March 30, 2009

Some thoughts on GM


So, just as many of us predicted from the start, giving the auto companies ad hoc holdover money and a deadline to come up with a plan would lead to…..giving the auto companies ad hoc holdover money and a deadline to come up with a plan. Well, the difference this time is that Rick Wagoner is out, and Chrysler has to engineer a merger with Fiat. Still no word on why Cerberus doesn’t have to put up any money.
(From the start it’s seemed to me that if Chrysler’s owner doesn’t believe it can be saved with more cash, why should the government second guess them? Why in this case does the administration know so much better than “the market” and an iconic private equity firm, while where it comes to the banks they keep repeating, Hare Krishna-like, the chant “the government shouldn’t be running banks”?) 
While I have no love for General Motors and am opposed to this bailout as well, I still differentiate between an auto manufacturer which, however sociopathic its actions and products (its role in the dismantling of America’s streetcar system; the corresponding invasion strategy of highway construction; the massive social engineering project known as suburban sprawl; SUVs), still did actually produce a real product, as opposed to the big banks which were essentially running a big scam.
So I find it telling that Obama is willing to at least make a show of getting tough with GM and Chrysler (though not so much with GMAC and Cerberus), while desperately trying to cater to every frivolous whim of the big bankers.
(Though even here the focus is very clearly on what is good for GM, i.e. its bondholders, while the public are even in the picture only as “consumers” who must somehow be induced to buy American cars, that is as a sort of mine. Notice also how even though the UAW has already made significant concessions while the bondholders have made none, the administration propaganda line is that we’re at square one, and “both” are equally obligated to give up things at this point. The bondholders are holding firm, expecting to be bailed out completely. Given how Obama is determined to do exactly that for the bankers, the bondholder intransigence here seems perfectly rational.) 
My first reaction was that Wagoner, a relatively small fish, is being sacrificed as misdirection from what is clearly a Geithner/Obama policy priority to maintain the big bankers in their jobs.
Of course Wagoner provides a clear example of the rent-seeking neo-feudalist mindset. His commitment to the sprawl-SUV societal model, his refusal to pare product lines, tranform to a hybrid-based business model, the killing of the electric car – these all show how he and the board had become completely calcified in the finance elitist sense of entitlement. Wagoner believed GM had a “right” to exist in that form, and if reality was contradicting the entitlement, it was the government’s job to suppress that reality.
So GM’s “business model” was to lobby, fund political action groups, deny climate change, and file lawsuits to preserve its bloated, calcified structure. Beyond that Big Auto for a long time coordinated strategy with Big Oil to enforce the continued existence of the fossil fuel/personal car societal model. This is the essence of corporatism. 
I think a clear sign that we no longer have a democratic capitalist system but rather a corporatist one is that no one loses his job even over major screwups. Thus we have:
1. No one fired over 9/11.
2. Where it came to Katrina, Bush got rid of “Brownie” only under extreme duress. (I would bet that to this day Bush still doesn’t understand what Brown did wrong, or why he had to relinquish him. Just like he probably doesn’t understand why he couldn’t have Meirs on the Supreme Court.)
3. To the best of my recollection, no one was ever forced out for incompetence or war crimes in Iraq (although anyone who questioned administration policy or priorities was drummed out immediately); indeed they gave Paul Bremer a medal. This certainly wasn’t for any reality-based measure of performance. Rather it was for an ideological cadre who pushed ahead with his ideologically-defined task even in the midst of a war, even where it was directly counter to the rational fighting of that war (as when he removed the entire professional class of Iraq, pretending it was de-Baathification, when it was really to remove indigenous obstacles to predatory carpetbagging; the dissolution of the Iraqi army was just one element of this “blank slate” agenda). 
4. Now no one since Fannie and Freddie is to lose his job over the planned destruction of the global economy.
It’s clear that no one but ideologues could think it’s reasonable, moral, or desirable to retain the existing management of these banks, and that in the administration we obviously have such ideologues. That the existing bank management not be fired is a major policy principle for the administration. Otherwise there’s simply no way to explain why the management hasn’t been forced out as a condition of the bailouts.
Let’s assume that an administration is committed to a bailout policy; still, where they have roused such political anger, both reason and politics demand that you at least take the simple measure of getting rid of the dead weight management. This could go a long way toward defusing populist anger, which is so easily personalized.
That Geithner and Obama have refused to take this step, that they are gratuitously courting such a political backlash, is strong evidence that here, just as with Bush and Bremer in Iraq, we are not in the realm of normal reality-based politics, but in the realm of ideology trying to dominate reality.       

March 29, 2009

Size, Complexity, and Gluttony (2 of 2)

Yesterday in this post I discussed the inherent instability and proneness to systemic failure of the immense, ramified, Rube Goldberg structures which have come to dominate the world, and which threaten to be imposed as the only conceivable solutions to the problems we face.

The result is a Tower of Babel whose every tottering is met with the call, “Build another layer!”, as every layer renders it only more top heavy, more of an inverted pyramid.

Therefore we have a tottering pyramid of systemic debt, on top of which the technocrats want to build another pyramid of geoengineering, GMOs, aggrofuels, and nuclear reactors. This debt-funded technolgical structure will allegedly allow us to continue with economic, automotive, and consumerist business as usual without starving the world’s non-rich or further aggravating the climate crisis.

And on top of this, as the alleged purpose of the Tower being built so high already, everyone is to continue building his own personal debt pyramid of consumer and carbon debt. The technology will provide the carbon debt jubilee, while the consumer debt, even in the face of everything we see happening now, is still religiously assumed to be sustainable.

This is supposed to allow exponential growth to resume, and the high-impact, materially gilded consumer lifestyle is supposed to be so enabled to continue unchanged, and not at the expense of the world’s poor.

I’ll argue elsewhere that none of these three propositions are likely to be realized, and that the first two at any rate are in a zero-sum game against the third. For now I’ll just say I don’t believe it’ll be possible for the West’s automobile-intensive lifestyle or its extreme carbon emissions to continue except at the direct expense of the world’s poor. This will be the subject of future posts.

For now I want to say a few words on the underlying moral assumptions of the consumer economy and lifestyle. The core of this decadence is the will to buy as much as possible of useless material junk whose only purpose seems to be as sort of psychological salve. Nobody could articulate why America “needed” to stupidly gigantize its vehicles and houses, or why it had to accumulate such a plethora of electronics and machines whose new versions added nothing but bells and whistles, but whose planned obsolescence seemed to trigger a kind of anxiety in people who have been less and less able to define themselves in any way but by their material “things” – the sheer quantity, the literal size, the expense, and the hipness factor. That this psychology existed in the first place, and had such need of being salved, bespeaks a deeper spiritual crisis.

The nature of this crisis is that over the post-war decades Americans developed a smugness and sense of entitlement both morally and materially. They became less willing to do real work, but rather felt the world owed them a living on account of their self-evident moral grandeur and evident ability to generate a consumerist utopia which materialists all over the world aspire to to this day.

Since Americans didn’t want to really work but still wanted to “have it all”, the answer was debt. America used the status of the dollar as reserve currency to financialize the global economy (goosed with petrodollar recycling; in this way America’s debt fixation and its oil addiction attained synergy), and on the domestic front the people more and more racked up debt to pay for a lifestyle binge. (Much of this debt exists in the form of integenerational warfare as the baby boomers waged war on their own children and grandchildren. This battlefront still rages today.)

They developed a psychotic sense of entitlement regrading all these things. And commensurate with all this came a refusal to recognize that all this was founded upon cheap, plentiful fossil fuels and the mining of other abundant resources; but that now we were starting to run up against the limits of these resources.

Faced with these limits, refusing to consciously acknowledge them, refusing to recognze the necessity for devolution and relocalization, America instead seeks to step up the building of the Tower of Babel. The red thread that runs through it all is (1) the refusal to end the binge, to recognize the party’s over; (2) the will of the power structure and its mercenary scientific water carriers is to serve this refusal, and seek its own profit, however crazed.

The whole situation is like in Poe’s Masque of the Red Death, where there’s a materially lavish but morbid, necrophiliac party as right outside the door the plague rages. Of course it soon finds its way in.

America went into debt to buy junk it didn’t need which nobody should really want, and which it didn’t deserve anyway. This is why America’s moral character has become so flabby. On account of the temporary plenty provided by rich natural resources, America got an undeserved windfall, and has mostly lived on the interest.

Between this handout from fate and the vulgar frauds of mass pseudo-democracy, America’s character became completely gutted, as both in attitude and (for a while) in reality it developed its religion of entitlement.

Now that the material wave is receding, all that’s left is the bad attitude, and a social system based on rationing by aggression and stupidity.

One of our paramount needs in this new day of crisis and opportunity is for a character renewal. There are many reasons to reject the green cornucopian siren songs of geoengineering and biofuels, GMOs and nukes and CCS. On an economic level surely the age of monumental architecture is over. It would be an insane waste of effort and wealth to even try such things. 

But we should also ask, what’s the moral quality of a sense of entitlement which says we should burn food to fill our gas tanks, when this causes the price of food to rise unendurably for the world’s poor? When it even leads to shortages, riots, and mass starvation? Wouldn’t such selfishness be evil?

There’s also the the morality involved in an environmental and social baseline. I never had to treat with the costs, logistic boondoggles, and risks of CCS (although these are immense and render the project irrational), since the environmental and socioeconomic ravages of mountaintop removal mining by themselves rule out coal as a constructive part of civilization. Indeed, I don’t even have to reach the carbon issue here. We can say the same vis nukes and the ravages of uranium mining.  In these cases we see how there are many levels of moral, practical, and rational disqualifiers for all these Tower of Babel projects. Different people will place different emphases at different levels of critique, but my point is I don’t see how anyone can with integrity accept the Tower. It is the monumental architecture of terminal decadence.

