In the past few years, the economic relationship between the United States and China has changed dramatically. As Tim Fernholz writes in the American Prospect: "Chastened U.S. officials who once lectured their counterparts in [China] on financial liberalization are now humbled in front of their largest creditor, reduced to offering promises of fiscal responsibility." It's a strange state of affairs. Fernholz rightly argues that:
"The common interest of the peoples, rather than the economic elite, ought to be the driving motivation behind the two countries' interactions. There is no doubt that economic openness has brought wealth to both countries, and the Obama administration is happy to laud the Chinese for bringing millions out of poverty. But in a relationship between "capitalism with American characteristics" and "socialism with Chinese characteristics," sometimes the people-whether they be workers losing jobs in the United States or the millions of Chinese living without political freedom or prosperity-have interests other than the elites. Today, we're in an economic crisis, and pragmatism overrides all else. But as recovery continues, the U.S. will require more thought on the strategic track, and perhaps in a few years our discussions with China, as they should be with all our friends, will be more frank."
But our current economic relationship with China pre-dates President Obama's "talk first" style of diplomacy. As Robert Scheer of The Nation writes: "Don't blame any of this on peacenik liberals. The new conciliatory-nay, deferential-tone toward China precedes the Obama administration, having begun in bilateral talks during the last years of the Bush administration as the U.S. economy began its ignominious downfall. It was George W. Bush's treasury secretary, Henry Paulson, who set the course when the former Goldman Sachs chairman realized how dependent were his Wall Street buddies on Chinese goodwill."
Strange relations with China aside, things aren't going so well at home. Rick Wolff, an economist from the New School, says the stimulus package has big problems in a discussion with The Real News. Wolff also notes that we shouldn't take Wall Street chatter about an economic upswing too seriously. "I think the first thing to remember is the people who are celebrating where we are now are the same people who could not imagine, did not imagine, did not foresee the problem we had last year," Wolff says.
But what's going on with our favorite bailout recipients? Talking Points Memo takes on the case of former Federal Pension Guarantor Charles Millard, who exploited his personal ties with employees at BlackRock Capital and Goldman Sachs while choosing firms to manage the Pension Benefit Guaranty Corporation. At this point, both firms "may have run afoul of federal contracting rules in how they courted Millard."
Goldman Sachs and BlackRock are also on the lookout for the next big economic bubble. Salon reveals that both firms are diversifying their portfolios to include agriculture, in addition to government contracts. "Food is becoming the new oil," especially since the world's population is expected to crest nine billion by 2050. And a lot of land is necessary to grow enough food for nine billion people. Phillipe Heilberg, founder of American investment firm Jarch Capital, is hedging his bets on farmland in distressed countries. "Instead of buying stocks, the former banker is now speculating on the political future of South Sudan, which he insists will be an independent country in 10 years, at which point land will be far more expensive than it is today."
It's abundantly clear that we can't rely on the economic elite to represent the people's interests. Tomorrow's economic structure must be drastically different if the United States is going to thrive. Put simply, we're going to have to seriously reevaluate our economic priorities and decide who calls the shots. Here's hoping that everyday people have a say.
We Americans dwell in a consumer plutocracy, and the plutocrats don't even bother to be cute about it any more. Barack Obama, hailed by the geniuses of new media as a populist saviour, has surrounded himself with a team that was already bought and paid for by the financial services industry before they ever walked into the White House.
"And just in case you ever get a big job in Washington, Larry, remember who your friends are!"
George W. Bush remembered his friends who paid him $15 million on a $600K investment in a baseball franchise, and Barack Obama remembers his friend Penny Pritzker, the Queen of Sub-Prime Lending, chief financial officer of his Senate and Presidential campaigns, and Rahm Emanuel remembers his friends among the investment bankers at Wasserstein Perella, who paid him $16.2 million for two years of "work," and it isn't easy to figure out exactly what "work" that was, because Rahm Emanuel was a speech and communication major at Sarah Lawrence and Northwestern, and never had any training whatsoever in accounting, or business, or finance... but he always knew how to follow the money, as a fundraiser for Richard Daley and Bill Clinton, and now Rahm has followed the money all the way to his current job as Chief of Staff and gatekeeper outside the Oval Office.
