From Bloomberg News:

A merger of General Motors Corp., the largest U.S. automaker, and Chrysler LLC may cost 74,000 jobs and close half of the smaller company's plants, according to a report from an accounting firm.

The combination may eliminate all but seven of Chrysler's car and truck models, Grant Thornton LLP said. Chrysler, the No. 3 U.S. automaker, would keep the Dodge Ram pickup, minivans and some Jeep models, the report said. GM and Chrysler owner Cerberus Capital Management LP are studying a merger, people familiar with the plans have said.

The automakers will probably have a tentative agreement before the Nov. 4 U.S. presidential election, said Kim Rodriguez, who leads Grant Thornton's automotive restructuring group. Still, a tie-up will be impossible without an infusion of cash to bolster the balance sheet of the new company, she said.

``It's probably not the optimal solution, but unfortunately it's the optimal solution given the facts in which we find ourselves,'' Rodriguez said in a presentation today in Southfield, Michigan.

The combined company would have to cut 24,000 Chrysler jobs, split evenly between administrative and manufacturing employees, Rodriguez said. That figure includes the already- announced 25 percent reduction in salaried workers by Chrysler.

A study released yesterday by Anderson Economic Group of East Lansing, Michigan, said the merger may cost 25,000 to 35,000 jobs.

As indicated by the following quote, Rodriquez arrived at a total of 74,000 jobs directly associated with the merger by calculating additional job losses in the auto-parts industry. But it goes beyond that:

An additional 50,000 jobs may be lost in the auto-parts industry, which would be buffeted by fewer car models and closed plants. Along with positions in shipping, advertising and other indirect services, job losses could be 100,000 to 200,000, Rodriguez estimated.

Newspapers, in particular, are going to be devastated by the merger. Communities that rely upon the manufacture, transportation and sale of automobiles are going to be hard hit as well. In addition to job losses, a lot of cities and counties rely upon auto malls for sales tax. They are going to experience significant declines in revenue when the local Chrysler dealers are consolidated with the GM ones after having already lost numerous Ford ones. Social services, such as indigent medical care and general assistance, among others, will be cut.

But these consequences, while serious, are peripheral to the job losses. Where will these people go to work after losing their auto-related jobs? Unemployment is likely to skyrocket for the next 2 to 3 years before it begins to decline. Even if they find jobs, how much will they get paid? Not nearly as much as they got paid before. Meanwhile, as I observed earlier today, their access to credit is going to get cut off, if it hasn't already.

Labels: Credit Crunch, Death of Detroit, Global Recession, Neoliberalism, Sub-Proletarianization of America

On July 31, 2007, I posted my first remarks on the housing bubble, one of the initial manifestations of the financial crisis that has expanded into a global recession, focusing upon its likely social consequences:

Left academics would say that the socioeconomic life of the US will subtlely display more and more features of sub proletarization, as more and more people in the lower middle class and even the middle class find themselves forced to migrate internally within the country (an economically generated group of internally displaced people?) and live under conditions of financial insecurity. Analogizing them to global migrants is a stretch, demeaning their struggle for survival, and, yet, many Americans face a future of insecurity in all aspects of their lives.

It is easy to blame them as being greedy, stupid and gullible, and no doubt many were, but the fact is, they wanted something that they have been induced to believe that they should be able to achieve as Americans, and they were afraid, during the peak of the speculative mania, that, if they didn't buy a house, that they would never be able to do so. Financial institutions ruthlessly exploited this combination of fear, greed and lack of knowledge to destroy their financial futures, just as mutual funds and brokerage houses did during the stock market bubble of the turn of the century.

At the heart of it all remains the reality that the standard of living for many Americans has declined since the last 1960s. It has been artificially preserved, temporarily, by the creation and marketing of exotic forms of credit, such as the infamous home equity loan, that enabled them to live in a manner consistent with societal expectations. For example, the Sacramento Bee recently reported that the length of the average car loan is now almost 6 years, and that car sales have fallen in the last two years because of, yes, the bursting of the housing bubble, and the lack of any trade in value for vehicles purchased with loans over such a long period of time.

In other words, consumption at all levels has been subsidized by access to readily available credit. This is the portentious social change encapulated within the seemingly bland term that is now ubiquitous, the credit crunch. Going forward, money must be lent according to the remorseless calculations of risk that were suspended during the stock market and housing bubbles. As a society, we will be forced out of the universe of liberalized access to credit into an alternative one with pay as your go features, and it will be an agonizing exodus for many.

