Sometimes it’s hard to tell…

…whether Alan Greenspan is a moral idiot or just an idiot. Perhaps he is just so arrogant that the two forms of idiocy congeal into one reality-challenged character disorder. Consider Ryan Grim's Huffington Post report based on newly released Federal Open Market Committee meeting transcripts from 2004:

As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that the dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves.

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting.

Why is public accessibility to these debates important? Greenspan provides a strong clue:

I must admit that I didn't think about some of these issues [regarding publicity and access to information] until I saw the comments others made, but I'm a little concerned about other people getting into the debate when they know far less than we do. I don't know what [Assistant Secretary of the Treasury] Michelle [Smith] has to say on this but my impression is that, if we go in that direction, we may find ourselves coming to a conclusion that is not based on our best judgment. She's nodding in agreement.

In other words, publicity or transparency about this decision was thought to pose a threat to the autocratic character of the Federal Reserve. Why would these financiers and their experts believe this? They might believe it because it is true, for one thing! Publicity does threaten the autocratic isolation of the Federal Reserve, as it does to any authoritarian institution.

More importantly, just look where the lack of publicity and thus accountability got the country and the world: Financial Hell. Thus the compelling issue raised by the minutes. As the Huffington Post suggests:

The release of the transcripts comes at a bad time politically for the Federal Reserve, as it works to prevent Congress from authorizing the Government Accountability Office to audit the central bank.

The audit language has already passed the House, despite White House and Fed opposition, and a Senate amendment by Bernie Sanders (I-Vt.) is gaining momentum, cosponsored as of Monday morning by ten Republicans and five Democrats.

But the Fed also benefits from the timing. "Transcripts of meetings for an entire year are released to the public with a five-year lag," according the Fed's own policy. Had the transcripts been released on time, they could have influenced the confirmation of Ben Bernanke for a second term as chairman. Meanwhile, the Fed policy of releasing a full year at once deprives the public of transcripts from the first four months of 2005, which are now five years old.

Best line of the day

And William Greider wrote it:

The NewsHour With Jim Lehrer can be thought of as the Potemkin village of American democracy. Every evening, it presents a prettified version of political debate — ever so civil and high-minded — that thoroughly blots out the substance of dissenting critics or the untamed opinions of mere citizens.

The latest News Hour snow job? The humanization of the Fed by way of "Gentle Ben" Bernanke! It's valium for the frightened! Lest we forget for what and whom the Fed stands, Greider helps us by recalling the Olympians who saved the world during the last great crisis:

On the Bernanke reappointment

Dean Baker opines:

It would be an insult to the tens of millions of people who have lost their jobs, their homes, and/or their life savings to see Bernanke reappointed. Failure should have consequences, even for central bank chairmen.

Obamanomics…

The New York Times reports that:

President Obama on Tuesday will nominate Ben S. Bernanke to a second term as chairman of the Federal Reserve, administration officials said.

Watering the stock market

Keeping the weeds green and tall has been Ben Bernanke's project according to Mike Whitney and Andy Kessler. In recent Wall Street Journal article Kessler wrote:

At the end of the day, only one thing has worked — flooding the market with dollars. By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market.

So, it appears Bernanke's program was successful? It did jump-start the stock market. Well, no, it was not at all successful, Kessler asserts:

Like it or not, the stock market is bigger than the Federal Reserve and the U.S. Treasury. The stock market anticipates only future profits and prosperity, not government-funded starter fluid. You can only fool it for so long. Unless there are real corporate profits from sustainable economic growth, the stock market is not going to play along. It's the ultimate Enforcer.

In other words, bubbles explode, and they often damage the society that had lived off the bubble. Mike Whitney's appreciation for Bernanke's intrigue prompted him to draw this conclusion:

It means the revered professor Bernanke figured out a way to circumvent Congress and dump more than a trillion dollars into the stock market by laundering the money through the big banks and other failing financial institutions. As Kessler suggests, Bernanke knew the liquidity would pop up in the equities market, thus, building the equity position of the banks so they wouldn't have to grovel to Congress for another TARP-like bailout. Bernanke's actions demonstrate his contempt for the democratic process. The Fed sees itself as a government-unto-itself.