"If you ever get a big job in Washington, Rahm, remember your friends!"
And the friends remember, too. They remembered Bill Clinton for signing Gramm-Leach-Bliley, and paid him $40 million for speaking, in 2007, alone, and the same friends already remember Tim Geithner.
Tim Geithner is "[a] very unusually talented young man...[who] understands government and understands markets," says Henry Paulson, who gave away more money to the banks than anybody in the history of the world... except Tim Geithner, Larry Summers, Rahm Emanuel, and Barack Obama.
Glenn Greenwald has recently posted a very abstract jeremiad about our corrupt "establishment," with multiple concurring citations from Atrios,Paul Krugman,Matt Taibbi,Armando, (Big Tent Democrat on TalkLeft), and even Eliot Spitzer, recently returned from the dead by a collective realization that he was right about everything.
Our "establishment" is corrupt, and public outrage about the AIG bonuses is a very good thing, because it scares the corrupt "elite," and fear is the only force that can control those monsters.
This is only half right, as far as it goes, but it doesn't go quite far enough, and stops at a politically safe distance from the Oval Office, which is exactly where the buck is supposed to stop, and where Barack Obama continues to enable and support the most corrupt financial "establishment" since exactly the same corrupt "establishment" produced the Great Depression.
The whole chorus is singing in unison about the corruption of Henry Paulson and Tim Geithner, and somehow forgetting that Mr. Obama was already supporting humongous give-aways to corrupt banks in their most blatant conceivable manifestation, during his last debate with John McCain, when he endorsed Paulson's grab at an absolutely unrestricted mountain of money, $700 billion, and it wasn't just a blank check that Obama wanted Congress to sign over to Paulson... it even included pre-emptive immunity from prosecution!
Last September, Treasury Secretary Paulson, from Goldman Sachs, drew up a terse 3-page memo outlining his bailout proposal. The plan specified that whatever he and other Treasury officials did (thus including his subordinates, also from Goldman Sachs), could not be challenged legally or undone, much less prosecuted. This condition enraged Congress, which rejected the bailout in its first incarnation.
It now looks as if Paulson had good reason to put in a fatal legal clause blocking any clawback of funds given by the Treasury to AIG's counterparties. This is where public outrage should be focused.
Instead, the leading Congressional shepherds of the bailout legislation - along with Obama, who came out in his final, Friday night presidential debate with McCain strongly in favor of the bailout in Paulson's awful "short" version - have been highlighting the AIG executives receiving bonuses, not the company's counterparties.
So Obama was already on board the gravy train for Goldman Sachs and AIG on October 15, 2008, and celebrating "the financial rescue plan that Senator McCain and I supported," with zero accountabilty, and not even the foggiest idea where the money would go, except wherever Henry Paulson wanted to put it.
And now that Mr. Obama is driving that gravy train, instead of just tooting its whistle in Congress and Presidential debates, it just keeps rolling faster and faster, with yet another trillion dollars on track for "quantitative easing," yet another exotic financial device that almost none of us had ever heard of, only a few weeks ago.
I'm glad that the AIG bonuses have finally waked up a little outrage in the slumbering public, and I'm glad that Krugman and James Galbraith and Glenn Greenwald and Atrios are denouncing the corruption of our governing "elite," or "establishment," or whatever they choose to call it, but it's absurd to denounce so many soldiers and under-bosses of our homegrown financial mafia, and yet leave out the kingpin of the whole operation, the capo di tutti i capi, Barack Obama, the infinitely generous godfather of the most blatantly corrupt mob of financiers since an almost identical gang of thieves produced the Great Depression.
Excellent news from the NYTimes the other day: banks which are getting nervous about pesky government oversight are starting to ask to return government bailout money. As I wrote a while back in a fit of outrage when news reports indicated that Geithner wanted to go down the same sorry path that Paulson had been going down- handing government money to bankers with no strings attached to make sure they weren't just pocketing it while doing nothing for the economy- I think that if bankers, don't want accountability, they shouldn't take our money. If they are in such bad shape that they have to take our money to survive, there needs to be tough accountability on how they do business.
