Toyota Republicans

This is Leo Gerard's term for the 31 Republican Senators who recently and stridently put the material interests of foreign capital before the interests of the country, its citizens and its labor unions. Gerard also documents the corporate welfare some of the relevant southern states gave to foreign automakers to entice them to locate plants in their states, plants which these Senators would protect by destroying a significant fraction of America's productive capacity. Gerard then points to the support most of these Senators gave to the fraudulent Bush-Paulson Wall Street bailout. They were not at all bothered to fund grifters when the confidence men and women belong to the politically correct class. One might judge these politicians hypocrites if it were not for the enduring Republican commitment to sell the country to whoever has the largest wallet.

Some crisis links (11.15.2008)

America's high-technology sector has finally given way to the economic crisis, according to the New York Times. Declines in both retail sales and capital investment were blamed for these tech troubles, which the article compared to the Dot.com bust of 2001.

The G-20 nations met this weekend and pledged to work together to resolve the economic crisis (see this, this, this). They also submissively complied with President Bush's demand that they convey their heartfelt belief that economic "…reforms will only be successful if grounded in a commitment to free market principles, including the rule of law, respect for private property, open trade and investment, competitive markets, and efficient, effectively regulated financial systems." They met Bush's demand even though he is now an especially weak lame-duck President. In any case, the G-20 countries plan to meet next on April 30, 2009, soon after Barack Obama takes office.

Mike Whitney accuses Treasury Secretary Henry Paulson of attempting to reinvigorate the securitization strategy Wall Street deployed since the late-90s deregulation efforts, a strategy which now stands ahead of every other contender as the decisive cause of the economic crisis. After labeling Paulson's latest gambit a "swindle," Whitney goes on to conclude:

There's more pain to come, but the suffering can be mitigated by sound decision-making and Keynesian policies. That means public work programs, bankruptcy reform, and extensions on unemployment. Paul Krugman recommends a stimulus package of $600 billion. That's a good start, but it will take much more than that. And foreign investors will have to be confident in our choices or the sale of Treasurys will slip and the US will face a funding crisis. The Fed's lending facilities have already loaned $2 trillion while the Treasury's bailout is $700 billion. By the end of 2010, fiscal deficits will be nearly $2 trillion and the total cost to the US taxpayer will be at least $5 trillion. That means rising interest rates, flagging growth and hard times ahead.

The present financial crisis is a self-inflicted wound. It started at the Federal Reserve with their cynical neoliberal monetary policies. Any solution, that does not involve the dismantling of the Fed, is unacceptable.

William Wharton also looks at New York Governor Patterson's slash and burn method of balancing New York's budget. After referring to the shocking website Reduce New York Spending, where New Yorkers can communicate with the state about the cuts they prefer, Wharton goes on to point out that:

Missing from the Reduce NY Spending website is any mention of a meeting that took place in early 2008 between Governor Paterson and Columbia University Economist Joseph Stiglitz. At the meeting Stiglitz recommended a wealth tax as the most efficient means of closing NY State's rising budget deficit. A tax of 6% on all income above $5 million would cover an estimated $6 billion of the deficit. Stiglitz favors tax increases because he claims that state and local government spending provides a greater positive economic impact than budget cuts. The implementation of a progressive tax structure, a larger capital gains tax and a small tax on financial transactions conducted in the state would more than cover the rest. Of course, this would mean allowing New Yorkers to adjust the "revenue" side of the Budget Balancing Calculator!

In other words, Governor Patterson and his advisors want most New Yorkers to wage class war on their own interests! He also wants them to express their civic virtue by consulting with the state about the implementation of New York's very own Structural Adjustment Program! Democracy this ain't!

The New York Times reports that personal bankruptcies jumped 8% last month. Unsurprisingly, the Times is also bullish on Spam!

