality

Is it possible to be less morally fit for the presidency? I don’t think so. John McCain’s run for president has sunk to such a base level that even some of his long time supporters are now running from him. Andy Sullivan is one:The Daily Dish | By Andrew Sullivan

The continuous stream of sleaze and lies coming from the McCain camp is an affront to the country. It is selling us short. There are discussions of our problems, just a torrent of slander. His desperate attempt to become president has compelled him to walk away from all sense of decency and proportion. His adverts are almost all total lies. His statements pervert and twist reality into an alternative and completely unreal shadow. Perhaps this is who he really is. Perhaps he is this awful and evil.

Then we don’t need him.

We have just lived through the worst presidency in living memory, not just because of the incompetency, but because of the ‘mis-speaking’ that has reached a peak we have never seen before. It is a shame that Orwell is the best recourse for learning how to interpret our current administrations statements.

But McCain is trying to raise [or lower?] the bar even more. He wants to leave reality totally behind and live a world populated by spite and hatred. By division and falsehood.

And that’s ‘change we can believe in’?

I think not.

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McCain’s Big Oxymoron

I hope you are as confused as I am. The whole Republican campaign this fall is built upon an oxymoron. They want to change Washington. Yes that’s right, the conservatives want to introduce change.

Hang on a minute!

They want to change Washington? Do they not realize that Washington has been in the thrall of Republican ideology for thirty years? The so-called Reagan revolution turned the Washington agenda sharply to the right. We have been subjected to mostly Republican presidents since 1980. Congress has been under Republican control for large chunks of that time. Economic policy has been relentlessly pro-market and anti-regulation. Cutting taxes to starve the beast of government has been the only fiscal policy that endured through those years. Social policy has been anti-welfare and anti-entitlement. Defense spending has soared. Foreign policy has been interventionist and unilateral. Barriers between church and state have been reduced. The Supreme Court has been stacked with right wingers who believe the world is unchanged since the late eighteenth century. And we have attempted to impeach a president for a personal moral lapse rather than a crime against the country.

So what’s to change?

Didn’t they win? The very word “conservative” seems to indicate a desire to “conserve”. So why would McCain be running as an agent of change? The last few decades have been Republican decades, I would imagine that they’d be proud of that and want to preserve … or conserve … as much as they can.

This economy, this foreign policy, America’s standing in the world, Washington’s way of working, our social fabric, and our self-image are all very much shaped [if not entirely shaped] by Republican ideology. These have been the Reagan years. They are what the Republicans sought. The outcomes are Republican outcomes.

Yet. McCain thinks his best shot at winning the election is to reject the Reagan agenda and embrace something else.

The anger amongst the right wingers is palpable this year. They are running against their own record. They are furious that the expected outcomes, whatever they thought they were, from their right wing agenda have somehow not transpired. So the logical conclusion in their minds is that someone must have thwarted the true outcomes. In other words the purity of right wing ideology was perverted along the way and Reagan’s promised land was never attained. The someone appears to be the “elitists” and the “media”. Anyone with an education. Anyone who is not god fearing. Anyone who thinks gun ownership should be restricted. Anyone who supports freedom of choice in abortion. And especially anyone with a funny sounding name.

Were it not for the anger the oxymoron would be hilarious. Only Republicans have the gall to run against their own agenda with a straight face … in their world it surely cannot be a gay face. But this is not hilarious. These folks are angry. They are imputing all the results of their own failure to us, the “others”, those of us not trapped in their limited world, those of us not afraid of diversity and progress, and those of us, most of all, who think differently.

These folks are unstable. They may win. Their failure of the past thirty years would then pale as they hurtle the country even more rapidly down their extreme path as they search for the fruits that their unbounded and unthinking faith says should be theirs.

Yes they want to change. They want to smash the balance in America. Their can be no dialog unless it arrives at the answer they want. There will be no compromise … that’s what’s thwarted them so far. They have become neo-Leninists: they want to save America by destroying it and creating it in their own vision. In their own image.

The conservatives are reduced to change agents: in order to conserve the past and replicate it in the future they have to destroy the now and all the elitists who resist along the way. That’s a radical agenda. That’s a dangerous agenda. I hope America denies them the chance to execute their dream.

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The Slide Gathers Pace

I have been fully occupied writing so I have had no time to comment here for a while, but even I cannot avoid commenting on the sad state of the economy. The news today that Bear Stearns, a New York City investment bank, had to be bailed out by short term loans from J.P. Morgan Chase, a New York commercial bank, has sent shivers throughout Wall Street. Bear Stearns was a big player in the mortgage backed securities market and is now paying the consequences of its shoddy management and its fundamental misunderstanding of the risks it was taking. Here’s the latest from the New York Times:Bear Stearns Bailout Roils Stocks

Practically every piece of news now is bad: the dollar continues its slide against other currencies, particularly the Euro and the Yen. The American mismanagement of its currency over the past few years has been spectacular and leaves foreign investors little choice but to move their money into safer, stronger, currencies. Naturally the more people move the more pressure develops on the dollar creating a self-sustaining slide that could easily become a collapse if a bank like Bear Stearns failed completely.

One side effect of the dollar’s slide is that any product priced in dollar’s but produced in a non-dollar location gets more expensive for anyone who has to pay dollars for that product. That means Americans are going to pay a lot more for things like oil. This dollar effect is over and above the price inflation being caused by increasing worldwide demand. So American consumers are being hit twice, while other consumers [e.g. europeans] are mostly only paying for the demand inflation aspect of the rise in oil prices.

Years of economic mismanagement are coming home to roost!

The really nasty part of all this bad news is that it portends a long and deep recession. I don’t think anyone, other than George Bush and his cronies, really argues that America will now avoid recession. Indeed most analysts I know are saying we are under water already. What could make this recession lengthy is that the financial markets are in the epicenter.