I also fundamentally agree with David Sirota that if these corporations are too big to fail, then they are too big to exist: a proposition also agreed to by the populists and progressives of the late 1800s/early 1900s, by Abe Lincoln, by Teddy Roosevelt, by FDR, by Harry Truman. Progressives of all eras have understood that corporations that grow too enormous threaten our economy and our democracy, and should be woken up into smaller entities that can't do so much damage when they are mismanaged. The era of bank consolidation has to come to an end, and these monsters need to be broken into smaller companies just like Standard Oil was in the early 1900s.
Ironically, some of our tax dollars were actually used by these bank conglomerates to buy other banks, instead of, say, giving out loans to consumers and businesses trying to buy things or make investments that would create jobs.
The mess these big bankers have created for our economy is stunning, and it will take many years to work our way out of it. Every day dealing with the wreckage of all this is going to be harrowing. But we can start by doing what our progressive forbearers did: breaking up the big financial trusts, regulating them with vigor, holding them accountable. When a class of people has screwed up as terribly as big bankers have, we should take away their power and watch them like hawks for the rest of their time on this earth.
Today the New York Times discusses whether the government should buy hundreds of billions of dollars of toxic "assets" from failing banks at the market price, or...
Should the government pay a lot more than the market price?
If a bank says their junk is worth 97% of face value, Standard & Poor's says it's worth 87%, and it's selling for 38%...
What kind of fucking idiot would pay more than the market price?
That would be you and me, acting through our duly elected representatives, encouraged by the New York Times and hundreds of half-witted professors who predicted nothing and now explain everything on network TV.
Except that nobody has really bothered to explain anything beyond a few talking points repeated ad nauseam by corporate media and the shills for Goldman Sachs who happen to be running the federal government.
Question: How did we get in this mess, and how bad is it?
Answer: Garble-arble gib-gab!
But now that the screeching panic incited by Hank Paulson and his pals to stampede $700 billion out of the US Treasury and more trillions out of the Fed has subsided a wee bit, a few reasonable and even conservative economic researchers have begun to question the basic assumptions of this humongous honking boondoggle.
One reason things didn't fall apart when Congress didn't immediately act as Paulson and Bernanke demanded, may be that there wasn't any danger of a meltdown in the first place. So say three senior economists working at the Federal Reserve Bank of Minneapolis, who in October examined the Fed's own data, and concluded in an article titled Facts and Myths About the Financial Crisis of 2008 that the claims that interbank lending and commercial lending had seized up were simply not true.
"Bank lending to consumers and to non-financial companies had not ceased, and banks were lending to each other at record levels," says V.V. Charri, an economist at the Minneapolis Fed. "Maybe Bernanke and Paulson had information that they were not making public, but the available data simply did not support what they were saying." Charri and his colleagues and co-authors Lawrence Christiano and Patrick Kehoe agree that with companies like Lehman Brothers, AIG and Citigroup foundering because of toxic debt instruments, there was a sense of a financial crisis brewing, but they say it wasn't a credit freeze.
"This was a lot like the run-up to the Iraq invasion in 2003," says Charri. "You had people in government saying: `We're smart guys, trust us.' But they were either wrong or they were lying."
Adds Kehoe: "Normally, when you're going to spend a lot of money, you present the data and the economic theory to support it, yet here's the biggest non-military government intervention in history since the Great Depression, and there was no evidence presented to support it, and no detailed economic argument made about what market failures this $700 billion was going to fix."
So if you turn off your TV, cancel your subscription to the New York Times, and stop listening to a mob of self-interested shills for hedge-funds and megabanks...
The meltdown looks more like a collapsing bubble than a credit crunch, and all those trillions that were supposed to ease credit have simply vanished into thin air.
To put it another way...
We gave the economy a gigantic laxative, when what it really needed was a square meal.