Debt consumerism’s moral and corrosive effects heightened the environmental devastation and resource depletion it fed off of in a vicious circle. The giant political and social structures this dynamic raised up – centralized, concentrating and intensifying power and wealth – have been used for social and geopolitical domination.

Materially, politically, and spiritually the motion has been away from the freedom this country was supposed to embody. We aren’t living the good life of classical leisure and intellectual fulfillment the apostles of technology promised. Politically we are simply not free. Rather, any voice which does not join in the hymn sung by big government/big business/big media is marginalized. We in the blogsphere are trying to make inroads on this, but as we all know it’s slow, arduous going at best, and it’s unlikely our ideas can achieve “mainstream” status in time. 

Spiritually, we have to rebuild from the ground up. Here too we need to relocalize. Any good idea, and any way of living with integrity, started locally and never got very big. The catch-22 we face is that by the time a truth becomes mainstream it’s no longer a truth, and by the time an idea becomes mainstream it’s been leached of all vibrance and is just the wraith of an idea. We’ve seen what’s happened with the “green” theme as consumerism and the big profit motive got ahold of it. Does this have to be true of relocalization as well? Is a mainstream relocalist idea a contradiction in terms? Or is relocalization not so much an idea as a template for action which can be invested with a great variety of ideas, rhythms, tones? I look forward to finding out.

March 28, 2009

Size, Complexity, and Gluttony (1 of 2)


In my online work this morning I read three pieces which synergized for me. (links at the bottom)
The subjects of Dave Cohen’s latest column, The Secretary of Synthetic Biology, Joe Romm’s Climate Progress post on the putative nuclear renaissance, and Simon Johnson’s Atlantic piece on the financial crash and oligarchy seemed to have a common thread:
1. A will to maintain size, complexity, and exponential debt;
2. The enlistment of science and engineering toward this strategy;
3. All for the sake of oligarchy and debt consumerism.
I’ve written a lot recently about oligarchy so I’ll give that a rest for now, but in this post I want to jot down some notes on the other elements here.
Cohen details how Secretary of Energy Stephen Chu is fixated on a broad vision of technological heroism to keep Americans in their personal cars. The project combines every gigantist engineering nightmare: GMOs, aggrofuels, and CCS, all to be RDDD’d over the next 20 to 80 years. The goal is to develop “4th generation biofuels”. Genetically modified feedstock, engineered to be ever more photosynthetically efficient and to sequester unnatural amounts of carbon, is to be grown with hyper-efficiency on minimal acreage. (Or so they claim – that’s how it’s not supposed to compete with food production. But Jevon’s paradox aside, how are you supposed to control this GMO? As Cohen writes, “The mere fact that evolution has placed upper bounds on the efficiency of primary productivity in plants suggests that there are very deep reasons why this is so”. We may be contemplating kudzu of mass destruction here.) It’ll then be burned in biorefineries to produce liquid fuel while the carbon is sequested underground. They say it’ll also produce better matches than any computer dating service.
And what grand millennial goal is this all to be toward? What societal vision and strategy? None – it’s all for the sake of debt consumerism and profligate car use.
The same can be said for the dreamt-of expansion of nuclear power. Romm’s latest restates and summarizes the truths. It is tremendously expensive, complex, and unmanageable by any measure which correctly discounts black swan events.
We are currently undergoing the travails of this black swan burndown as the financial megastructure unravels. Simon Johnson’s article describes, among other things, how and why this humongously ramified structure was built. Again the means and the mindset were triumphalist where to came to size, complexity, and “quant” engineering for their own sakes, while the underlying purpose, the answer to the question “Why? For what?”, was paltry and vapid.
When we are asked to look to the putative future gods of size and efficiency, like Chu and the 4th generation aggrofuelers or the nuclear revivalists, we should be looking at the present economic cannibalization of Western civilization as the debt bubble and the bank holding structure collapse. These are all levels of the same Tower of Babel. 
Let’s consider a few points:
Size is not in fact “efficient”. It is efficient only from the point of view of a rent-seeking gang using political muscle to externalize and socialize costs, and to foist all systemic and black swan risks into a risk bubble which like Vesuvius is assumed on faith to never erupt.
The fact is that none of these large structures are cost-effective. They are rather inherently corporatist. There is no conceivable way for nuclear energy, CCS, or bank holding to exist within a true capitalist framework.
If we grant this corporatized mega-structure, allegedly efficient from the point of view of having shifted most of its costs onto the backs of the people and the environment, it is still systemically weak. As Kunstler wrote, “the road to hell is paved with efficiency”. The system has no resiliency, no redundancy, everything always has to perform well; the system can sustain no setbacks.
Whenever we hear the term “efficiency” in a pro-concentration, pro-centralization, globalist sense, we should think of something that looks futuristically sleek and ultrahealthy, but which is at every moment on the verge of death. We see this now with the finance system. But it’s just as true of the energy consumption system, how both the growing and transport of food depend upon a never-ending flow of liquid fuel, and how that food depends in turn upon the integrity of the soil.
When we ponder the prospect that the soil is exhausted; that oil supply would already be constricted if not for the economic depression, but that this constriction will come inevitably, sooner or later; and that the only plans of the powers that be are to build technology bubbles, Towers of Babel, to keep these systems staggering along, we should worry.
When we consider how the practice is to zombify the soil by bombing it with synthetic fertilizer; in order to grow engineered crops which increasingly will be the only ones which can grow in the hotter, drier world, and on such poisoned soil; in order to burn them to produce the fuel which can keep the globalized distribution network humming; which will keep shipping the goods which the people will keep buying with the debt they can momentarily fabricate by still being able to drive their personal cars to work; and which will continue to deliver the natural gas and nutrients this fertilizer requires; and meanwhile how their electricity will come from hundreds of new nuclear plants, all of which will have an endless supply of cheap uranium (or deuterium, if they’re fusion plants); and the carbon from all this activity will be captured and piped underground or to the bottom of the sea, where it will remain safely stored for thousands of years; and therefore the worst effects of the climate crisis and how it could wreak havoc on every element of the Tower I’ve been describing will be averted; and how all of this will be financed by a new and improved bank holding system which will be bigger, more complex, more ramified, and create ever more debt to keep all of this going economically……
…when we consider all this,  we should look at what’s happening to the financial system of today, and picture how incalculably worse the devastation would be if just one thing went wrong with the Tower I just described. And how here we’re talking about immediate, direct effects far more extensive and fundamental than not being able to get a bank loan. We’re talking about fuel and food stoppages.
In his article Johnson compares America to a banana republic. Indeed, in a sense America is an “emerging market”. Much like neo-feudal systems now slash-and-burn the rain forest in order to produce biofuels (and soon GMO biofuels), and how the economy and the earth are mined to extract the capitalization and the uranium required for nuclear energy, so America has slashed and burned its manufacturing economy and social safety net to replace it with a globalized finance economy. This “new”, i.e. atavistic and reactionary finance economy has plunged us back into a feudalistic Dark Age where, organized along crony capitalist lines, it has been only mining the country, not “producing”. And now with the bailouts the mining has been stepped up.
Simon Johnson http://www.theatlantic.com/doc/200905/imf-advice 
Dave Cohen http://www.aspousa.org/index.php/2009/03/the-secretary-of-synthetic-biology/ 
Joe Romm http://climateprogress.org/2009/03/27/three-mile-island-anniversary-meltdown-nuclear-power-problems/#more-5163

March 27, 2009

The Bailout War V: Nationalization and Relocalization

Filed under: Global War On Terror, Peak Oil, Relocalization — Tags: — Russ @ 1:17 pm


