Volatility

February 17, 2010

Bailout Tyranny

 

Today we have the Bailout tyranny. Its proximate goal is always the loot, as we know. But just as importantly, TPTB must keep erecting the Tower of Babel. Their debt economy, their power machine must keep growing exponentially, must keep expanding, or else it collapses. Since there’s no real economic basis for the debt tower, since the aggregate system is insolvent, to keep it zombified now requires the total liquidation of what wealth is still distributed among the people. This means the remnants of uncollected political democracy must be destroyed as well.
 
The only alternative for the power structure is to voluntarily relinquish its accumulated power and wealth back to the people.
 
So how can they keep the zombie perambulating? They probably can’t pass another TARP. That’s why they’re trying to do an end run around the political process:
 
1. Secretive, in principle infinite Fed QE and MBS buys.
 
2. The Fannie and Freddie debt ceilings have been lifted completely. The purpose of the GSEs is to be a loss-socializing buyer of all MBS using public funds whenever the “market” prices aren’t satisfactory to the bundlers. Since everyone now knows the real value of this paper is little or nothing, and therefore these market prices will never again be so lucrative as the banks demand as their god-given entitlement, from here on the ONLY buyer will be the conscripted worker and taxpayer, his money stolen and laundered to the banks through the GSEs.
 
3. Paulson failed in his original attempt to get congressional authorization making him a veritable Treasury dictator. The attempt was to get a permanent, open-ended resolution authorizing force very similar to the Afghanistan resolution of fall 2001, which has since been used to justify anything and everything. In principle it can be used to impose totalitarianism. The actual “legal” basis of the Hitler regime wasn’t really the infamous Enabling Act. Rather, the Enabling Act only reinforced the state of emergency declared following the Reichstag fire, which state remained in force throughout the Nazi era. In the fall of 2008 they overreached, in effect trying to get the administrative emergency language codified as law immediately. They ended up having to backpedal and settle for the imperfect TARP (although, as I’ll get to shortly, this did have some subsequent political advantages).
 
Since then they’ve gone back to the more circumspect sequence, establishing the permanent channels of the Bailout in a politically less conspicuous and more arcane way. And now we’ve come back to the post hoc legislative codification, as Geithner has sought to get the original Paulson dictator power enshrined in the financial “reform” legislation, via the “resolution authority” scam.
 
When he was asked at a Congressional hearing, would there be any limits in principle to his disbursement authority, any limit on the trillions in taxpayer dollars he could legally hand over to the banks at will, he happily replied, “No.”
 
So they’re going for end runs, secrecy, lies. The basic Bailout lie for public consumption is simply, TARP = Bailout. The government and the MSM have been all too successful with this line of propaganda so far.
 
(So a main task of public education is to break this Big Lie. The people have to understand that the Bailout, the theft, goes vastly beyond the TARP. Maybe some simple metaphors and stories can help. You catch the burglar running out the front door with your toaster, while the others are hauling your TV, stereo, and jewelry out the back.)
 
The system’s enemies are transparency, accountability (including real accounting), democracy, the people. On Sunday the NYT had two articles about this. Gretchen Morgenson asked an obvious question: Shouldn’t the impresarios of the Bailout at least have to go public with what all this will cost? She describes the work of Martin Phaup, who did an expose of Fannie and Freddie’s government subsidy back in 1995. This was much to F and F’s “outrage”, according to Morgenson. And yet the numbers back then were paltry by today’s standards. Today we know little of the astronomical costs, except that the government felt the need to remove the $400 billion capacity limit on this conveyor belt of the Bailout. That says it all on how much they expect it to cost.
 
Today Phaup calls for new sunshine. He thinks forcing the GSEs’ accounting into the light would force government to either really constrain the banks, and/or find a way to pay for the Bailout with taxes rather than borrowing and accounting fraud. (I’d love to see them forced to dedicate taxes to pay for the Bailout. It would be politically impossible. Or, if they tyrannically pushed ahead with it, we really would have a revolutionary situation.)
 
But as Morgenson says:
 

Lawmakers interested in re-election have little incentive to be truthful about what implied guarantees of powerful companies will cost the taxpayer. Better to brush it under the rug or pretend the costs don’t exist. Then, when they must be paid, policy makers can argue that it’s an unforeseen emergency and an odious necessity.

As the number of firms with implicit government backing has risen because of the crisis, so too have the expected costs of those commitments, Mr. Phaup said. And yet, under current budget policy, those costs will be ignored until the recipient of the guarantee collapses — the precise moment when the guarantee is likely to cost taxpayers the most.

Three years into the crisis, we are no closer to reining in too-powerful-to-fail companies or eliminating the risks they pose to taxpayers. Both goals are achievable, yet our legislators refuse to do what is necessary to protect us from trillion-dollar bailouts down the road.

It’s a disservice to a bewildered and beleaguered nation.

 
Similarly, we the people have a right to all Fed information. First, democracy requires it. Second, this information is public property. Third, according to their own neoclassical ideology, the “market” is supposed to have all the information universally distributed.
 