For a bank like Bear Stearns to fail there has to be huge negative pressure in the markets. The process becomes a self-fulfilling prophecy: one bank demands that it is repaid cash it lent to another based upon collateral that has lost value. The second bank scrambles to find the funds to make the repayment. It makes demands of a third or fourth bank. They start to scramble too. And so on. A fully fledged panic can arise from nothing very quickly. This kind of instability leads even the most secure of banks to pull back from lending so that each can rebuild its capital and remain safe. The cascade of reduced lending and lost confidence consequently grinds the capital markets to a standstill. The result is that no one can borrow to expand their businesses and sooner or later the entire economy slumps.

That kind of scenario is being played out now. Not just Bear Stearns is in trouble: some lesser known hedge funds and investment houses are collapsing for lack of credit. Just this week Carlyle Capital, an offshoot of the notorious Carlyle Group, has been forced to liquidate itself to pay off its creditors. Other, smaller and private, organizations have already gone under.

Meanwhile large banks like UBS and Citibank are under enormous pressure because their investors no longer trust the portfolios of derivatives that still are being carried. The issue for both those banks is whether all their losses have been recognized or whether there are more write-offs yet to come. Given the continued collapse of the housing market, where all this trouble began, I seriously doubt that anyone can commit to a portfolio value that will stand the test of time for the next few months. So confidence will remain weak and values will fall as credit dries up.

The Federal Reserve Board is pulling out all the stops to plug the dyke. Unfortunately it is running out of tricks, and money. Lowering interest rates has had practically no effect: even after the last Fed Funds rate cut, which was dramatically large, other market rates, like those for mortgages, actually rose reflecting the growing panic on Wall Street. Lowering rates only works if someone is willing to lend at those lower rates! While all the banks are retrenching the willingness to lend is minimal.

So the problem will eventually have to be dealt with outside the market: Congress and the Administration will have to take action to rebuild confidence. Especially in the mortgage market where some form of regulation is now highly likely.

Let me state this bluntly: the current malaise is a shocking indictment of standard Republican economic policy, particularly that of laissez-faire. The simple fact is that to allow ‘market forces’ to run their course, as Bush and others on the right, have argued for months risks plunging the country over a precipice. No one can honestly forecast what would happen then. I doubt whether anyone wants to find out. Especially in an election year. So intervention will become the order of the day and the kind of ineffective voluntary actions advocated by Bush so far will quickly be replaced by legislation.

About time too: this storm has been gathering since late last summer. Since then Bush and his team have done nothing of substance to stem the tide. The report last week that American wealth had fallen back to its 2001 level just about sums up the Bush legacy: never before has a president presided over a zero wealth increase on his watch.

Still the good news is that the Reagan Republican era is being drawn to a close with its flaws fully exposed. Now comes the hard part: rebuilding with sensible and more balanced economic policies. For that we have to wait until after Bush leaves office. Meanwhile expect things to get ugly.

Or should I say “uglier”?

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United States in Decline?

Read this article from the New York Times Magazine:United States – International Diplomacy – Economic Trends – World Economy – Politics

This subject: the increasing decline of US world power relative to the other great powers, is the true motivating issue underlying the upcoming presidential election. The complications of the last three decades of imperial America are coming home to roost. Reality is intruding into that perpetually sunny Reaganist vision of supreme US domination of the world. Reaganism is dead. It was based upon false analysis. It gave little credence to Chinese emergence; it belittled European cooperation; it totally misunderstood its own mythology; it misread both the cause and the meaning of the fall of the Soviet Union; and it overvalued its military capacity.

China has rapidly emerged as a world player able to vie effectively with American and European diplomacy around the world. It is not a world power built on militarism [yet] but on economic growth: the Chinese are acutely aware that to grow they need to secure world resources, which they have done masterfully with diplomatic and economic deals around the globe. America, instead, has annoyed its suppliers by bullying them and has frittered away the last thirty years by acting like a school yard thug imposing its unilateral vision of world order. The US has failed to get even its own hemisphere to go along with economic cooperation and is about to annoy its largest neighbor by closing its borders as a result of some imaginary immigration crisis.

America belittled the early efforts at European cooperation. Yet after decades of small and often contentious progress the European Union is alive and well and has a larger economy than America. More to the point its currency has emerged as a challenge to the dollar as the world’s reserve currency. Of even more subtle damage to America is that the notion of liberal democracy is now more of a European concept than an American one, and it is the European Parliamentary system, not the American Presidential one, that is copied around the globe when countries adopt democracy.

I am not as pessimistic as the author of the article is: I still believe that America can maintain more that a third share of world power. But to do so it must reject the “Disney-like” fantasies of its mythology: it is not special; it is parochial and needs to become joined to the world; its institutions need overhauling to become more adaptable; it must eschew force and embrace cooperation; it must sort out its fiscal house; and it must attract foreign talent once again. It is easy for Americans to forget that their country became a world leader in the 1950’s when the rest of the world was devastated and when it was the safe haven for a whole generation of European brain power displaced by World War II; that advantage went by the late 1980’s but no one here took notice because of the apparent victory America won on the “Cold War”. That victory, upon which the reputation of Reaganism was built, was a chimera: it was won on debt and the transference of its cost to the generation now graduating from college. It was hollow. It was based upon the illusion that wars can be costless to the population that basks in the glory of the win. That has never been true. Bush’s catastrophic regime was built on the same quicksand, and burdened by the failure of Reagan to realize that it is economic strength, not military strength, that builds empires, it was destined to accelerate the fall.

This election is epochal: the wrong answer will confirm the decline of America. The right answer at least gives it a chance.

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