It is now evident that not only has this remorseless process commenced, but that it is also reaching people beyond those being foreclosed out of their houses:

Big lenders — like American Express, Bank of America, Citigroup and even the retailer Target — have begun tightening standards for applicants and are culling their portfolios of the riskiest customers. Capital One, another big issuer, for example, has aggressively shut down inactive accounts and reduced customer credit lines by 4.5 percent in the second quarter from the previous period, according to regulatory filings.

Lenders are shunning consumers already in debt and cutting credit limits for existing cardholders, especially those who live in areas ravaged by the housing crisis or who work in troubled industries. In some cases, lenders are even reining in credit lines after monitoring cardholders who shop at the same stores as other risky borrowers or who have mortgages from certain companies.

This is where the action is on the left, among those people who are losing their jobs and homes after being forced to substitute credit for the lack of increased wages. With access to such credit diminishing, they face a challenging future, one that may make them amenable to a more left view of the world. The overwhelming grassroots hostility to the bailout is a slight, but encouraging sign.

If Nouriel Roubini is correct in his assessment that the US faces two years of negative GDP, we can be certain that there will be even more unanticipated opportunities. To exploit them, though, we will have to display the willingness to confront a President who skillfully knows how to retain left support in the absence of left policies.

Labels: Bailout of Finance Capitalists, Credit Crunch, Global Recession, Housing Bubble, Neoliberalism, Sub-Proletarianization of America

Okay, I admit it, the title of this post overreaches a little, because, as we all know, one becomes President by manufacturing, with the complicity of the media, a personality cult around one's self. Indeed, one can go so far as to say that the winning candidate is separated from the many losers by his or her ability to successfully accomplish this task.

A candidate is, quite literally, unqualified unless he or she can transcend their personal limitations and persuade the public to accept them as yet another manifestation of that eternal parental figure that ensures our safety, the President. The absurdity of the cult, as so brilliantly exposed by Woody Allen in his futuristic movie Sleeper, when an attempt to perpetuate the rule of the Leader by cloning his nose fails, should not be taken as a sign of its ineffectiveness.

Even so, the Obama cult deserves more attention that it has received lately. During the primaries, some supporters of Hillary Clinton decried his campaign as relying upon a gullible, cult-like response from his voters. I don't recall anyone recognizing that this was a backhanded compliment and an admission of failure. Obama was doing what Clinton could not, laying the groundwork for his subsequent ascendency into the cult of the presidency.

Such an ascendency requires that the candidate induce a suspension of disbelief within the electorate. The suspension of disbelief serves a critical function within the US political system by preserving the power of elites to impose boundaries upon the conduct of the candidates. Elites, unlike the general public, remain practical and hard headed, and communicate clear expectations that a candidate must satisfy as a precondition to mythological transformation.

As already observed here, Obama spent much of the summer conforming to them, culminating in his selection of Joseph Biden, an anticipated White House chaperone, as his running mate. His sophisticated, sociological perspective about US politics and social life enabled him to disarm potentially insurmountable elite opposition with ease, and goes quite a way towards explaining why a narrow majority of voting Americans prefer a soothing, non-threatening black man over an older, cantankerous belligerent white one.

Many on the left, including myself, have substantively examined Obama's inadequacies, his neoliberalism, his militarism with a human face, but this ignores the psychological aspects of his appeal. A few have perspicaciously observed that Obama has flourished because of the willingness of many to project their desires upon him. Of course, this is a commonplace feature of presidential campaigns, one need only recall the 1980 Reagan campaign and the 1992 Clinton one as classic examples, but Obama has exploited this feature to a degree not experienced in our lifetime.

My recent conversations with three Obama supporters, all of whom I know fairly well, reflects the extent to which he is able to induce this suspension of disbelief. One of them is a sociology professor at a nearby university with strong roots in civil rights activism. I attempted to engage him substantively about Obama's economic and foreign policies, and received variations of the same theme in response: Obama is in the tradition of Fannie Lou Hamer and Martin Luther King and his election to the presidency will be the ultimate achievement of the civil rights movement. Interestingly, I think he left out Malcolm X, whose cold realism about politicians, including black ones, is ill-suited for this narrative. One can rather snottily observe that King focused on poverty instead of bankers, and opposed war instead of supporting its escalation, as Obama does in Afghanistan and Pakistan, but this misses the point, which is the willingness of my friend to suspend disbelief.

