Another thing for which we can thank the GOP knuckledraggers

Writing for the Nation, John Nichols reports that:

When House Appropriations Committee chairman David Obey, the Wisconsin Democrat who has long championed investment in pandemic preparation, included roughly $900 million for that purpose in this year's emergency stimulus bill, he was ridiculed by conservative operatives and congressional Republicans.

Obey and other advocates for the spending argued, correctly, that a pandemic hitting in the midst of an economic downturn could turn a recession into something far worse — with workers ordered to remain in their homes, workplaces shuttered to avoid the spread of disease, transportation systems grinding to a halt and demand for emergency services and public health interventions skyrocketing. Indeed, they suggested, pandemic preparation was essential to any responsible plan for renewing the U.S. economy.

But former White House political czar Karl Rove and key congressional Republicans — led by Maine Senator Susan Collins — aggressively attacked the notion that there was a connection between pandemic preparation and economic recovery.

The Obama administration fears opposition

According to a New York Times report: "The Obama administration is increasingly concerned about a populist backlash against banks and Wall Street, worried that anger at financial institutions could also end up being directed at Congress and the White House and could complicate President Obama's agenda." No one should be surprised that the White House publicly raised these concerns soon after Edward Liddy of AIG set Timothy Geithner straight on the pecking order which now governs the world (the prerogatives of rentier capital are superior to those of the tax-paying public and its institutions) and after a sizable part of America applauded Jim Cramer's humiliation at the hands of Jon Stewart. As a matter of fact, the financial elite and its abettors may have found the Cramer interview especially troubling, for as John Nichols of the Nation points out:

The Comedy Central host hit the nail on the head when he accused the CNBC host of pitching "snake oil as vitamin tonic."

That isn't the sort of talk bankers and brokers are used to hearing. It frightens them — not because it isn't true, but because the great mass of Americans aren't supposed to be let in on the secret.

Indeed, why would the "masters of the universe" wish to be exposed as mountebanks and grifters? They would not, of course, and presumably believe little or no good can come from the current political situation.

When considered together, the AIG bonus scandal and the Cramer incident point to what currently looks to be a budding legitimation deficit the Obama government must master or suffer the consequences due to its failure to master. What is a legitimation deficit? Simply put, the term refers to the inability of a polity to satisfy a common sense of what is just and natural. It reflects an experience that something has gone wrong and is thus unacceptable to those who suffer it. Given the existence of these experiences along with their systemic correlates, a legitimation deficit can motivate individuals and groups to withdraw their support from a government. Americans could learn about this first hand during George W. Bush's second term. But that is not the whole of it. More importantly, a legitimation deficit refers not only to a potential withdrawal of support from a sitting government; it also implies a possible lack of support for the systemic conditions which originally brought the deficit into being. Thus the now frequently made claim that the global economic crisis destroyed political-economic ideologies such as neoliberalism, Reaganomics, market fundamentalism, etc., ideologies which informed the policies and developmental tendencies responsible for the crisis. Much like Marxist-Leninism after 1989, these were "falsified" by 'reality,' so to speak. Briefly put, then, a legitimation deficit forewarns that a system crisis is in the making. It suggests the actual or possible presence of a dangerous political threat.

Naturally the Obama administration would view the potential for such popular outrage with great concern. And it should worry about an authentic backlash originating from below since the development of a critical, angry and growing counter-public could undermine the administration's plans to implement its program, which is to say, to better manage America's empire, to ensure a domestic and international stability that conforms to America's perceived interests and to take wealth from current and future American taxpayers and transfer it to Wall Street, the security apparatus and the defense industry. Furthermore, the template for this potential undermining work has already been forged, tested in the real world and proven successful. This happened directly before and after the first House vote on the outrageous Paulson bailout.

To be sure, candidate Obama supported this horrible bill even though he claimed then that the pending bailout would not provide a "blank check" to the recipients of the bailout money. Yet his 'qualified' support failed to reassure many Americans, and rightly so, as it turns out. Their response to the Paulson-Bush program: They inundated House members with calls, emails, letters, etc. that conveyed their disgust with the bailout as it then stood. The House initially responded to this unstructured but meaningful political communication by voting down the bailout bill! Briefly put, it can be said that an aroused citizenry willing to make its voice heard forced the House to pull hard on the legislative brake handle! This victory — and it was a victory for democracy and justice as well as for fiscal sanity and sound government — gains in significance when one considers the fact that the House is the national and elected body which has the deepest roots in America's civil society. It is due to these comparatively deeper roots that the electorate can hold the government accountable with less effort than it would need to expend on the Senate or on the executive and judicial branches. This specific House vote thus reflected the potential power of public opinion and democratically inspired collective action.