We need jobs and mortgage relief and $2 trillion to repair our infrastructure, but Bush-Obama-Goldman-Sachs have already bled out the Treasury and Federal Reserve with useless giveaways to dying megabanks, and all that's left for the rest of us is the dregs.
by Zach Carter, Media Consortium MediaWire Bloggger
Since the U.S. is officially in a recession, and the Congressional Budget Office has predicted the worst economic downturn since the Great Depression, just about everybody acknowledges that times are tough.
by Zach Carter, Media Consortium MediaWire Blogger
"I'm not talking about a budget deficit. I'm not talking about a trade deficit. I'm not talking about a deficit of good ideas or new plans. I'm talking about a moral deficit . . . . We have a deficit when CEOs are making more in ten minutes than some workers make in ten months; when families lose their homes so that lenders make a profit; when mothers can't afford a doctor when their children get sick."
Keeping up with the media lies and distortions, notes and quotes on the worst theft in U.S. history:
The LIBOR Card
Probably the major corporate media lie is the credit freeze lie, pushed all day long by all the big corporate media. The sophisticated believer in those lies plays his LIBOR card and what is an advocate for 'duh people' to do? Well, if you are reading Dean Baker, you'd know that in fact the LIBOR is actually not at a very high level right now:
Bloomberg reports that the three month London Interbank rate (LIBOR) closed at 4.05 percent on Tuesday. In the same chart, we can find that it was 5.23 percent a year ago. Those interested in a little more history can find that the LIBOR rate was over 8.0 percent for most of 1990 and actually topped 9.0 percent on some days in September of 1989.
Also, as Baker points out, while it's true the overnight interbank lending rate is at a 'record' level now, records have only been kept since 2001! And then there's the relevance of the bailout to loosening credit, but that's another note.
The Big Picture
Horrifically, the bill does nothing for the big economic picture, pulling a severely distorted economy out of what looks like a severe recession. Here is that big picture as described by Paul Craig Roberts, with a key focus on how financial assets are now a way overboard multiple of the real economy:
Senate Democrats emerged from a meeting Wednesday with Treasury Secretary Henry Paulson to report a general, conceptual - but fragile - agreement on a $700 billion plan to rescue the U.S. financial markets.
Senators said Paulson and the Democrats struck very tentative deals on Democratic demands on oversight and transparency, executive pay limits, and equity interest on taxpayers' behalf as part of the massive plan. A hard-fought Democratic provision to allow bankruptcy judges to revise mortgage terms was not likely to survive the horse-trading, however, as Paulson would not agree to the provision that is already in the House and Senate versions.
Majority Whip Dick Durbin (D-Ill.) said a bill could be produced as early as Thursday, with debate and a vote likely over the weekend. Ideally, Durbin said the Senate would finish the bill before Wall Street opens on Monday.
Why did it have to be $700 billion? That figure was pulled out of nowhere, and based on nothing. Why did it have to be done while Bush was still in office? Because, if we didn't turn it into the perception of immediate armegedden, then they probably wouldn't have gotten the money at all.
When this gets passed, it will suddenly matter a lot less if Obama becomes President, because we just gave all of the money for Obama's social programs to Henry Paulson. That was a good idea. I'm sure it will be for the betterment of our nation.
This is an open thread on today's developments and Bush's speech.
Update: PBS is reporting that House leaders will meet tomorrow to hammer out the final details. Also, Barney Frank claims he has the votes to pass a deal tomorrow. This one appears to be over.
Yes, we are getting equity, but it is equity on the crappiest shit. Yes the administration caved on some demands, but we appear to have caved on the biggest demand of all: the $700 billion amount that they pulled out of thin air. And yes, of course it still matters that Obama wins. But I stand by my assertion that with so much money spent beforehand, it matters a lot less. Most of what the federal government does is spend money, and the money for the next President is shrinking, fast.
If the amount gets knocked way down to $150 billion or less, then maybe we will have something. However, with the $700 billion figure, we just seriously kneecapped President Obama in favor of the biggest corporate bailout in history.
Have you actually read the bill that Secretary Paulson and his Goldman assistants wrote for Congress? Not the current version (I shudder thinking about it) with all its inserts from financial industry lobbyists, but the first version. It was beautiful in its simplicity and proved that revolutions can be initiated by the stroke of a pen in societies ruled by law -- as long as ruling elites supports them.