(See also the rest of the five-part series)
What alternatives are there to the corporatist bailout which has been the exclusive finance policy focus of two administrations?
For a prescription to have any chance of success, it must consciously face (1) Peak Oil, and (2) the end of exponential debt and growth. The first guarantees the second, although as we’re now seeing “growth” was unsustainable on its own. A policy which refuses to acknowledge these truths, which on the contrary seeks to defy them, can have only temporary success at best and render the terminal crash worse, as we face it having squandered what little wealth and time we had left.
A growing number of commentators outside the power structure such as Paul Krugman, Nouriel Roubini, Tom Friedman, and Joseph Stiglitz have called for some form of nationalization of the big banks. (This shouldn’t be mistaken for real nationalization; the goal here is rather temporary receivership toward reprivatizing them later.) Everyone has his own variation, but the basic idea is this. The government would take over an insolvent bank, wipe out the shareholders, separate out the good assets from the bad, sell the good to pay off liabilities, warehouse the bad (hopefully to be able to sell them later when they’ll be valuable again), inject capital, and the resell the fresh new bank to the private sector. Frequently cited historical examples include the nationalizations in Sweden in the 90s, Japan at the turn of the century, and America’s own RTC which cleaned up after the S&L debacle.
This is a big improvement over the corporatist bailouts. It starts with accepting that some or even all of these big banks are insolvent and only being propped up with government money. It accepts the finding of the IMF that forbearance (i.e. doing nothing but the minimum necessary ad hoc propping up) is more expensive, complex, and opaque than straightforward nationalization, and doesn’t work anyway, but only prolongs the pain and tension. It is vastly more public-spirited and democratic.
But on the whole it does not confront the fundamental problem. It still takes for granted big banks, big systems, exponential debt, Too Big To Fail (there are exceptions, but I’ve described the general trend). It will still look to reinflate the bubble (the fact that every advocate holds out hope that the bad assets will again command high prices someday reveals their implicit faith in infinite growth). It is still within the dominant theme that we are just in a normal economic downturn; that this is cyclical; growth will eventually be restored; we just have to reflate, get out of the liquidity trap, get credit flowing again, and it’ll be business as usual.
(In nationalization’s defense, the common surface objections to it are idiotic. The government isn’t good at running banks? When you look at how badly the private sector ran them, this becomes risible on its face. The government could hardly do a worse job. In fact, there’s serious doubt whether it’s even possible to safely run huge, horizontally-ramified banks. They’ve never existed long without leading to disaster.
They also say it would be a hard sell politically. I don’t believe this at all. While I haven’t seen focus group results, it seems to me the people already intuitively know they are being plundered and would respond to being told in detail about our predicament and what we must do to confront it. They would not be outraged by the idea of nationalization. On the contrary, what is enraging them is the water torture of obvious confusion, incompetence, and criminality among bankers and officials. They can sense they’re being lied to and stolen from. They voted for “Change”. So I’d be willing to bet they’d respond to change. I think here the people are out ahead of the media and punditry.)
Beyond the systemic insufficiency of the nationalization idea, we also face the necessity for a radical restoration of real regulation. The absolute baseline priority for any sane policy is to break up the big banks and bolster the small. This would be a complete sea change from all past trends and the current Bush/Obama policy. All government handouts and loans should be going to smaller, real banks at the local and regional level, not to the bank “holding companies” (what I call bank-derivative or bank-derived structures). Indeed, we should get rid of holding companies completely. Outlaw them. (These were major contributors to the 1929 crisis as well.) Small banks are on the whole innocent of the crimes which got us into this mess, and on a practical level they can play a constructive role in devolving the economy and society to a sustainable level.
So here’s a by no means exhaustive list of the regulations which can help prevent such crimes and disasters in the future. They should be have broad scope and be severely enforced.
1. If you really insist on trying to continue on with big banks, you must relinquish the idea of reprivatizing them. They must become public utilities.
2. Reinstate the Glass-Steagal separation of commercial banks, investment banks, insurance companies. Better, establish commercial banking as a utility, abolish the casino. Don’t worry that this system may not be sufficient to capitalize megaprojects, multinationals, etc. Those things are being devolved as well.
3. Set the reserve requirement at or near 100%.
4. Prosecute under RICO: anyone involved in setting up a “Too Big To Fail” protection-racket structure, or enabling this as a captured regulator.
5. Enact a Tobin tax on all finance transactions. (For that matter, it’s outrageous that unproductive parasitic rent-seeking is taxed as a “capital gain” at a much lower rate than income from productive, true capitalist work. This must be reversed. There should be confiscatory rent taxes across the economic spectrum.)
6. Apply the precautionary principle to financial instruments. Anything not proven safe is out. Anything not explicitly allowed is forbidden.
7. Credit default swaps can only be purchasable by those who hold the underlying asset.
8. More generally, there should be no such thing as “derivatives”, only securities directly linked to assets: the mortgage, insurance policy, secured loan itself.
9. If securities are to be traded, this must be on public, transparent exchanges.
10. There should be full regulation of all traders and money managers, in any kind of entity (hedge funds, etc.)
11. The CBO reported in January that the more opaque the government is in its financial policy, its purchases, loans, guarantees, etc. the greater the losses to the taxpayer. So we must have much greater transparency in government.
12. Repeal the oppressive bankruptcy law change from 2005. The way this law helped predatory lenders bring the disaster upon us for their profit and amusement, and the way it has punished not just deadbeats but mostly hard-working people who fell on hard times (a medical emergency, a layoff, or such), is a national travesty which hasn’t been remarked upon enough.
I’m sure there are others, but I’ll stop there. Those would be a decent start on eradication of the finance/insurance/real estate cabal. Keynes called for the “euthanasia of the rentier”. Beyond its economic effects, the FIRE trust constitutes an existential and psychological obstruction. In our minds and then on Earth we must simply do away with it and do without it.
So where are we headed? I earlier referred to the dominant theme of normal business cycles, the return of growth, how we just need to restore debt creation and start reinflating bubbles. But if growth returns at all it will be temporary, staggering, volatile, and slamming its head ever harder against an ever lower ceiling. The attempt is not worth doing.
We need to dismantle size and interconnection. We have to take whatever comes of the toxic asset write-offs. We must accept the imminent end of the dollar (whether the government directly defaults or devalues the currency, this debt load, an inverted pyramid so huge it obscures the sky, cannot much longer be sustained; we must steel ourselves for this inevitability). It’s the end of “consumerism” and all the little inverted pyramids of consumer debt as we’ve known them.
A baseline measure of how serious someone is, whether at his core he is responsible or irresponsible, is his recognition that we must call an end to the Global War on Terror. This name-brand imperialist campaign long ago lost any conceivable rationale it may have had. (Can anyone give a coherent account of the objective in Afghanistan?) By now it’s just a vanity project. It is strategically stupid, morally obscene, and by any reality-based measure insolvent America cannot afford it.
Most importantly we must get the oil monkey off our backs. One way or another we are going to have to relocalize the six core areas farming, energy, education, manufacturing, health care, and transport. The measure of a society’s wisdom today would be its will to get to work transforming these six domains now. It’s already too late to do so under conditions of easy debt; those conditions are not likely to have even a brief Indian summer. We do have the temporary respite of low oil prices (though in the past few weeks they’ve been showing signs of life).  But given how the depressed credit market has caused widespread mothballing of oil projects, within five years depletion of existing fields will cause global capacity to acutely decline. Leaving aside other elements of price volatility, Peak Oil says one of two things must soon happen.
Either there will in fact be a temporary “growth” recovery, in which case resumed high oil demand will quickly run up against depleted capacity and send prices steeply up, killing the recovery in its cradle. Or, even if there’s no significant recovery, demand has already pretty much reached its minimum (that is, its minimum without radical mass lifestyle changes; all the low-hanging demand destruction fruit has been picked – Jeff Vail has written on that). So even without resumed increasing demand, inevitably demand will encounter diminishing capacity on its way down, and at that point we’ll have the supply crunch and price surge.
So if we are to take relocalization action as a society, this window is probably the last chance we have, already having squandered all the favorable chances on a luxury binge.
Short of that, it’s going to be up to us as individuals, groups, organizations, towns, perhaps regions, to reorder our lives without profligate debt or oil.
IMF paper on forbearance http://www.imf.org/external/pubs/ft/wp/2008/wp08224.pdf
Jeff Vail http://jeffvail.net/
Peak Oil primers http://www.theoildrum.com/ (listed in the left-hand column; the whole site is good, of course)
Two pieces by Dmitri Orlov that I was thinking of while I wrote this piece:

March 26, 2009

The Bailout War IV: Toxic Bank Assets and the Bailouts


(See also the rest of the five-part series)