If one keeps in mind the fate of Paulson's insult and, more importantly, the swift decline of the Bush administration and the GOP in general since the 2004 presidential election, it becomes clear that President Obama and his political advisors cannot reasonably suggest that he was, is or will be unaware of what "the people" think about the crises of the day and those institutions responsible for their existence. Nor can the current administration complacently believe that they possess the political resources needed to finesse the crisis and an irate public. Barack Obama might be as charismatic as he seems; but charisma can take him only so far. He must eventually — soon! —make a gesture that addresses the economic crisis and the effects it is having on a now threatened citizenry. He must give America at least the appearance of a rational response to the crisis. This was the promise made known to everyone by the initial and collective response to the Paulson bailout and, more importantly, to the failures of the Bush regime. It is a promise that originated in the sense that the American way of life as most Americans know it will no longer exist.

I believe it would be prudent to believe that the presence of this populist promise also worries the remainder of America's national elite. They may worry simply because they can reasonably expect to find this once politically docile nation ungovernable and illegitimate, bankrupt and defenseless, jobless and hungry, fearful and bitter at the betrayals it has suffered at the hands of this selfsame elite. Put differently and succinctly, it can be said that the present moment includes a possible future defined by a destructive state-society clash. If it does, the economic crisis and the Obama government's response stand as just another marker on a path that may end with an American dictatorship. Clearly the Obama administration and others belonging to the elite are not the only groups that need to worry about the future.

Some financial crisis links (9.29.2008)

America on the road to dictatorship?

Joseph Stiglitz writes in the Nation that

To a skeptic, Paulson's [bailout] proposal looks like another of those shell games that Wall Street has honed to a fine art. Wall Street has always made money by slicing, dicing and recombining risk. This "cure" is another one of these rearrangements: somehow, by stripping out the bad assets from the banks and paying fair market value for them, the value of the banks will soar.

There is, however, an alternative explanation for Wall Street's celebration: the banks realized that they were about to get a free ride at taxpayers' expense. No private firm was willing to buy these toxic mortgages at what the seller thought was a reasonable price; they finally had found a sucker who would take them off their hands — called the American taxpayer.

Daniel Gros and Stefano Miccosi of the Financial Times observe: "…the largest European banks have become not only too big to fail, but also too big to be saved." From this point they conclude:

With banks that have outgrown their home turf, national treasuries and regulators in Europe are living on borrowed time: they cannot simply develop "road maps" (the only result of various Ecofin discussions of regulatory reform by finance ministers), but must contemplate a worst-case scenario.

To Gros and Miccosi's point, Wolfgang Münchau, also writing in the Financial Times, adds:

Banks once considered as too big to fail have become too big to save. Unlike the German government, the US administration is in a position to save its largest bank, but is not big enough to save its entire financial system.

And:

Without a contraction in the financial sector, the US administration risks a debt explosion, and a sudden withdrawal of foreign financial investors. This is the other big catastrophe looming large in the background. We are facing two big tail risks from different ends. Failing to rescue the banking system could lead to a depression. But so could a rescue if it produced macroeconomic instability [emphasis added].

Yves Smith of Naked Capitalism, the lead source for the comments above, then observes:

But in the course of his discussion, Munchau makes the observation that none have dared face up to: the financial system is too big for governments to rescue. We've given the weaker form of that argument: the US, or even the US plus all the world's central banks, cannot keep a massive, multi-market asset bubble from deflating. But not only can the current financial system be saved, it shouldn't be saved. The debt binge means it is at an unsupportable, bloated scale. It needs to be scaled down to a more viable size, and only that level should get government support [emphasis added].

As reported by the Financial Times, Peer Steinbrück, the German Finance Minister, told the German Parliament that

"The US will lose its status as the superpower of the world financial system. This world will become multipolar" with the emergence of stronger, better capitalised centres in Asia and Europe…. "The world will never be the same again."

And:

"When we look back 10 years from now, we will see 2008 as a fundamental rupture. I am not saying the dollar will lose its reserve currency status, but it will become relative."

John Gray also does not mince words in his assessment of America's predicament. He points out that

Our gaze might be on the markets melting down, but the upheaval we are experiencing is more than a financial crisis, however large. Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over.

You can see it in the way America's dominion has slipped away in its own backyard, with Venezuelan President Hugo Chávez taunting and ridiculing the superpower with impunity. Yet the setback of America's standing at the global level is even more striking. With the nationalisation of crucial parts of the financial system, the American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated. In a change as far-reaching in its implications as the fall of the Soviet Union, an entire model of government and the economy has collapsed [emphasis added].

Unfortunately, for those of us who must live with the consequences of the plan, which is to say, of the political response to the financial crisis, the "creed" in question is likely to survive in some form. In America, Market fundamentalist talk has long coexisted with the remnants of the New Deal State. Economic conservatives made their peace with the New Deal order during Reagan's time. We know, then, that such talk does not need a solid basis in reality to be effective as an ideology. Consequently there is no compelling reason to believe that Americans will completely jettison market fundamentalism because America's finance capitalists have taken a few blows. One possibility has the crisis affirming market fundamentalism because it would serve to legitimize state repression of dissent.