It got me thinking. I have a mortgage. I still owe a lot on it. People in my neighborhood are in the process of foreclosure. And still others are struggling to pay rents that spiked in the real estate bubble but show no sign of coming down with housing prices.
I decided to use the treasury's proposal as a template for one that would help me and my neighbors. Paulson's bill is so user friendly, that it took me only 15 minutes just now to convert it from a bailout for billionaires to a "Homeownership For All" act. See below for the text of my proposal to Congress.
OpenLeft readers who pay attention to such things have probably noticed that I have been a bit missing in action on the blogging front the past couple of weeks. This new project as pretty much consumed every waking hour (while leaving a lot fewer hours to sleep). It's kind of a wild-ass process combining groups, donors, pollsters, message gurus, lawyers, targeted state activists, and others. We're trying to figure out what is going on in the election day-to-day, advise donors on the groups (national and state-level) who can make the biggest difference, and hook groups up to creative people who can help with messaging.
It's been all-consuming, but I've regretted not being able to write more with all this wrenching stuff happening in the economy and politics. Like most folks, I don't know much about the intricacies of high finance and capital markets, but I do know one thing: if Democrats make this deal without demanding some basic reforms to hold these Wall Street bastards accountable, and without getting something out of it for middle-income folks, they will be making a bigger political, policy, and moral mistake than the 2002 fiasco of a deal they cut with Bush on the war. Bailing out these greedy financial gurus who've led us down this path, and getting nothing in return, is indefensible morally and incredibly stupid politically. Like the war vote in 2002, it would fundamentally divide our party and demoralize the activists, volunteers, contributors, and voters we need.
On the campaign front, the most under-reported yet incredibly important dynamic that has happened in recent weeks is the increased racial fear-mongering that the Republicans are now openly embracing. Trying to link Obama to every black man who ever did something wrong- first it was Kwame Kilpatrick, then Franklin Raines, next I'm sure will we'll be seeing ads associating him with rappers- is central to their emerging endgame strategy.
The shape of the bailout bill that Democrats agree to, and the way the Obama campaign drives the economic message and deals with the racial dynamics in the coming couple of weeks, will probably decide this race. In the meantime, we should be raising hell about all the craziness going on. Accountability- both on the financial bailout package, and on the race-baiting BS- should be at the top of our agenda.
The Secretary of the Treasury, Henry Paulson, has proposed some rather significant reforms to the Federal Reserve. These changes would allow the Fed to intervene and review the books of any company with significant financial business in the American economy. On the face of it, his proposal looks more like something from the New Deal than the Bush Administration, but that may be the very point.
The Executive may be setting up the Fed to fail.
Treasury Secretary Henry M. Paulson Jr. is trying to turn the complicated muddle that is the U.S. banking regulatory system into something more coherent. To that end, he would replace a sprawling set of regulators aiming to ensure the soundness of the nation's financial institutions -- including the bank-supervision arm of the Fed, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the National Credit Union Administration -- with a single Prudential Financial Regulatory Agency.
...
But the Fed would give up its power to regulate the day-to-day affairs of banks, responsibilities that many in the institution view as essential to its role as guardian of the economy -- even as the central bank gains new powers to insert itself into the affairs of any business creating risk for the financial system as a whole.
...
"The Fed's ability to deal with diverse and hard-to-predict threats to financial stability depends critically on the information, expertise and powers that it holds by virtue of being both a bank supervisor and a central bank," Chairman Ben S. Bernanke said in a January 2007 speech.
In the Treasury Department's plan, the Fed would lose the responsibility for day-to-day monitoring of banks' financial stability. It would gain a more loosely defined ability to monitor and correct risks to the entire financial system, whether they come from banks, investment firms or hedge funds.
To many people with ties to the central bank, that is a lousy trade.
"The Fed should not be enamored of this proposal at all," said Ernest T. Patrikis, a former senior official at the Federal Reserve Bank of New York who heads the banking regulation practice at the law firm Pillsbury Winthrop Shaw Pittman. "It takes away a lot of authority, power and involvement." - The Washington Post
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