For a long time I didn’t understand the toxic asset issue. I basically took the conventional frame for granted. This is that America needs for the big banks to get this toxic paper off their balance sheets at some elusive but extant acceptable price; that this is necessary for the good of the economy, of society, for posterity, etc. But it’s become clear that it’s not economically or socially necessary to do anything with this paper. It’s only claimed to be such by those who stand to profit from a massive handout and their agents in the media.
The point of all this policy angst is supposed to be to get the big banks lending again. The banks claim to be on board with this project. That’s what the government and the pundit pen have said from the start. That was how they sold the first $700 billion bailout, and that’s how they defend the $3+ trillion in secret loans the Fed has made. So why didn’t all this money do what it was supposed to do? If the idea was that the bad paper stinking up the banks’ balance sheets was crippling their lending abilities, the infusion of government money was supposed to be an end-run around this. There seems to be no reason the banks can’t lend and just let the “assets” sit. But they haven’t used the money to lend. They’ve hoarded some of it, and boasted that they’re hoarding not out of fear, but to be ready to use that money to seize acquisition opportunities. They’ve spent the rest: quite a bit on acquisitions, and more famously on bonuses, parties, golf outings, stadium sponsorships, airplanes…It seems the banks are not particularly nervous about their financial position. So what gives?
The truth is that before they are willing to resume lending, these bankers are demanding to be bailed out of these toxic paper positions. This is a stick-up. A ransom demand. The banksters are on strike. They are holding America hostage, and their demand is that America buy them out on their own terms. They’re saying, “You want us to lend? Gives us our profits first.” Until then it’s a work stoppage.
The big banks are insolvent. Their assets exceed their liabilities only in fantasy league accounting. If they actually had to obey their vaunted “market” and sell this paper at its real value they’d be bankrupt. They could have used the bailout money to recapitalize as they wrote down this paper, or they could have done the same while selling the paper to the government at marked-down value. This was in fact the original advertised bailout concept. But the irremediable obstacle is that the banks have always privately refused on principle to consider such a thing, while the Bush and Obama administrations were lying when they claimed otherwise. The banks, the administration, and the MSM with few exceptions refuse to accept anything short of a complete public buyout of these assets at fantasy model value. They haven’t yet figured out how to get away with this, although this week Geithner and Obama are trying again.
So given this impasse so far administration policy has sought to prop up the big banks with the minimum necessary but still massive welfare, and the implicit promise that one way or another the administration, in an act of top-down civil war, will redistribute from the people to the bankster elite however many $trillions are necessary to satisfy them. That’s why these are called “zombie banks”. Paul Krugman calls it a new kind of voodoo economics, “the belief that by performing elaborate financial rituals we can keep dead banks walking”.
This is unjust and an incalculable moral hazard (which in spite of its name is a practical concern, not a moral one; the powers that be seem to have closed ranks on this point, that whatever else they may debate, actual morality should have no place in the discussion; thus we get the supercilious tone even from nationalization advocates where it comes to “populism” and public rage).  
Meanwhile the cabal is seeking a new bubble. The fantasy among most in the government is that somehow this will all work out with a new bubble, new debt creation; the banks will be able to pay back the loans, perhaps all that paper can even be reinflated for a taxpayer profit and so on. It’s the exact fix any Ponzi schemer eventually finds himself in, except until now Ponzi schemes didn’t have full government support. But now the government is the top schemer, and who’s going to bail it out? America is running against a greater headwind all the time in selling its debt to China, and China’s looking for a way out.
It doesn’t matter right now. This is their policy and they’re sticking with it. Obama agrees which is why from the moment he was elected he tacked 180 degrees from “Change” to “continuity”. That’s why today we have the “new” Geithner plan, which is really just as retreaded from last September as Geithner is.
I’ll give a quick synopsis of the Geithner plan. They’re going to have an auction of this toxic paper. The bidders will be ostensibly private members of a “Public-Private Investment Program”. These private bidders will have to put up very little of their own money. The bulk of the money is to come from an FDIC bubble: Treasury will pledge some ridiculous amount, and the already precariously leveraged FDIC will match it 6:1. (They say FDIC isn’t happy about this. Nor should we be. It’s already questionable how readily FDIC, the bedrock of stability for America’s deposit banking system, could actually pay out claims in a commercial bank crisis. And now they’re going to use its balance sheet as a toxic asset shooting gallery. Sociopathic.) The rest of it will come from the $75-100 billion of TARP money still left. The private bidders can default on the loan portion of this at will. So they stand to profit if this paper ever goes up in value in some mythical future, while they have almost no risk. Meanwhile the Taxpayer’s exposure is overwhelming and completely negative. (OK, they too can profit if they turn out to have bought low. The chances of winning the lottery are better. Indeed, this is as if you gave somebody a million dollars to buy lottery tickets, only making him chip in a hundred bucks or so, and then gave him 20% of the tickets, and said he only had to pay you anything back if one of his tickets won.)
In addition to this bailout, the plan calls for the Term Asset Lending Facility, already dispenser of gargantuan sums, to lend the banks another $1 trillion or so, at generous terms and with no real collateral.
Of course the real and intended winners here are the banks. The auction is supposed to be the vehicle by which they can trump up an inflated price for these assets. The private bidders, bidding with taxpayer money, are intended to bid the price up to whatever figure the banks choose. Then the adminstration happily shovels out that much money in a monumental loot conveyance, while claiming “the market” discovered that price, and that this is what we need to do to put the financial system on solid ground. As Yves Smith wrote, they must really think we’re idiots.
We must be clear that these “securities” have little if any real value. They never had more than a fantasy value. Now that the fantasy has been dispelled, the market has correctly priced them at or near zero. But the administration’s top priority is to bail out the banks, so they want to hand out as much public money as is politically possible. Beyond that, they’re like hippies trying to levitate the Pentagon. They want to levitate a new debt bubble. They believe we can resume exponential growth. Even the best of them is intellectually bankrupt. This is all they have. Reinflate, levitate. Indeed, the fantastical alleged taxpayer upside is completely dependent upon reflating the “growth” bubble, meaning the debt bubble. (America has not in fact legitimately grown in this century, it has only bubbled up debt.)
The bankers concur with the administration that their profitable bailout be the #1 priority. Only then will they too join in seeking the next bubble, and embarking upon new disaster capitalist expeditions.
The real public-private relationship can be seen in comparing these two quotes:
Geithner from February: “We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system.”
At around the same time, Citi’s Vikram Pandit: “We completely remain in day-to-day charge of the company. We are going to run Citi for shareholders.”
Citi has to date received over $350 billion in handouts and loan guarantees (another kind of handout). It seems Pandit and Geithner are simpatico. Geithner only needed to add that where it comes to financial policy, the administration as well is run and managed by private shareholders, and they want to do their best to preserve that system.
Here we have explicit public-private confirmation of a corporatist coup. 
The stock market stands ready as enforcer. How did the Lehman failure cause a market crash? Or the failure of the first bailout vote in the House last September? It was market terrorism, a corrective blow, the infliction of punishment upon society for misbehaving. The market insists that every policy step have private investor profit with socialization of all losses as its overriding goal. It demands that unlimited public resources be used up for this purpose. When the government misbehaved and allowed one of the fraternity to fail, the market launched a retaliatory strike against America. You could view it as a terrorist attack. And you should consider that when you see how the market rewarded the announcement of the new PPIP. As Naomi Klein wrote back in November, “The markets can be relied on to vote in precisely the opposite way that Americans have just voted….Any and all moves to change course will be met with short term market shocks.” When the media knuckles under and parrots the dogma, Bailouts Uber Alles, we have Too Big To Fail joining with appeasement.
So that’s the bottleneck we face: an extortion racket, bankers demanding that their private profit be the #1 concern of public policy; and an administration which is ideologically sympathetic but which is under political constraint such that it can’t directly convey the loot. It needs to find ways to redirect and launder it. This is the  source of the “public-private” concept, with these Potemkin “private ” investors who are really in effect extremely well paid agents earning a guaranteed salary for playing the role of capitalists. The result is an administration which is malevolent in principle, bumbling and ad hoc in practice. Willem Buiter gets it just right: the bailouts are “without redeeming social value”. (I add, this thereby places them in the legal category of obscenity.)
Fundamentally, the concept that these assets have to come off the books at a profit level dictated by the banks is a theological tenet. The zombie banks and the financial/insurance/real estate (FIRE) trust as a whole are existential and psychological obstructions to any kind of real solution. All their actions are devoted to further consolidation and more intensive rent-seeking – the consolidation and intensification of a new feudalism.
As for our general problem, it’s that everyone in positions of power or influence have one and only one pseudo-idea: always, always more lending, more debt, more bubbles.
The numbers no longer have meaning: $100 billion more from TARP, plus a lot more from new Treasury borrowing, and that amount to be sextupled by even more borrowing in the name of the FDIC, oh and don’t forget another $1 trillion in sweetheart loans. This is clinical insanity by now.
I’m convinced the “leadership” has actually given up all reality-based hope of saving the situation. Where not bolstered by ideology, their nerves have caved in completely. They can only see, only think, only scream “More debt!” It’s a depraved latter-day degeneration from the call Marx imagined them hearing in the capitalist heyday, “Go on! Go on!” toward more production, more profit. Today they can only go on under the hypnosis and artificial stimulant of debt.
Anyone not psychologically sealed in the insanity must look at this Tower of Babel of debt, being built ever higher and ever more top-heavy by the day, and know that it can never reach whatever heaven the bingers are seeking.
If we are to try to constructively unwind the exponential debt civilization, the first thing to do is detach in our minds from the lies and craziness, as well as the seductions and promises, of this delusion. The seductions are only a mirage; no amount of propping up dead banks, no matter how profitable for the bankers themselves, is going to bring back the greed circle of debt which for a few years swept everyone along. People’s material conditions are now being forcibly simplified, but this can all be for the better if not the good if we use this pivot to simplify our aspirations as well.
The world can be a beautiful place, and no one needs the debt civilization to live there. But first we must free ourselves, and a good place to start is to stop fearing the threats of bankers.
[Next up: Nationalization]

March 25, 2009

The Bailout War III: Corporatism and Finance


(See also the rest of the five-part series)