The Chilean option — liberal dictatorship, military or otherwise — stands before America as one 'attractive method' to conserve market fundamentalism as an ideology and a practice.

Floyd Norris of the New York Times reports that the Secretary of the Treasury will gain significant powers because of the bailout legislation.

Fear mongering as a political tool

Risk and danger are parts of life. We cannot overcome them. Yet, oftentimes most individuals fail to notice the risks and dangers they confront. They are not foolish or blind; they merely trust the world around them. They believe the world and its institutions will behave, more or less, as expected and benignly. After all, today was much like yesterday and yesterday was much like the day before...

Disasters destroy this faith.

9.11 reminded Americans that they do indeed trust the world to behave in a certain way but also that their trust is a social accomplishment. Some days are not like the previous day. Thus the truth content contained within the belief that 9.11 changed everything. The attacks did undermine the faith many Americans had that the United States was the most powerful country in the world. They established as a fact that the United States was vulnerable, that it could be attacked. Together the 9.11 events formed a spectacle, one persuasive enough to obscure the illegality and illegitimacy of the 2000 presidential election, to enable the Bush administration to drum up support for another global war of indefinite duration, to intimidate Congress sufficiently that it would authorize Bush's World War along with regional invasions of Afghanistan and Iraq and even attacks on constitutional norms within the United States. Some Americans were frightened enough that the country would be attacked again that they defended themselves by sealing their homes with tape and plastic.

At the moment the Department of Homeland Security (DHS) has set America's threat level to Orange (High). The DHS website also announces that it has "no credible information at this time warning of an imminent threat to the homeland." That's odd. The DHS has the threat level at High although no one believes the United States is actually threatened by a terrorist attack! Why, then, set it to High? The DHS explains that its "strategic threat perspective is that we are in a period of increased risk." The country is at "risk" but not from anything tangible!

I wonder what strategy is in play here. The plan seems to have the Bush administration trying to derive political benefits from the fear it spreads throughout the country. Its actions suggest that it believes it will receive support from a significant number of American citizens if it generates a sense of anxiety that cannot be tested against personal experience or the known record. The upshot of this effort: The Bush administration terrorizes its own citizens.

The Federal Reserve website, unlike the DHS site, lacks a threat level meter. It does not inform Americans of the immediate risks and dangers posed by the objects and institutions it administers. This also is odd because the country's financial system now appears to be collapsing. On Friday (3.14.2008) the Fed saved Bear Stearns, the teetering Wall Street investment bank. It did so not out of altruism but "simply to keep the financial markets functioning," according to the New York Times. As a matter of fact, the financial crisis has been such that the banks have feared lending to each other since late last year. The collapse of a major investment bank like Bear Stearns might further undermine business confidence in the system. Trust, it seems, is scarce on a rapidly sinking boat. But it, like safe bets in current credit markets, has become even scarcer still in "…in recent weeks, breeding an every-man-for-himself attitude among Wall Street firms," according to the Wall Street Journal. Who can trust anyone when there is so much money at stake? Because money is a basic social glue binding together a capitalist society like the United States and because the financial system is in trouble, America might be near to becoming the social Darwinist society its neo-liberals wish it to be. It will achieve this dystopian condition if the financial crisis becomes a general condition directly effecting everyone.

In short, a country will soon be in crisis when its financial system is in crisis. Therefore the United States is now politically vulnerable. What ails Wall Street eventually afflicts us all. The threat originating from Wall Street (and, by extension, the world financial system) is real. It is not a chimera. Professionals consider it real. They speculate about its course and consequences. I would imagine they are taking care of their own nests. Unfortunately, its destructive effects in the United States could easily dwarf those generated by 9.11, and do so even if one does not discount the problems generated by the reckless policies the Bush administration implemented after the attack. If the 9.11 attacks motivated the Bush administration to "change everything," the financial crisis may indeed change everything without the administration's help.

Unlike 9.11, the Bush administration may find it difficult to use the financial crisis to its advantage, although the President recently pitched renewing his tax cuts on the basis of the crisis. Its time is short. Besides Bush reaching the end of the line, avoiding these crises seemingly requires a new and strict regulatory regime. Once again America's finance capital might require the paternalistic help of the administrative state. But Washington in general and the Republicans especially are presently committed to disciplining citizens so that capital and profit-taking might be free. The political will needed to complete this project would be lacking as things now stand.

It is for this reason that the Washington and the mainstream media has not made much out of the financial crisis. They do not want American citizens to panic and act rashly, which is so unlike the use they made of 9.11 attacks. Given the magnitude of the problem, anxiety-driven individuals may come together to make runs on the country's banks. Moreover they would likely become a fearful electorate, one that may just demand a government committed to regulating the economy so that it fairly distributes the benefits, risks and costs it generates. They would make this demand because human beings tend to want to live in a world that is orderly and predictable. They would want to live in a world in which they can place their trust.