But as this article on the fight for sunshine of Mark Pittman, Bloomberg and others describes, it’s like pulling teeth to get this cabal to open up.
 
Here the Fed goes into “private” mode, openly sides with the banks, is sensitive, solicitous, sentimental regarding their interests, while openly contemptuous of the people’s interest.
 
But let’s be 100% clear. The Fed has been vested with the printing press and with responsibility for the stability and job creation of the people’s economy. So whatever you call it, it is 100% a public institution, it is 100% the people’s property, and this includes its information and its prerogatives. We own it all, and we have a right to shine light on it all.
 
The piece asks:
 

EVEN a layman understands the fundamental role that information plays in the economy. But what about secrecy? Does it have a place in high finance? The Clearing House and the Fed believe it does.

 
There’s no question of that. It’s self-evident.
 

The Federal Reserve has wrapped itself in secrecy since the turn of the 20th century, when a select group of financiers met at the private Jekyll Island Club off the eastern coast of Georgia and, forgoing last names to preserve their anonymity among the staff, drafted legislation to create a central bank. Its secrecy, of course, persists today, with Ben S. Bernanke, the Federal Reserve chairman, refusing to tell even Congress which banks received government money under the bailout. There is also a heated battle to force the Fed to disclose its role in the controversial attempt to save the insurance giant American International Group.

In its appellate briefs, the Clearing House invoked this tradition of silence. It pointed out that the Federal Reserve Board does release information on its Web site about the total money it gives out, although not about loans to specific banks. Bloomberg News, it maintained, was trying to “upset the board’s longstanding policy against disclosure.”

 
This “tradition of silence” is something arrogated and unconstitutional. We do indeed want to “upset this policy against disclosure” of our facts about our money.
 
The article delivers a terrorist threat from the Fed’s lawyer. (Who’s no doubt being paid with our money to try to destroy our democracy. How do like it that the Fed is always hiring fancy private law firms? Shouldn’t they have (far less expensive) in-house counsel? Yet another example of laundering, of embezzlement.)
 

Mr. Giuffra argues that the open flow of information — while ostensibly a virtue — can, in fact, be dangerous. The Fed’s discount window, which provides money on a short-term emergency basis, is a lender of last resort, as is its alphabet soup of special programs. If depositors or creditors were to find out that a bank had reached the point of needing last resorts, it might be compromised in public. And, as Mr. Giuffra notes in his court papers, “banking history is replete with examples of financial institutions failing when the public loses confidence.”

Indeed, his papers can, at times, sound something like the highlight reel from a financial disaster film. They refer to no fewer than eight bank runs — many large, some small — in recent years, though only two had anything to do with central banks.

 
We shouldn’t have confidence in a system whose lies and criminality are matched only by its incompetence and recklessness.
 
The same goes for this, which at least has the virtue of comedy:
 

To bolster the case that transparency is not, as the news media would have it, an unfettered good, the Fed and the Clearing House filed affidavits from several Fed employees, each one testifying that banks face a “stigma” when their emergency borrowing habits are known. The Fed wrote that these affidavits, coming as they did from experts on the front lines, were themselves enough to prove its case.

Bloomberg’s lawyers have said that this line of argument smacks vaguely of “father knows best.”

 
Here’s a paragraph which really lays bare the Fed’s derelictions:
 

The Fed, meanwhile, has worried that if the appeals court rules for Bloomberg, then savvy traders could quickly get their hands on such data in the future and use it to their advantage even as the government was trying to stabilize the markets.

 
How would that happen, if everything was simply fully publicized? On the contrary, it’s clear that the current furtive practice has been tailored to facilitate insider trading and other scams. This insults the intelligence in the same way as their claim that listing who got money through the “facilities” would compromise perceptions of those banks’ solvency, when on the contrary the current coverup simply confirms the perception that all the big banks are probably insolvent without massive welfare payments.
 
And as always, every claim about some weakness in the system they’re allegedly trying to compensate for immediately provokes the question – What are you doing to fix this so the government will never again be involved in “stabilizing markets”?
 
Oh, you’re doing nothing? That proves your bad faith.
 
The piece says the judges for the appeal were openly skeptical of this Fed argument:
 

It is notoriously hard to infer judges’ leanings from the questions they ask, but even Mr. Giuffra acknowledged that the panel, which is not likely to rule for several weeks, seemed to take a dim view of some of his points. Among them was his argument that the information in the documents was not the releasable kind generated by the government — in this case, by the Fed — but was instead obtained from “a person,” or the banks, and was therefore private and protected.

 
The “personhood” lie never stops doing damage. And even if it were “correct”, why would a “person” under these circumstances have any privacy rights? These same right-wingers are always demanding that other kinds of welfare recipients give up every kind of privacy right. So why would these recipients of trillions in welfare payments have any “privacy” rights? They’re stealing public money.
 