We are experiencing an attempted corporatist coup. It’s the same old disaster capitalist battle plan: trigger the disaster, in this case the financial crisis; shock, confuse, and frighten the people with Too Big To Fail and an unending litany of miserable economic news; use this chaotic environment to push through a plan which would never have any chance of success if the people could calmly understand and deliberate on it.
The finance elite claim to be capitalists seeking a “free market”, but what they really want is a free-fire zone. They want to be free of all government oversight, free of all antitrust, consumer, of labor protection, free of any obstacle to the most predatory and anticompetitive practices, free of environmental regulations, free of any limit on socializing the costs of externalities, free of any regulation aimed at economic stability, free of all social responsibility, and of course free of taxes and anything else which in any way compromises feudal accumulation. At the same time they want the full cooperation and protection of the public bureaucracy, police, courts, prisons, and military, which are all to be deputized in the service of private profit even as they are paid for with public funds.
Feudalism masquerades as capitalism, but it seeks rent rather than innovation (though Orwell-style this is called “innovation”, just as swindler “talent” is called talent as such). Banks, insurance companies, and the real estate industry , who together comprise what Michael Hudson calls the FIRE trust, use debt creation not for productive loans or to raise living standards but to inflate bubbles in real estate, stocks and bonds, luxury novelty markets and so on. They concentrate in a trust to enforce a de facto central economic planning power where all losses are socialized. The “free market” function of the FIRE trust is really a fake rentier function, enabled by the government, which shouldn’t exist at all. Corporatism is pure gangsterism.
Corporatism as an ideology and an agenda seeks to topple democratic capitalism and replace it with a de facto unaccountable autocratic government which serves as a wealth conveyor from the public to a rentier elite. Elected representatives and public officials are first captured with bribes and threats and then selected for ideology and obedience. A complaisant media cooperates. The result is an industry/government/media cabal which wages a civil war from above, treating the public and the public domain as a mine and a dump.
The FIRE trust is based on nothing productive. Rather it manages the production of bubbles and worthless luxury items priced for the consumer through (1) the exponential debt economic model, and (2) Walmartization, which brings only temporary low prices, but permanently destroys local economies and small business and drives the globalist race to gut all labor and environmental regulation. A basic feature of the debt economy is that the worker is disempowered through a divide and conquer process, where just as in any totalitarian society each individual trembles for himself and fears everyone else. In this case each worker trembles for his job since he’s deeply in debt. Thanks to this fear workers are afraid to claim their rights or organize for better conditions, and the result is a steady deterioration of their position.
This in turn intensifies the steep, radical, antidemocratic and antisocial concentration of wealth. Since the financialization of the economy in the 1970s, the protion of the national income going to the top 1% of wealth gatherers has more than doubled, while real wages have decreased by 16%. This concentration process ahs become ever more intense in recent years. The public is steadily stripped of all property and power and reduced to serfdom while power and wealth concentrate among an oligarchy.
The finance and political elite uses the creation and control of debt, of debt-enabled addiction to sham luxury, privatization, deregulation, destroying social services and protections, setting up barriers against relief in the courts, turning the law itself into the infinitely pliable tool of corporate lawyers, to accumulate and deploy power and wealth. Too Big to Fail and its bailouts, the Global War on Terror and its wars, are nominally administration, not even “American” projects. They’re really private wars waged using hijacked public resources.
The corporatist oligarchy, unlike true capitalism, seeks a centrally planned economy. The government taxes the people and borrows in their name, and saddles them with the debt. It then distributes this wealth to the maximum benefit of big industry, according to plans laid out by the finance industry. Today’s Bailout War is just the most brazen and thorough-going manifestation of the standard program. There’s seldom a need for policy conclaves, since the top government officials like Paulson or Geithner almost without exception started out on the private side, and many return after their government service for the industry.
So we have an economy run by bankers and captured Fed and Treasury planners rather than democracy. Through deregulation and regulatory neglect they developed an economic anarchy zone where anything went.  The finance industry inhabited this anarchy with increasingly large, ramified, interconnected structures. Hudson calls them grupos after the feudal finance trusts of Pinochet’s Chile. In good Orwellian fashion they called this generation of bubbles and debt “wealth creation”. They used this position to develop a command economy where nothing except at the lowest, smallest level can work except according to the top-down central plan.
The basic activity of the FIRE trust is according to Hudson to “make money by creating and selling debt”. The finance industry seeks to inflate bubbles: Asian debt, dot-com, housing. The insurance giant AIG spurred a $30 trillion market in credit default swaps. The basis of this market is not insurance of real assets (a steady, frumpy profit) but betting on derivative paper. The real estate business was no longer based on the real assets of land and house but turned the housing market into a casino whose features were predatory lending, speculators flipping houses, and encouraging Americans to view a house not as a home but as a retirement vehicle (which also, in a vicious circle, politically helped justify and further the shredding of the safety net, placing people ever more at the mercy of this bubble).
The origin of corporatism lies in the instability of capitalism itself. According to James Livingston under normal circumstances the finance industry is merely an epiphenomenon, a subsidiary factor within a productive real economy. But the unstable tendency within capitalism is for the proceeds of economic activity to shift toward wealth inequality to the point that there aren’t enough investment outlets for this surplus wealth. Different things can cause this shift. Of course the capitalist always seeks to maximize his profit. As for systemic shift, back in the 20s there was machinery, Taylorism, and monopoly centralization. In recent decades we have modern technology and Hobbesian globalization. The result in both cases is that productivity can be maintained while the economy undergoes a massive shift form wages to profits. With the advent of this surplus, the epiphenomenal finance industry turns into a monster reality. Where there’s too much capital which can’t be productively reinvested, it becomes rent-seeking.
[As Livingston points out, this is why tax cuts for the rich in a debt bubble economy can never increase productivity; why trickle-down can never work. It’s because the extra money just seeks an unproductive rent-maximizing investment. It’s just used to further blow up bubbles.]
[We also see here the incipience of collapse and Depression. This surplus capital is the result of a systemic shift to greater inequality. Its quest for investment outlets conjures up the FIRE trust. As it blows up bubbles and heats up inflation the finance industry exacerbates wealth inequality. So it’s a vicious circle: inequality -> surplus capital and rise of FIRE trust -> aggravate inequality -> more surplus, ever more concentrated finance action and so on, until: (1) the debt load on the consumer is unsustainable, (2) some proximate cause sets off the crash, (3) overproduction and asset deflation crashes the system.
This is the risk and result as disaster capitalism seeks an interior financial frontier where denied an external physical plunder frontier. The late 20s were a hiatus between the heyday of colonial imperialism and the rise of globalist imperialism, while in spite of his best efforts Bush wasn’t able to achieve a sufficient new economic disaster zone in Iraq, even as globalism in its most predatory aspect was starting to be rolled back elsewhere.  
In 2008 Peak Oil and energy issues triggered the unravelling. The American suburbanite got simultaneously hit three ways: (1) as commuter, oil supply constriction and speculation over it sent oil and gasoline prices soaring, while biofuel mandates and extreme energy prices were major factors in food price inflation; fuel and food inflation drove general inflation which hit the suburbanite (2) as consumer; and at the same time as he was beleaguered by a higher cost of living and already finding it more difficult to make his mortgage payments, (3) these conditions and higher interest rates triggered the ARMs in those mortgages, and for more and more people it was too much. The defaults started avalanching and the crash was on.]
What to do with the surplus? It seeks to inflate a bubble. The proximate bubble can be inflated by just blowing up whatever balloons happen to be laying around – real estate, stocks, toxic paper, overhyped startups. In modern times, the global economy was fully financialized starting in the 70s. It took the form of an exponential debt economy. It was all based on the dollar’s reserve currency status. Now “all previous bubbles [were] folded into a ‘Treasury bubble’ “, as John Bellamy Foster put it. The dollar was the reserve currency; at the same time it floated free of any reality-based anchor once it was detached from gold in 1971; to complete the picture OPEC agreed to require dollars as payment for oil deliveries, and all other market sellers followed.
Now the basic pattern was in place. Economic growth was based on exponential debt. Petrodollars sloshed around the world as the financial trusts blew up bubbles wherever they could. Globalization drove the infamous “race to the bottom” for wages, privatization, social spending, labor and environmental regulation (and for that matter public participation, democracy itself). Multinational corporations urged on this downward race while rushing to help inflate the bubbles and, under the auspices of the corporatist-captured World Bank and IMF, rushed as disaster capitalists to exploit any burst bubble or other disaster. All the while the American middle class was placated with a consumer debt binge and flashy worthless technological gadgets, even as its wages and social protections were eroded.
Under these conditions where corporatist speculation depends upon inflating and imploding bubbles, triumphs and disasters, surging and crashing prices, volatility became the new normal. Orwell visits us again to coin the term “Great Moderation” for a world of permanent upheaval and tension and instability where the only thing perceived as constant was the disaster capitalist’s uncanny ability to surf the wave of destruction and always come out profitable. (We can place Great Moderation alongside the Washington Consensus, that self-congratulatory affirmation to drown out the cries of rage and pain of millions who most definitely did not “consent”.)
But in spite of its soothing, moderate name the exponential debt economy was not only unstable but intrinsically unsustainable. Over the years it experienced a diminishing growth return on debt. $1 of created debt generated a 60 cent rise in GDP back in the 70s. The same real dollar in 2000 generated only 20 cents. The reason exponential debt is in itself unsustainable is because each debt-creating entity reaches its limit where it cannot borrow another cent and must crash at the first margin call. We watched this repeatedly in 2008. So to keep any bubble inflating the players need to appeal to larger entities. This drives the merger and consolidation process, but eventually everything must be enfolded in the Treasury bubble, where the US government is the ponzi schemer, the good name of the US government and its dollar is the bubble, and this debt bubble must run up against the limits of the dollar itself, and there’s no higher body to whom to appeal.
That’s the point we’re now reaching. As a nominally private set of structures the FIRE trust bubbled as far as it could. Now it can do nothing but de facto privatize the government and be de facto nationalized by it. Its only other option is terminal collapse.
Similarly we the people now face a fork in the road. The scenario I just described is also doomed. The government itself cannot maintain the dollar’s position even as an out-and-out feudal cabal. So the choices are to let them go ahead and continue taking the debt bubble civilization to its extreme, becoming enserfed along the way, and then suffer the complete collapse while going form mere dreary poverty to absolute destitution.
Or, we can stop corporatism in its tracks right now, defy the terroristic threats of “Too Big to Fail”, recover our country and what wealth we have left, and use it to guide us through a transformation to a sustainable and just economy and society. And best of all we can do it as a free people.

March 24, 2009

The Bailout War II: Too Big To Fail


(See also the rest of the five-part series)