Alas, the Chinese may no longer want to purchase Treasury bonds. If so, that is, if China abandons the United States, what then? How will Uncle Sam finance its empire? Whitney suspects that American banks will buy up America's new debt, thus establishing a circuit between them and the government that had bailed them out of trouble! Whitney concludes:

So, the bottom line is that the dollar is increasingly balanced on the rotting scaffolding of Bernanke's buyback programs (Quantitative Easing) and the circular purchases from collaborating banks that are concealing their backroom dealings with the Fed.

To keep this game going, Bernanke will have to keep juicing the market while the banks use the $850 billion in reserves (which the Fed has provided in the last year) to keep purchasing US sovereign debt.

Is anyone in Congress watching or is this shell game going to go on forever?

Well, this truism still holds: Things that can't last forever don't last forever. The game must end someday.

Banksters face opposition

Adrianne Appel points out that:

The U.S. Federal Reserve and U.S. Treasury have doled out trillions in taxpayer dollars to banks and corporations and now the boom may be falling on what lawmakers say is a shroud of secrecy that surrounds their actions.

In separate hearings on Capitol Hill this week, lawmakers expressed support for a bill to make the Fed's decisions more transparent, and for the findings of a special inspector general report that calls for greater transparency in the Treasury's bailout of banks, called the Troubled Asset Relief Programme (TARP).

The Fed Chair sought to reassure those paying attention:

"We are taking all the steps necessary to protect taxpayer money. One sensitive area is to have Congress second-guessing monetary policy," Bernanke said.

Bernanke's words are not at all reassuring, I would say, given the origin of the crisis, which can be located in the dysfunctional relationship between Wall Street and the Federal government. Consider Bernanke's position on the controls placed upon the Fed:

"If we raise interest rates at a [Fed meeting] and someone in Congress didn't like the decision and ordered an audit, isn't that interference?" he said.

Or political oversight…

And just like that…

The Fed yesterday announced that it will spend up to $1.75T to purchase securities.

Take our money, please….

The Fed cuts its benchmark rate to near zero

The Federal Reserve Bank announced today that it will cut its Federal Funds interest rate to 0%-.25%. It will make this cut because:

…labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Moreover, "…inflationary pressures have diminished appreciably." And, finally, "…the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

The New York Times report asserts that, "Far more important than the rate itself, the Fed bluntly declared that it was ready to move to a new phase of monetary policy in which it prints vast amounts of money for a wide array of lending programs aimed at financial institutions, businesses and consumers."

This new strategy appears to be, as Business Week characterizes it, "Ben Bernanke's 'shock and awe' campaign." I would suggest that "shock and awe" is a disturbing but, perhaps, apt name for Bernanke's program since the Iraqi "shock and awe" campaign was a prelude to a much greater disaster.

Some thoughts relevant at this moment

A cliché:

In a bear market (or recession or depression) money returns to its rightful owners.

James Galbraith (2008, p. 102) on inequality and a bubble economy:

An economy that moves from bubble to bubble is unsustainable, and bubbles of this kind create a particular kind of wealth, vastly greater than any other in our society. They generate the billionaires who now dominate the Forbes 400. They therefore foster a particular concentration of economic power in the target companies and in their banks. Economic power naturally translates into political power. And so one has to ask, Are the people most favored by an inflating market also those best suited to govern the country and, by extension, the world? That is, naturally, the view they take. It is a view often reflected in the public media, which they tend to own. But it is not entirely self-evident that this view is actually correct. The deepest issue raised by the inequality of economic incomes is, therefore and as ever, the distribution of political power. The term of art, in other countries, for people who control power in this way is oligarch. That word, which is not meant to flatter, reflects a general understanding that private persons with such wealthy cannot be expected to serve any interest other than their own.

While discussing the lesser 'evil argument,' Hannah Arendt (2003, pp. 36-37) observes:

Politically, the weakness of the [lesser evil] argument has always been that those who choose the lesser evil forget very quickly that they chose evil.

The general circulation of the lesser evil argument forms a mechanism, according to Arendt:

Acceptance of lesser evils is consciously used in conditioning the government officials as well as the population at large to the acceptance of evil as such.