But the article close on a high note:
 

Whatever the results, Ms. Bennett and her investigative team have walked away from the experience with their tribal energies revitalized.

“You can’t know how exciting and explosive it’s been,” she said. “This wasn’t some plan where we said, ‘We’re going to file the FOIA, then we’re going to wait, then we’ll check it and our ultimate goal is to sue the Fed.’

“It came up spontaneously. It’s like what it was like 30 years ago. Back in the days when journalism was exciting — really exciting.”

 
Now that’s what life is supposed to be about. (Although that quote says a lot about how far Bloomberg’s normal practice has fallen from real afflict-the-comfortable journalism.) How did we lose it all so badly? What depths of the soul could exist, that we’d let gutter greed overcome our humanity? Nothing else can work unless we can get that back.   
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6 Comments

  1. Russ,

    Be careful what you wish for. Money these days is essentially infinite in quantity and has value only because upwards of 95% of the population has trouble rounding up enough to last out the month. The fact that a small handful of creeps are rolling in dough is annoying but less significant than you seem to think, but envy potentially plays a large role in energizing the dumb and violent brutes lurking everywhere one looks. I think you are far too optimistic about popular control of sleazy institutions. Read up on the French (or Russian) Revolutions. Despite the efforts of Helicopter Ben, we still have far more to fear from a deflationary liquidation in which all boats will be capsized. Sauve qui peut.

    Comment by jake chase — February 17, 2010 @ 7:47 am

  2. Jake, I think about all the potential pitfalls. There’s few things I think about more than how the Russian Revolution was hijacked, or how the French….well, at any rate didn’t turn out as well as it might have.

    But, when I look at the choices as being guaranteed corporatist tyranny until the whole thing finally crashes (and then who knows what will follow; anything’s possible), or trying to reassert popular control, even with the risk (and perhaps the probability) that that too will end up being “the new boss, same as the old boss”, that’s an easy decision to make.

    It seems to me that when people talk about these things, but aren’t yet plunged into the events, we tend to agree that the best would be some sort of decentralized government by councils. These spontaneously arose in every revolution, and in every case ended up overcome by centralism.

    But I wonder, now that we know how the hijacking occurs, can that knowledge attain vigilance against it? The American Revolution itself was to a good extent the result of the colonists’ conscious vigilance against creeping British constriction, a vigilance informed by their study of history and political theory.

    Bernard Bailyn’s studies give an excellent account of this dialectic of thought, writing, and action.

    A similar question is whether, as fossil fuels are depleted, energy inputs decline, and economic activity must resume its normal, pre-industrial state, whether that necessarily means we must socially and politically revert to feudal organization, or whether what we’ve learned can help us maintain our hard-won freedom. It’s hard to imagine, given how little resistance people are showing now.

    TPTB definitely want to take us back there. I think the only way to prevent that is to fight it, however many risks we must run to do so.

    Comment by Russ — February 17, 2010 @ 11:44 am

  3. More practically –

    I think we’re kinda like the Pilgrims were who brought us to this situation. Are we going to stick around and put up with the King’s shit or are we going to get on this boat & sail off & try to improve our lot? It’s in our blood.

    Comment by chas — February 17, 2010 @ 3:44 pm

    • Yes, the only problem is that there’s no longer any ocean to cross. (If there were, I’d certainly cross it.)

      Nor can we buy into the 60s Camelot notion that there can exist a “new frontier” within the parameters of this system.

      No, if we’re going to find that frontier, we need to rediscover it, from the inside out, spirit to action to construction, and from the bottom up.

      Comment by Russ — February 18, 2010 @ 3:52 am

  4. Another fine piece, Russ. I question the following assertion.

    “But let’s be 100% clear. The Fed has been vested with the printing press and with responsibility for the stability and job creation of the people’s economy. So whatever you call it, it is 100% a public institution, it is 100% the people’s property, and this includes its information and its prerogatives. We own it all, and we have a right to shine light on it all.”

    It isn’t the public’s property completely. Frankly, I am not sure to what degree the public has prerogative over the operations of this murky and nefarious institution, but that is precisely the point. The responsibility of “coining” money was Constitutionally mandated to Congress, not to an outfit like The Federal Reserve. If “We The People, in the form of our elected representatives-who are admittedly, in the main, corrupt, can not exercise ultimate control over this institution then we must revoke its charter and replace its signature franchise product, namely the FRNs, with something else.

    Thomas Jefferson would’ve understood our predicament with absolute clarity, and may well have offered the following nostrum:

    “The tree of liberty must be refreshed from time to time with the blood of tyrants.”

    Comment by Edwardo — February 17, 2010 @ 11:16 pm

    • I know what you’re saying. I wasn’t speaking of the technicalities of it according to their rigged laws and institutional infrastructure.

      I was expressing the moral and constitutional truths of it.

      As for what should be done as a practical matter, we agree, either radically transform the thing so that it is a de jure public institution, or else get rid of it completely.

      Comment by Russ — February 18, 2010 @ 3:57 am


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