In the classic Mel Brooks comedy-western Blazing Saddles, the new sheriff arrives in town only to find the townsfolk ready to lynch him. He puts a gun to his own head and, talking about himself in the third person, threatens to shoot himself if they don’t let him as kidnapper/hostage go. They townspeople believe him: “I don’t think he’s bluffing!” He escapes to marvel over how gullible they were.
Today we have a whole industry making the same threat, except they threaten not only to destroy themselves but the whole American economy. The response of America’s public elites has been the same as in the movie. “I don’t think he’s bluffing.” But this is no comedy.
Since this crisis began we’ve been living in fear. The specter which looms over us is called “Too Big To Fail”. This concept is seldom treated as a concept, and almost never questioned. It is accepted on faith and in fear. It was peddled by the same administration whose only idea, ever, was to monger fear. Even though the media and the cognoscenti had been burned so many times by the Bush administration’s lies, and even though this latest threat followed the exact patterns which stampeded us into the Patriot Act and Iraq, and even though the same interests as before stood to profit here, they were still as gullible as ever and have been first the Bush and now Obama administrations’ water carriers right on down the line.
I believe TBTF is a classical Big Lie. Even if it were true, could any of the proposed solutions really solve such a problem? And if it is true, why does there seem to be so little will to solve it in a way which would ensure we are never so vulnerable again? Surely any good-faith plan to temporarily prop up the TBTF banks would include a plan to carefully and with all deliberate speed dismantle these entities such that we would never again be in this position.
Yet it is clear no one in the power structure has such a thought. The very personnel who express such fear and loathing over our helpless predicament are the same who seem content with the TBTF institutional model, and more often they seem intent on further consolidating and aggravating it. For that reason we must consider the possibility that out of ideology and greed they want America in the grip of TBTF. If that’s the case, we must also ask if TBTF is simply an ideologically motivated lie. Beyond this we should ask, what kind of world do we want to live in? What are we trying to preserve, that it’s worth living as a slave, paying protection to boardroom thugs, all for the sake of what? Cheap junk from China?
The basic notion of TBTF is that if the likes of AIG, Citi, BofA and others were allowed to go bankrupt, as they certainly would if they hadn’t been propped up with prodigious sums of taxpayer money, the effects of this would reverberate to other giant institutions, weakening or collapsing them as well, and out through other big corporations, and down through smaller banks, pension funds, consumer lending, etc. to hit every individual, while the failure of savings institutions would bankrupt the FDIC. The government’s only option would be to run the printing presses or default on monumental guarantees, either way destroying the dollar. It would be the end of civilization as we know it. (Of course much of this is happening anyway in spite of the bailouts.)
It’s a harrowing picture. Is it true? If this really is what will happen when this massive inverted pyramid built on bubbles and debt finally comes crashing down, then shouldn’t our priority be to build firewalls against it? Instead of obsessing on the status of all this toxic paper, talking of good banks and bad banks, shouldn’t we instead be bolstering local and regional lenders, providing them with “facilities”, helping them unwind their entanglements with the Wall Street monstrosity? Shouldn’t we be dismantling these radioactive structures as quickly as we can do with any level of reasonable care? Since the government evidently has $trillions available, shouldn’t this be used to start brand new local and regional education networks to train a new workforce of relocalized small farmers, small craftsmen, small factory workers, small distributors? Perhaps even help launch regional and local currencies? Shouldn’t the stimulus be directed toward all these endeavors, which clearly look ahead to a future in a world where exponential debt, suburban sprawl, consumerism and profligate fossil fuel use can no longer serve as the basis for an economy or a civilization? That no one among the powers that be sees things in any way other than the opposite is strong evidence of their bad faith.
To properly judge the motivation of the bailout policy, we must go back to how this came about. We must consider how the same cadres who preach TBTF are those who constructed the system in the first place. The financialization of the economy goes back to the 70s. Since the dollar was detached from gold and set loose as the free-floating reserve currency of globalization and petrodollar recycling, while the manufacturing economy of America was hollowed out and the production offshored to an ever more exploited third world work force, the elite level of the American economy has mostly engaged in rent-seeking. It wove a fantastic web of interconnections, games of chance, tricks and cons, cash flows, inflating bubbles here, preying on the aftermath of burst bubbles or otherwise gutted economies there. All the while it encouraged a massive accumulation of addiction to debt, to the point that all of America’s alleged growth over the past decade has been the result of debt and bubbles. Take those away, and America has been in recession throughout this century. As the final ingredient in this witches’ brew, we had deregulation to the point of anarchy.
While the whole process may not have been planned out step by step, the basic goal was always the same: maximum size, concentration, interdependence, and efficiency. It was the most precariously perched, least robust system imaginable. Even the slightest thing going wrong would crash it. So as delusional as many of the participants became, it’s not credible that they gave no thought to the crash contingency. “TBTF” was a planned campaign.
When the financial crisis reached critical mass with the imminent fall of AIG the TBTF machine went into action. Paulson and Bernanke sounded the cry, “Stampede!” Fear seared it in. They told a Congressional delegation if Paulson wasn’t made a literal financial dictator “by Monday you won’t have an economy”. Although the people were more skeptical, elites everywhere, panicked further by the terrorism of the stock market, leapt on board the bailout train. Since then no one has seen an alternative to shovelling hundreds of $billions, and now $trillions, and soon tens of $trillions, into an ever more hellish, more gaping crematorium, and no one sees an end to it.
Today, even as the “new” Geithner/retreaded Paulson plan is being batted about, we should ask a few questions about the status of TBTF as an economic concept. A major concern is how to unwind AIG’s CDS boondoggle. But here’s something I don’t understand about this. If these bets were never supposed to pay off, as the dogma of the perpetual bubble held, then shouldn’t that have been factored/priced into the system? Weren’t those who bet on failure more like typical casino gamblers, just having fun, betting on long-shots, while other buyers were buying for the rationalistic purpose of evading reserve requirements? My point is, why should it crash the economy if we just declared all CDS contracts held by bailed-out companies, or contracts that were offshored, void? Granted, the banks were absurdly overleveraged thanks in part to the CDS scam, but we have that problem anyway. Why are the CDSs in themselves a problem? It seems like an ideological lie, peddled in tandem with the tantrums of the stock market, to scare the people into allowing public money to be used to pay off these bets in full.
Similarly, as some have commented, this all seemed new last Fall. Perhaps people overreacted to Lehman. But today any reasonable person has been contemplating the destruction of AIG, Citi, BofA and others for over six months. So if the TBTF exposure ever did exist, why should it still exist? Surely most participants could have decoupled by now (while anyone who could have unwound at a reasonable loss but hung on in expectation of a taxpayer bailout should be treated as an asocial element).
And, if banks really were on the verge of failure, they would’ve used the bailout money to forestall this. If they aren’t going to lend it as promised, why haven’t they used it to buy the toxic assets from themselves and in that way cleanse their balance sheets? Instead they’ve used it for bonuses, parties, golfing, airplanes, mergers and acquisitions, or just hoarded it. How do any of these keep you from “failing”? How do they help the economy as a whole?
So TBTF was used to stampede America into submission to a massive redistribution of wealth from the public to the very same criminal elite who profited so obscenely in the buildup to the crisis and then set it off. It was the classical pattern of disaster capitalism: trigger the disaster; confuse, terrorize and stampede the people; apply the shock treatment; carry out the corporatist coup. Although they sold the first TARP as a stimulus to lending, they moved immediately to their real purpose. While no lending materialized, word got out that Treasury was encouraging the big banks to use the money for acquisitions. TBTF was really about helping the big get bigger, the rich get richer, and to wipe out the smaller and not-so-rich. Is the encouragement of further structural concentration the action of anyone who truly believes and fears that things are “too big to fail”?
So we’re embarked upon a program of endless cash injections, sweetheart loans, loan guarantees, every kind of subsidy and direct loot conveyance, as all the while first Paulson/Bush and now Geithner/Obama try to figure out how to fulfill every profit expectation of the banks holding this toxic paper,no matter how much loss has to be socialized. Now Geithner even wants to use the FDIC to leverage a bailout bubble, AIG-style, in his desperate attempt to serve the banks. All of this has been shrouded in as much illegal secrecy as the executive branch can manage. Obama is now continuing with what Naomi Klein called “Bush’s most creative innovation: no risk capitalism”. The goal is a kind of permanent corporatist revolution to complement the permanent imperialist war abroad. The two brand names Too Big To Fail and Global War On Terror are parallel and corollary, and both are intended to be the never-ending Long War.
How can we resist this? The first thing is to ask ourselves, are we willing to pay this price? Even if it were possible to salvage the existing system at the price of paying this protection money and having to live permanently under the thumb of these gangsters, would it be worth it? Would a human being desire to live this way? Are we willing to pay this price? Or just like the War on Terror, is it another form of throwing away our freedom for the mirage of “security”?
To anyone who doubts any of this, who claims to believe in Too Big To Fail in good faith, the question is simple: What is your plan to dismantle the TBTF structures and ensure that Never Again will any such structure exist to threaten us. These things are a clear and present danger to all economic and social stability. No one can in good faith wish for their propagation, or wish to pay the terrible price of their continued existence.
If we can accept the unsustainability of the exponential growth economy and the malevolence of TBTF; if we see how this is a path we cannot take and must not wish to take; we could take another look at the world. We could see ways to rebuild the future and build a new, revitalized America, centered on a relocalized, truly productive, truly fulfilling economy.
The financial crash could yet prove to have served a creative purpose if it alerts us to our predicament. These institutions are not our friends and they do not wish us well. They want to condemn us forever to the road of serfdom. If instead the detonation they’ve triggered can cast a light on a different trail where we retake control of ourselves and our futures, it will not have been in vain. 

The Bailout War I: AIG


(See also the rest of the five-part series)