This use of the argument thereby makes evil an unavoidable 'fact' of the world.

Yet another Bush power grab

The text of the bailout plan (known as the "Legislative Proposal for Treasury Authority to purchase Mortgage-related Assets") contains three disturbing but not unexpected provisions:

Sec. 2. Purchases of Mortgage-Related Assets.

(a) Authority to Purchase. — The Secretary is authorized to purchase, and to make and fund commitments to purchase, on such terms and conditions as determined by the Secretary, mortgage-related assets from any financial institution having its headquarters in the United States.

(b) Necessary Actions. — The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation….

Sec. 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.

It is worth noting that the Act, if passed by Congress without modification, would not only authorize the Secretary of the Treasury to purchase American "mortgage related assets," it also authorizes the Secretary to make these purchases "without limitation" or effective oversight. Briefly put, the Plan will give the Secretary a blank check. This check would enable the Secretary to become a finance dictator working unconstrained by the rule of law. The proposal does include a sunset clause (two years, Section 9), a spending limit ($700B, Section 6) and requires the Secretary to report to Congress (Section 4). But these limits are weak and the only ones contained in the text.

So, the Plan intends for American citizens to become debt slaves in perpetuity. What is more, the Bush administration wants American citizens to forfeit some of their remaining political powers, meager as they are, to the Executive branch. Just as it did during 9.11's aftermath, the administration wishes to use a national catastrophe and the sensible fears it promotes to usurp political power. In return for enduring these thefts, the Act only requires the government to protect American citizens by saving Wall Street from the worst consequences produced by its own past actions! Virtue is its own reward for the common folk, it would seem, whereas the coldest rapacity earns gold and much else besides for the greedy and reckless few.

I cannot say that I was surprised by this outrageous gambit. It is dishonest and vicious, and so it precisely reflects the Bush culture the world has come to know since 9.11. But it is disappointing nonetheless since the Plan is likely to set limits to the debate over what the country must do to overcome the crisis.

Update:

Mike Whitney makes an important point when he states: "The banksters own this country, always have; only now they've decided to strip away the curtain and reveal the ghoulish visage of the puppet-master. It ain't pretty." No, it is quite ugly. Yet the real insight contained in this passage can be found in the second clause of the first sentence, which rightly points to the contempt Wall Street feels for Main Street. What is good for American finance capital is good for the country, so far as the Street is concerned. Naturally it is impolitic to actually say this. Thus America's democratic institutions and the rule of law limited and masked Wall Street's domination of Main Street. But the financial crisis has given an opportunity to this unprincipled scoundrel, and Moneybags excels when it is a matter of exploiting an opportunity. Apart from the opportunity the crisis has created, democratic governance and the rule of law are inefficient when considered from the vantage point provided by Lower Manhattan. They can be radically altered or eliminated according to what finance capital needs, wants and can achieve. If enacted as written, the Plan would produce a double effect: 1) It will promote another massive transfer of wealth to finance capital; 2) it will complete another stage on America's road to dictatorship. The Plan ought to never make it out of Congress.

Update II:

Adam Ross Sorokin of the New York Times rightly equates the Plan, especially Section 8, with the Patriot Act.

David Hilzenrath of the Washington Post suggests that Washington's recent bailout work will promote the growth of larger financial firms (the too-big-to-fail survivors of the crisis) while also decreasing the competition within the industry (through the destruction of the smaller players). This outcome would be neither fair nor sensible, the article suggests.

The $700B gift?

It appears that the Bush administration wants to use the taxpayer's money to buy Wall Street's illiquid debt but not to attach strings to the gift [see the Text of the Draft Proposal here]. Even the New York Times noticed this problem: "The [administration's] proposal does not specify what the government would get in return from financial companies for the federal assistance."

Can you say moral hazard?

Reenter Keynes?

Or a Marshall Plan for American finance capital?