Another friend, known for his involvement in local liberal politics, is more skillful at disguising it, but it was there, none the less. Subjected to my displeasure about Obama's vote for the bailout, and his overall neoliberal orientation, he said, well, we don't know what he is going to do, which when you ponder it for a moment, is a rather odd thing to say about someone you want to be president. As I pressured him further, he curtly interjected, how do you know what he is going to do? To which I replied, I base it upon what he says, and the people, like Jason Furman, a known pro-Wall Street economist, that he selects to speak for him. He lapsed into silence, as the process of surmising someone's likely political actions based upon objective investigation and analysis was apparently something that, through the suspension of disbelief, he had repudiated. Our dialogue had that quality that one associates with those involving rationalists conversing with priests about the existence of God. Ultimately, I guess, to vote for Obama is a matter of faith.

Lastly, there are the pure cultists, the ones who swallow Obama's vision, such as it is, whole, like an anaconda feasting upon a mammalian victim. I spoke with an older woman about my displeasure in regard to his plans to escalate the war in Afghanistan, making specific reference to the 90 civilians killed by US forces there in late August. She defended his policy in a very confused way, invoking the shop worn feminist defense of the war there, without displaying any concern for these civilian victims or any interest in educating herself more about it. Even more alarmingly, she recycled neoconservative attitudes about the conflict, indicating that she thought our presence there was necessary to keep us safe, thus revealing that one of the perils of an Obama presidency may be his ability to resuscitate discredited neoconservative interventionist policies by cross dressing them as liberal. I suspect that she would reject Obama if he advocated the first use of nuclear weapons in the region, but I wasn't certain.

Labels: Barack Obama, Democrats, Elections, Feminism, Neoliberalism

From today's Sacramento Bee:

Sales of new cars and light trucks in California fell a whopping 19.1 percent in the third quarter from a year ago, according to a report released today.

The California New Car Dealers Association said its industry has been "turned upside down" by the credit crunch and general economic downturn. "Clearly this is not a prescription for a vibrant new vehicle market," the report said.

It was the latest evidence of a significant recession.

Mind you, the recession has just begun. There are between 7 and 23 more months to go, and possibly more, depending upon whether you believe the recession will be short, moderate or lengthy. Despite the loss of market share to Japan, the automobile industry remains the backbone of many communities. It absorbs a lot of semi-skilled labor that would have otherwise been paid much less, and therefore unable to live a middle class lifestyle. It has formed a critical component of consumption in an American economy that has fueled growth around the world.

With rumors abounding that GM and Chrsyler are about to merge, or, alternatively, that Ford or GM or Chrysler or any combination thereof must file bankruptcy, the future, at least within the US, looks bleak. At best, a downsized industry producing fewer vehicles, with many of them manufactured elswhere. At worst, an industry considered American in name only, with nearly all vehicles and parts manufactured and assembled outside the country, with the exception of plants operated by Japanese companies. GM is already seeking a $5 Billion loan, possibly for the purchase of financing a Chrysler merger.

The contraction, and possible eradication, of the domestic automobile industry will be an enormous socioeconomic development. If not for a crisis that engulfs the entire neoliberal capitalist world, it would be the domestic center of attention. It will accelerate the sub-proleterianization of America, hollowing out middle income consumption through deindustrialization. Foreclosed out of their homes, discharged from their jobs as plants are permanently shuttered, along with others in businesses that rely upon them, many will find themselves constituting a new floating population with no personal and economic security. The union movement would experience a devastating, if not fatal, blow.

It is hard to suppress thoughts about one possible solution: another war, much larger in scope than the ones launched by Bush, a war instigated for the purpose of utilizing the excess industrial capacity within the US economy. No doubt, an extreme solution after all else fails, but, so far, the all else hasn't been very effective, has it? If forced to choose between more egalitarian policies that would increase demand going forward, and a militarism that would present the allure of preserving existing inequalities and hierarchies of power, while employing people within the military and armaments plants, which one do you believe that the elite will choose?