As the administration releases the details of the latest version of the same old bailout pan, the furor over AIG continues to sound. With this first in a series of posts on the bailouts I want to present a basic depiction of AIG as the most typical of the corporate players in this crisis.
As innovator and as model AIG was the prototypical and core practicioner. It led the deregulatory charge. It was the ultimate buccaneer under Bush. It was the first to totter, the first to suffer a “systemic” meltdown, and was the real occasion for the foisting of Too Big To Fail on the public. It set the whole bailout program in motion. Every step of the way it was both one of the key players and the catalyst for the whole vicious system.
In a phrase which has spontaneously occurred to so many of us, AIG has been “ground zero for the practices which led the financial system to ruin” (this is the formulation of NYT columnist Joe Nocera). Nocera goes on to admit AIG was the starting point for the TBTF ideology: “The company is being kept alive precisely because it behaved so badly.” In a joint statement the Treasury and Fed, if not quite so morally honest, made the same point in defending the bailouts: “additional resources will help stabilize the company, and in doing so help stabilize the financial system”. Ben Bernanke was more menacing: “We have no choice but to stabilize [AIG] or else risk enormous impact, not just in the financial system but on the whole US economy”.
What is this uncanny operation? AIG was one of the world’s prestigious companies, proud bearer of a AAA rating, pillar of a respected industry. What went wrong, such that the name AIG is now mud, and this industry is reviled as the “FIRE trust”, as Michael Hudson put it in a typical formulation?
The basic answer is that AIG sold out its original business to become a deranged casino bettor. In furtherance of greed, ideology, and the apparent will to be reckless just for the thrill of it, AIG was at the core of an industry-wide anti-regulatory, anti-rule of law campaign. From 1990-2008 AIG contributed $9.3 million evenly among both sides of the Washington system, and spent another $70 million lobbying them. This modest amount bought a lot of anarchy, and by 2001 AIG had helped carve out a vast quarry of lawlessness to mine the structural and moral integrity of the system. To properly mix my metaphors, it was in this lawless space that AIG was able to set the charges which now threaten to blow the economy sky-high.
Although its practices weren’t uncommon, no one’s actions were so vast and reckless. Now as we stagger about the ruins of the finance world we keep receiving economic death threats: unless AIG, already one of the ultimate welfare recipients in American history (and perhaps the most contemptuously ungrateful), continues to receive ransom payments, it will destroy the American and global economy completely. (Nor is this just rhetoric, apparently. The NYT’s Andrew Sorkin, among others, has written that he believes AIG cadres, if not paid protection money, will intentionally crash the economy.) People are getting angry. Political and MSM apologists for AIG have had the nerve to criticize the public for its anger. But it’s AIG and its political, regulatory, and media enablers who have destroyed it, and who now threaten to bring down the whole system. It is they who are to blame for any level of public rage and direct action.
AIG was, a Tom Friedman put it, running “an unregulated hedge fund inside a AAA-rated insurance company”. It leveraged the moral authority of a AAA rating to get that rating conferred on the derivative paper chase as well. AIG and the banks conspired using “quant” phantasmagoria and this AAA tranche scam to evade regulation, to the point they could claim (plausibly, to those predisposed to coddle them) they didn’t need regulation at all.
AIG was involved in many unsound speculative activities, both recklessly leveraging itself and enabling the reckless leverage of every other player. But the core of its adventure was its credit default swap business. Banks and others holding mortgage-backed securities and collateralized debt obligations and god knows what else were keen to buy “insurance” on the value of these things. Eventually AIG wrote some $500 billion worth of this pseudo-insurance, providing the template for a $30 trillion build-up and eventual unravelling. In theory a CDS sounds like a good idea – a hedge against an adverse change in a changeably valued security. But under AIG the CDS had more lucrative, and dangerous, uses.
The first ulterior application was to enable banks to evade reserve requirements. This was an innovation of JP Morgan, and it seems CDSs were invented in the first place with this goal in mind. Having bought this insurance on their speculations, banks claimed they were no longer exposed to risk, and regulators acquiesced. Meanwhile, even as the banks said AIG was an insurer, AIG itself told those same regulators it was not, and they also agreed to this. Thus both AIG and the banks were let off the regulatory hook upon mutually exclusive rationales. This was the beginning of the lawless environment where the CDS nightmare was elaborated.
One of the key anti-regulatory goals the industry had was achieved in 2000 with the Commodity Futures Modernization Act, which declared CDSs off limits to regulators. Now the frontier really opened up. Joe Cassano, the head of AIG Financial Products, introduced several innovations. It became possible to place CDS bets with little or no collateral. AIG itself took the lead in betting monumental sums it could never possibly pay off. There was also an explosion of pure gambling, as buyers and sellers placed bets on underlying assets neither of them owned. The seller could take book on the same “naked” bet with any number of bettors. By multiplying “insurance” on the same risk, AIG was betting ever more ponderously vs. systemic risk, even as its very action was increasing that risk. This is the opposite of sound insurance practice. “They just bet massively long on the housing market”, an industry insider told Matt Taibbi of Rolling Stone.
Everyone was in on the CDS/MBS scam. Banks could shift risk and get out from under reserve requirements, while the AAA rating bestowed by AIG’s touch rendered the derivatives more lucrative. AIG collected the premiums. It could charge more by writing “collateral triggers” into its contracts, such that if the rating of AIG or the underlying securities were ever downgraded they’d have to post more collateral.
AIG knew it would quickly become insolvent the moment anything went wrong. The two factors which drove them on were greed and the ideological dogma that the housing market, and therefore the value of MBSs and CDOs, could only go up forever, and therefore the CDSs would never have to pay off. They regarded their own AAA rating as a law of nature, theirs by divine right.
This was the core theology of the whole finance bubble, of every finance bubble, of the bubble economy and society we now have. (That’s why we watch the administration continue to flail about trying to figure out a way to magically restore value to these derivatives, and beyond this to reflate the housing bubble. That’s the only idea they have, the only idea they could possibly have, since the American economy no longer has any basis other than bubbles. There’s no longer a stable foundation, only despair punctuated by gold rushes. Boom and bust.)
Nocera quotes former AIG exec Robert Arvanitis on AIG’s self-perception: “They never thought of it as abuse. They thought of themselves as satisfying their customers.” This is quite right. From the point of view of AIG, of TBTF, and of big capitalism in general, your only responsibilities are to yourself and (maybe) to your customers. The public, the public domain and public property, are just resources to be mined.
The CDS phenomenon was exemplary of the financialization of the global economy as a whole going back to the 70s. These practices, and the overarching economic structure, are not conventional value-adding capitalism at all, but simple atavistic rent-seeking. The deregulation-enabled casino capitalism which reached its frenetic pinnacle over the last decade, and which now through the bailout/loot conveyance seeks new avenues of plunder, has been history’s greatest manifestation of corporatism, not capitalism.
AIG began to unravel even before the housing bubble burst. As a result of its slovenly accounting culture, its rating was downgraded in 2005. In defiance of the eternal bubble dogma, this set off many of the collateral triggers. AIG responded by accelerating the writing of CDSs (in effect trying to “make it up on volume”). But soon its position deteriorated. It was bleeding red ink and in 9/08, facing another downgrade and another round of collateral calls, it couldn’t hang on. Big tough guy AIG cried for Mommy.
It was AIG’s interconnection with so many big financial players, in particular Goldman Sachs, which decided for Goldman cadre Henry Paulson that AIG had to be propped up with taxpayer money.The Bear Stearns failure was ad hoc and small enough to be dealt with summarily. Fannie Mae and Freddie Mac were formally public-private and therefore also considered atypical. Lehman was unloved and at any rate still considered an isolated failure.
But unlike in the case of Lehman, Goldman had a $20 billion exposure to AIG’s swaps. They were the most important of many big counterparties to AIG’s bets. Beyond this loomed the prospect of systemic collapse, given AIG’s myriad positions in the global economy. While Goldman and its gigantic colleagues, including several foreign banks, were paramount in Paulson’s calculations, he was able to whitewash his policy by citing AIG’s legitimate insurance business, all the individual policyholders, pensions, money markets, municipalities and so on who would be affected by an AIG collapse. As Taibbi put it, “the AIG bailout, in effect, was Goldman [Paulson] bailing out Goldman”. Or Nocera again: “the bailout of AIG is really a bailout of its trading partners”.
Paulson now invoked the specter of TBTF, and its counterpart Too Interconnected To Fail. he made no mention of AIG’s fat counterparties. The MSM, befuddled and credulous as always, and panicked by the stock market, was ready and eager to listen and obey. TBTF was now enshrined. Paulson and Bernanke were able to sound their call of “Stampede!”, everyone stampeded, and without even thinking about it we were locked into this “bailout” death march which looks more and more to be permanent.
At the time no mention was made that the main purpose of the AIG bailout was to launder taxpayer money to many of the same banks who were receiving direct conveyances through TARP. This double-dipping was treated as a national secret for six months by AIG and by both administrations until AIG finally had to cave in and release the names in March. This came after four AIG bailouts and counting. There’s no end in sight, nor does anyone in power have any concept of what an “end” might be, unless it is to be a permanent corporate welfare state for the finance industry.
So much for AIG’s historical role. It only remains for me to make a few comments on AIG’s character. AIG has long had a reputation for arrogance, loutishness, and a sense of entitlement. Now during the bailout we have seen these traits taken to psychopathic extremes.
When the lead architect of destruction Cassano was finally forced out early in 2008, he was kept on the books as a “consultant” at $1 million a month, where he would still be today if political pressure hadn’t forced them to drop him completely. There has been no explanation for why they kept paying him, any more than there can be an explanation for why anyone at AIG or any of these banks could ever think he or anyone else deserves a bonus. It can only be described in terms of psychopathy.  
Being installed as the new bailout-era CEO, Edward Liddy declared his first priority would be to renegotiate the terms of the bailout to AIG’s advantage and the public’s disadvantage. He has been successful, with each subsequent bailout delivering more money to AIG at ever better terms for AIG and ever worse terms for the public, while rolling back the taxpayer protections of the previous bailouts. According to competitors, AIG has been leveraging its privileged position as a welfare queen to undercut competitors on premium rates. It can afford to do this since its existence, and lavish pay for its executives, is guaranteed by the federal government.
AIG was the first and the worst in the long line of miscreants among bailout recipients caught partying with taxpayer money at gilded age corporate “retreats”. It has been absolutely incorrigible regarding bonuses. It it now using taxpayer money to sue the taxpayers demanding a tax refund related to its offshore activities (themselves a evasion of American taxes) and the very accounting snafu which triggered its downfall in the first place.
It also recently circulated a veritable terrorist manifesto depicting in garish detail the economic horrors which would allegedly ensue if the bailouts don’t keep rolling in (and, implicitly, if anyone dares to question their executive pay). Thus they again take the lead, in waving the bloody flag of Too Big To Fail. (Getting back to Sorkin’s claim that AIG cadres, unless paid off, will go elsewhere and seek revenge upon the American economy while profiting from its destruction, and the contention that we need to pay protection to “retain” these people: if this is true, why are we giving them a choice at all? If this is a ticking time bomb scenario, and only the bomber can defuse the charge, would you coddle and beg him, and let him leave if he feels like it? Wouldn’t you make him defuse it, one way or another?)  
In all of these cases when criticized AIG’s gut response has been defiance and contempt, and only under extreme duress have they ever changed their behavior. They clearly hate and despise the taxpayer whose largesse keeps them alive, and their favorite act is to laugh at the taxpayer. No doubt the very fact that they’re partying with taxpayer money provides a special titillation for them.
A word about AIG’s other holdings, which they’re now trying to sell off. In themselves these are typical. Ski resorts and soccer sponsorships: luxury items. International Lease Finance – large-scale airlines are another unviable, propped-up industry, now definitely doomed by Peak Oil. AIG owns or manages real estate holdings in 50+ countries. Here too they’re a major player in the FIRE trust. So we see how in their diversifications as well AIG is a top-heavy, unconstructive, counterproductive force wrecking civilization.
AIG’s efforts to sell off these things have been getting harder as they and the administration have seemed to connive at trashing the brand name and everything connected to it. AIG says the government will provide “backstop financing” for buyers in this asset selloff. (The government has been backstopping a lot lately ever since it backstopped the Bear purchase.) So here too it’s bailouts and lemon socialism for everyone. The buyer gets to buy cheap, and on the taxpayer dime, while AIG gets another disguised bailout.
This is above all a morality play. AIG is a simple acronym which stands for the turpitude of an ideology, an industry, a mode of organizing the economy, a way to arrange the priorities and practices of government and society. It stands for the complete failure of all of these, on rational, practical, and moral grounds. AIG and its CDS practice were not features of capitalism, but exemplary of the rentier character of the FIRE trust which has taken control of the world economy. America became entranced by the delusion of an ideology and faith in a business practice. When this ideology proved false and the practice failed, America was then terrorized with the specter of a complete economic collapse.
So now the people live under a double despair. They watch the economy unravel and their dreams for the future vaporize, even as they are terrorized with the threat that things will get far worse if they don’t meekly consent to the complete looting of the country in the form of a Bailout War, a class war from above, a war by the elites on the people. Thus the people come closer to serfdom with every passing day.
That’s why I regard the public outrage over the AIG bonuses as a positive sign. Whether or not the proximate cause warranted the rage, the rage itself is warranted and long overdue. AIG, by providing such a clear example of capital crime, easy to understand, and yet clearly indicative of the deepest, most fundamental truths, has ironically provided the occasion for the public to “leverage” its hitherto inchoate anger and confusion.
That the MSM and the administration have largely responded with disdainful lectures and demands for obedience to power just shows the bad faith of the administration and the craven, corrupted fecklessness of the media.
Let’s hope the public has the will to continue its education, to become more active rather than less, to maintain their anger and convert it to activist passion, toward organizing against this theft of our country, this theft of our future. It’s completely in the people’s hands, to let the crimes continue, or to put an end to them, take back the country, and rebuild the future.
http://www.globalresearch.ca/index.php?context=va&aid=12265 michael hudson