Some crisis links (11.12.2008)

The Washington Post reports that Barack Obama intends to close the Guantanamo Bay Detention (torture) center — the Orwellian Camp Justice! — after he takes office. Practical concerns remain to be solved, however, since the Obama administration will not renounce President Bush's global or local terror wars. Nor will it release prisoners en masse. In other words, the Obama administration will also accumulate, interrogate, prosecute and warehouse terror suspects; consequently, it will need to implement a program designed to accomplish these ends without also retaining in any way the crudest and illegal aspects of the Bush program.

While critiquing it from the right, William Buiter savages Barack Obama's Transition Economic Advisory Board (the link comes via Naked Capitalism). The problems in a nutshell, according to Buiter:

the members of Obama's Transition Economic Advisory Board are too old, too uninspiring and too much part of the problem to deliver the change America needs and to keep alive the hope that Obama may have inspired through his election. A wasted opportunity.

Regrettably, Buiter ruined whatever confidence his analysis inspired by praising shock-master Paul Volcker — "a truly great man with more character, intelligence and vision than the rest of the Board put together"!

Treasury Secretary Paulson, perhaps responding to the strong signal the electorate recently sent to the country's elite, indicated that his "…$700 billion government rescue program would not be used to purchase troubled assets as originally planned." Part of it will be used to support additional financial concerns and even the troubled mortgage market. Counterintuitive as it may seem, and it is odd because the country endures a debt-driven recession, Paulson wants the revised bailout program to reinvigorate consumer borrowing. How might lenders, thus equipped with this new liquidity, identify those individuals worth a loan in an uncertain labor market? How might the borrowers repay their debts during a recession or depression? Why would they borrow to purchase luxury goods or even necessary goods when they may be unable to repay their loans?

Today, New York Governor David Patterson proposed to cut his state's budgets by at least $5.2B over the next 16 months, according to the New York Times (see also this and this). The cuts are likely to fall mostly on education and Medicaid, two areas which are most in need of funding and two areas in which those harmed the most by these cuts will lack the means needed to retaliate. The Governor also expects labor to make concessions.

Do cuts like these matter? Is state and local spending that important? Yes, it is. Their "…share is gigantic," the New York Times warned last June.

At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles. None of that, or very little, has happened so far, not even in California, despite a significant decline in tax revenue.

Shrinking state and local government spending programs will thus depress the national economy, suppressing growth and promoting unemployment. The multiplier becomes an issue as a stagnating economy generates the conditions for future stagnation. Patterson's announcement may be identified as one of the early efforts in what will soon become a budget cutting frenzy and another indicator of the crisis as it deepens and expands.

Some economic crisis links (10.15.2008)

Stock prices collapsed again today, according to the New York Times, presumably in response to the bad news about the retail sector (see this) and the real economy in general.

Bloomberg and Naked Capitalism (here and here) inform us that banks receiving 'government cheese' can treat their gifts as, well, gifts! This looks to be just another credibility enhancing gesture for Secretary of the Treasury Paulson. Also credibility enhancing were Paulson's gangster methods for getting the banks to agree to participate in his latest plan. As Yves Smith points out, "[e]arly in his career, Paulson was a staffer for John Erlichman. It appears that imprinting stuck."

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.

McCain advisor: The economy is fine

Donald Luskin delivers the good news this time around. The economy is not in a recession, he advises. Armed with this insight, Luskin then seeks to rehabilitate a fallen McCain advisor:

McCain campaign adviser and former U.S. senator Phil Gramm was right in July when he said that our current state "is a mental recession." Maybe he was out of line when he added that the United States has become "a nation of whiners." But when it comes to the economy, we have surely become a nation of exaggerators.

Update:

Secretary Paulson concurs:

In a briefing in Washington, the Treasury secretary, Henry M. Paulson Jr., said the financial markets were going through a tough time "as we work off some of the past excesses," but that Americans could "remain confident in the soundness and the resilience of our financial system."

Update II:

The Obama camp issues a retort:

The video can be found at TPM Election Central.

Update III:

Rick Perlstein passes along James Galbraith's brief assessment of the crisis:

The collapse of Wall Street will hit Main Street like Ike hit Houston.