Labels: American Empire, Credit Crunch, Death of Detroit, Global Recession, Imperialism, Neoliberalism, Sub-Proletarianization of America, Unions, War

From the Financial Post:

The credit crisis is spilling over into the grain industry as international buyers find themselves unable to come up with payment, forcing sellers to shoulder often substantial losses.

Before cargoes can be loaded at port, buyers typically must produce proof they are good for the money. But more deals are falling through as sellers decide they don't trust the financial institution named in the buyer's letter of credit, analysts said.

"There's all kinds of stuff stacked up on docks right now that can't be shipped because people can't get letters of credit," said Bill Gary, president of Commodity Information Systems in Oklahoma City. "The problem is not demand, and it's not supply because we have plenty of supply. It's finding anyone who can come up with the credit to buy."

So far the problem is mostly being felt in U.S. and South American ports, but observers say it is only a matter of time before it hits Canada.

Gary is getting it wrong. Inability to obtain credit is is a demand problem, and, in any event, there is going to be a severe demand problem going forward, as people lack the ability to pay anything near current market prices. Note also how the credit crunch is preventing shipping companies from moving the commodity to other countries for consumption, the type of thing that I speculated about on Thursday.

Labels: Credit Crunch, Food Crisis, Global Recession, Neoliberalism

As usual, it is making landfall in the lesser developed countries first:

With the financial crisis engulfing developing countries from Latin America to Central Europe, raising the specter of market panic and even social unrest, Western officials are weighing coordinated action to try to stabilize these economies.

The International Monetary Fund, which is in negotiations with several countries to provide emergency loans, is also working to arrange a huge credit line that would allow other countries desperate for foreign capital to borrow dollars, according to several officials.

The list of countries under threat is growing by the day, and now includes such emerging-market stalwarts as Brazil, South Africa and Turkey. They have become collateral damage in a crisis that began in the American subprime housing market.

The fast-growing economies of the developing world depend on money from Western banks to build factories, buy machinery and export goods to the United States and Europe. When those banks stop lending and the money dries up, as it has in recent weeks, investor confidence vanishes and the countries suddenly find themselves in crisis.

Many of these countries are production platforms for exports of products into the US and Europe. Today, it is a crisis of credit, but, tomorrow, it will be a crisis of demand. What happens when these economies, economies that have restructed their economies around export, are forced to confront it? And, then, of course, there are China and India.

Labels: Credit Crunch, Global Recession, Neoliberalism

From today's Independent:

"Pakistan is going through the worst crisis of its history," according to a leaked letter signed by the former prime minister Nawaz Sharif, the main opposition leader. It is a view shared by Imran Khan, another opposition leader, who says that the political and economic meltdown "is leading to a sort of anarchy in Pakistan".

"How does a country collapse?" the former cricketer asked. "There's increasing uncertainty, economic meltdown, more people on the street, inflation rising between 25 and 30 per cent. Then there's the rupee falling."

Pakistan is experiencing power cuts that have led to hourly blackouts, a doubling of basic food prices and a currency that has lost a third of its value in the past year. "The awful thing is there's no solution in sight – neither in the war on terror nor on the economic side," Mr Khan said during a visit to London. Heightening the sense of national emergency, the government yesterday turned to the International Monetary Fund for $15bn (£9.3bn) to cope with a balance of payments crisis caused by a flight of capital, after previously saying that applying to the IMF would be a last resort.

Almost every day there are retaliatory attacks against police and soldiers and Western targets. Hundreds of soldiers and an unknown number of civilians are losing their lives. The national parliament rejected the US influence on the government by adopting a resolution last night calling for an "independent" foreign policy and urging dialogue with the extremists.

The credit crunch and the global recession are placing unprecedented pressures upon the fabric of Pakistani society, so much so that the ability of the state to maintain order is now in question. It is apparent that quite a number of major countries, including Pakistan, Mexico, Argentina and possibly even Brazil, among others, face destabilization as the global economy slows. But only Pakistan finds itself involuntarily situated along the front line of the so-called war on terror. Somehow, one doubts that the projection of US force into the country will serve to alleviate the problems there.

Labels: "War on Terror", American Empire, Credit Crunch, Food Crisis, Global Recession, Neoliberalism, Pakistan

Meanwhile, enjoy this excerpt from Alexander Cockburn's summary of the last presidential debate, if you missed it:

Talk about falling to the occasion! You would not have an inkling from the candidates’ third and final debate at Hofstra University on Long Island that Wednesday had been a day of fearful carnage on Wall Street, throwing into question the desperate efforts of the US Treasury and the Federal Reserve to stabilize the situation.