Corporate Anarchy

Filed under: Corporatism, Law, Sovereignty and Constitution — Tags: , , , , — Russ @ 4:13 am

Conventional wisdom would have it there still exists an intact system of law and good faith enforcers of that law, and that what we have here are just atypical abuses of it. I believe the evidence clearly shows the law itself is fundamentally broken, and we do in fact exist in a state of nature where the nominal law is just another weapon.

It is the finance industry (and corporatism in general) which has eradicated any rule of law in America. For decades they have acted in bad faith, against the people, against the country, against the very concept of law. Each and every political action has sought to (1) strip away all purview of law in the first place, (2) render any vestigial law or regulation which does nominally exist toothless, (3) even if there remained any actual law or regulatory enforcement, they sought to evade it, (4) as a social and political matter, if it comes down to it they flat out lie.

Here’s a few examples of what I mean. (These are just finance examples, but I could multiply them with examples from the environmental, detainee, food and drug, and consumer protection realms, to name a few.) 

1. Obliterate rule of law de jure: At the turn of the century Clinton/Bush cadres, at the behest of the industry, repealed the prosthetic Glass-Steagal law (meant to prevent lawless situations which contributed to the Great Depression) and enacted a “law” which formally placed the CDS industry outside the law. The CFMA was not an action of law, but an action of anarchy. These actions were meant to place the finance industry in a Hobbesian state of nature where might (their money and political muscle) would make right.

2. Preventing enforcement: Under Clinton, when Brooksley Born wanted to enforce the law, she was shunned and fired. Many would-be conscientous regulators had the same experience under Bush (not to mention private whistleblowers like Harry Markopolos, who tried to warn the SEC about Madoff for years). Now under the Bush/Obama bailout expedition we have the administration stonewalling on transparency law, refusing on principle to give the public its rightful information on who has received taxpayer money, who did the administration launder money to through AIG, etc.

3. Evading enforcement: How exactly (if we live amid good-faith actors) does a corporation like AIG which has benefitted so tremendously from the very existence of the American system and is asked to contribute so pathetically little in return still decide it has a right to evade even those meager taxes by offshoring operations? (And if we do live amid the rule of law, why does the so-called law allow this? This also goes back to (1).) Yet AIG’s actions here were so egregious even the Bush IRS balked at them. And today, hoping for better treatment under Obama (better than under Bush!), they’re suing to get a refund on prior enforcement of what was an absurdly low tax bill in the first place. That goes back to (2).

4. As if all that weren’t enough, now we learn AIG was lying about the amount of those bonuses. It wasn’t $165 million, it was $218. While this change to what was a relatively minor # isn’t important, that even here they couldn’t help themselves, they had to lie, it’s so engrained in their corporate culture, is important, because it’s typical and indicative.

(It should also be an embarrassment to any apologist who’s been arguing that people shouldn’t make a big deal about this because the number is so small. Evidently AIG itself doesn’t agree with them.)

Another lie which has been hinted at: I don’t have the link handy, but I’ve seen quotes to the effect that the vaunted “stress tests” are not in fact to be reality-based assessments of the solvency of the banks, but rather propaganda exercises which already have the predetermined result that the banks are fine and the public should have confidence in them and in whatever the administration says should be done for them.

This culture of the lie is endemic not only to a particular company. It’s endemic to the industry, to these administrations, to corporatist America as a whole, and to the existing system of law.

So we already have systemic “barbarism”. Even a literal lynch mob could not be anywhere near as lawless or as barbaric as the system itself.

And if anyone were to treat these persons as outlaws in the classical sense, we’d only be treating them as they always sought to be treated, and have in fact been treated, all along.

It would just be in a different sense than what they wanted.     

March 21, 2009

Auctions and the Bailout Ideology

Filed under: Bailouts Only Propped Up Zombies — Russ @ 11:59 am


As information finally trickles out about the next big push in the bailout offensive (which really just looks like Geithner’s confused attempt to cobble something together amid the wreckage), one detail which seems edifying is that they’re apparently going to hold a regular auction among the putative “private” buyers for the toxic garbage these banks are holding, rather than the reverse auction among the sellers which idea was bandied about last fall.
The plan is to buy up huge amounts of toxic waste paper from the banks, while cloaking it in the fig leaf of a “public-private” partnership. Some so-called private buyers will be given government money to take a small portion of the total buy. If that portion is ever profitable they’ll get to keep the profits. If it loses money they’ll be compensated by the taxpayer (even though these private investors didn’t put up their own money in the first place). Just like every other aspect of the bailout plan, the goal is redistribution of wealth upward, from the non-rich and the public to rich insiders. 
The auction plan is interesting because it seems to fit so well with the general perception among all participants and observers that no insider is going to be required to take any losses if this administration can help it. That’s why execs feel emboldened to continue to convey bonuses to themselves. That’s why GM’s bondholders refuse to take a haircut but instead demand that the workers, who have already made so many concessions, take on the rest of the losses. And that’s why these banks dig in and demand model value for this paper garbage they hold.
[That’s why we’ve had this ridiculous controversy over mark-to-market. Needless to say, we should be more aggressive about enforcing reality-based accounting rather than fantasy-land arithmetic, (1-100=1000).
Yet from the start we’ve heard from these banks and their flunkies in the think tanks and the media that mark-to-market, i.e. having to tell the truth that garbage has the value of garbage, is what really caused the crash by wrecking everyone’s deluded confidence. That if we all just kept lying to one another everything would’ve been, and still can be, fine. We could’ve lived happily ever after, floating on a deception bubble.
Thus we have the peculiar spectacle of the banks all claiming to be in good shape, and yet still lending among them is frozen. So each bank says it is fine, yet implicitly considers all the others to be lying.
Evidently even with mark-to-market they still don’t trust one another.
Yet the right wing says if we could go back to fantasy accounting we could restore trust. Very strange. Why are all the market fundamentalists suddenly so critical of the market?]
What’s the difference between an auction and a reverse auction? Why does a reverse auction seem better from the point of view of the public good? We would have those who want to sell high having to bid down, rather than those wanting to buy low having to bid up. But what’s our current situation? The buyers don’t want to buy. That’s why the administration feels the need to offer such lavish subsidies, in order to induce them. But the sellers do want to sell, and would be selling at whatever they could get if the administration wasn’t promising to prop up the price. But because they do have complete faith in being completely bailed out, they’re holding out for a complete bailout on this garbage paper.
So that’s why it’s an auction. The Potemkin private buyers will have every incentive to bid up and up and up, since they have no risk, only an upside. The price will reach what the banks have been holding out for. And the administration, who will be using taxpayer money to pay for it all, will try to hide behind the lie that this price was market-certified.
(What they should be doing, if we had a government working for and not against the people, would be to have a reverse auction, with only real private buyers. The government could offer these buyers the carrot of some moderate incentives to buy, while wielding over the banks the stick of threatening to withdraw all government support from anyone who refused to take part.)  
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