It seems that the Bush administration prefers the corporate Marshall Plan option even though Bush believes governmental intervention into the economy to be necessary given the magnitude and significance of the crisis. Yesterday Fed Chairman Ben Bernanke and Secretary of the Treasury Paulson addressed Congress and proposed a new stabilization plan to save finance capital from the judgment day it had created for itself, a plan which conspicuously lacks an economic stimulus package, according to the New York Times. The plan goal is made clear: It is to restore "…the strength of our financial system so it can again finance economic growth." The plan means to achieve this end by removing the "…illiquid assets that are weighing down our financial institutions and threatening our economy." Although the plan lacks a stimulus program, a reindustrialization program (manufacturing still does not matter), relief for threatened mortgage holders or even a federal criminal investigation into the practices and parties which produced this catastrophe, Paulson denied the intent of the Administration's plan was the rescue Wall Street.

Mike Whitney does not agree with Paulson's defensive claim. He also finds it ironic that "…the very people who created this mess…are the ones who will decide how to resolve it…." He then asks a relevant question: "Where else but Washington would such massive failure be rewarded with more power and authority?"

Nor does William Greider, who argues that:

Financial-market wise guys, who had been seized with fear, are suddenly drunk with hope. They are rallying explosively because they think they have successfully stampeded Washington into accepting the Wall Street Journal solution to the crisis: dump it all on the taxpayers. That is the meaning of the massive bailout Treasury Secretary Henry Paulson has shopped around Congress. It would relieve the major banks and investment firms of their mountainous rotten assets and make the public swallow their losses — many hundreds of billions, maybe much more. What's not to like if you are a financial titan threatened with extinction?

He then states:

The scandal is not that government is acting. The scandal is that government is not acting forcefully enough — using its ultimate emergency powers to take full control of the financial system and impose order on banks, firms and markets. Stop the music, so to speak, instead of allowing individual financiers and traders to take opportunistic moves to save themselves at the expense of the system.

It is becoming clearer every day that Bernanke, Paulson, the Bush administration and the Republican Party as a whole are betting that they and Wall Street actually can fool most of the people nearly all of the time. The story has yet to conclude, though. Americans will soon learn that the effects produced by this crisis will easily dwarf those attributed to 9.11 and the GWOT. What will happen then?

Update:

Pam Martens chimes in with her assessment of the planned bailout:

There is no sincere plan by this administration to help America or Americans. There is only a plan to slow the financial collapse until after the November elections by throwing a politically palatable amount of money at it and a plan to continue to blame it on a housing bust.

If we, the American people, allow this to happen, we're enablers to the unintelligent design model. Before one more penny of our taxes are spent on this ruse, we must demand a seat at the table (I think Ralph Nader should occupy that seat) to discuss breaking up Wall Street, crushing this model, innovating a sensible model that serves the individual investor and deserving businesses, and promises our children a future of more than a banana republic.

Update II:

Mike Whitney's most recent (9.21.2008) assessment of the Paulson plan:

The Paulson strategy is to create another ocean of red ink while refusing to face the underlying problem head-on. This just further exacerbates the consumer-led recession which economists know is already setting in everywhere across the country. Demand is down and consumer spending is off due to falling home equity, job losses, and tighter lending standards at the banks. The broader economy does not need the added downward pressure from higher taxes, bigger deficits, or inflation. Paulson's plan is a band-aid approach to a sucking chest wound. The debts are enormous and the pain will be substantial, but the problem cannot be resolved by crushing the middle class or destroying the currency.

The hidden dilemma posed by the plan is not whether it will work in some way which improves the common good but whether it is meant to work in a manner most Americans would consider acceptable. Why believe the former to be true when the plan appears to be little more than a massive transfer of wealth to America's finance capital? We should not believe it true given the present situation and the historical record. In their analysis of the 1970s crisis, Duménil and Lévy (2004) tell us that

The shift to neoliberalism [in the 1970s] had two types of consequences. First of all, finance managed the crisis according to its own interests, which prolonged the crisis; second, this stretching out of the crisis made it possible for finance to shift the course of history in its own interests. Both elements, the management of the crisis and the setting up an alternative society, are indeed linked — the crisis created the conditions for destroying the old order [p.16].

One could add to Duménil and Lévy's point that the crisis also provided the elements needed to create and legitimate the neoliberal order which 'resolved' the crisis. It is this neoliberal system which has recently faltered and which the plan seeks to defend.