You would not have known that across the last month the Dow Jones industrial index has lost 25 per cent of its value. You would not have known that in the considered estimation of many economists the United States could well be entering a prolonged recession.

You would not have known that every assertion about the merits of deregulation and about the primacy of market forces is now dead, skinned and nailed to the wall like a moose hide in the Palins’ garage.

Listening to both candidates in that last debate made me think of one of those reverses of the earth’s electro-magnetic field that occurs every 100,000 years or so. The last month has seen the sweeping away of all the shopworn economic coordinates by which conventional politicians set their course. Gone are the hallowed landmarks. Yet here were McCain and Obama trudging on, sighting their compasses on bearings that no longer exist.

There were, to be sure, dutiful references by both Obama and McCain to the economic crisis, but mostly it was as though they were talking about a minor traffic accident a couple of blocks away. McCain flourished a proposal to bail out homeowners. Obama claimed that the bankers’ bailout bill for which they had both voted contained exactly such provisions. Then the two retreated to mechanical reiteration of their tax plans, their health plans, their plans for Energy Independence, all of them topics interminably raked over in the earlier debates.

Anyway, I'm close to full recovery from a severe cold, and intend to have something more personal and substantive tomorrow.

Labels: Bailout of Finance Capitalists, Barack Obama, Credit Crunch, Elections, Housing Bubble, John McCain

Are US financial institutions eliminating bonuses for managers in light of their refusal to deploy bailout funds for lending? A refusal based upon the notion that they must first repair balance sheets that are hemorrhaging billions of dollars? Think again:

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.

Of course, the problem is that the rest of us just don't understand how this industry operates:

None of the banks the Guardian contacted wished to comment on the record about their pay plans. But behind the scenes, one source said: "For a normal person the salaries are very high and the bonuses seem even higher. But in this world you get a top bonus for top performance, a medium bonus for mediocre performance and a much smaller bonus if you don't do so well."

Many critics of investment banks have questioned why firms continue to siphon off billions of dollars of bank earnings into bonus pools rather than using the funds to shore up the capital position of the crisis-stricken institutions. One source said: "That's a fair question - and it may well be that by the end of the year the banks start review the situation."

We should understand, however, that there is a perverse logic at work here. By this reasoning, high level managers that were able to successfully able to persuade the Treasury, the Federal Reserve and the Congress to shower them with nearly a trillion dollars, and possibly more, should be generously compensated for their achievement. As for the rest of us, I reiterate what I said before the bailout was passed: Bring on the Red Guards.

Labels: American Empire, Bailout of Finance Capitalists, Credit Crunch, Housing Bubble, Neoliberalism

The financial institutions receiving funds from the bailout aren't shy about expressing their unwillingness to use these funds to generate new loans to reinvigorate a moribund global economy:

Since mid-2007, when the credit crisis erupted, the country’s nine largest banks have written down the value of their troubled assets by a combined $323 billion. With a recession looming, the pain is unlikely to end there. The problems that began with home mortgages, analysts say, are migrating to auto, credit card and commercial real estate loans.

The deepening red ink underscores a crucial question about the government’s plan: Will lenders deploy their new-found capital quickly, as the Treasury hopes, and unlock the flow of credit through the economy? Or will they hoard the money to protect themselves?

John A. Thain, the chief executive of Merrill Lynch, said on Thursday that banks were unlikely to act swiftly. Executives at other banks privately expressed a similar view.

“We will have the opportunity to redeploy that,” Mr. Thain said of the new capital on a telephone call with analysts. “But at least for the next quarter, it’s just going to be a cushion."

Granted, the banks are in a deep hole. For every dollar the banks earned during the industry’s most prosperous years, they have now wiped out $1.06.

Even with the capital from the government, analysts say, the banking industry still needs to raise around $275 billion in light of the looming losses.

But Treasury Secretary Henry M. Paulson Jr. is urging them to use their new capital soon. On Monday, Mr. Paulson unveiled plans to provide $125 billion to nine banks on terms that were more favorable than they would have received in the marketplace. The government, however, has offered no written requirements about how or when the banks must use the money.

“There is no express statutory requirement that says you must make this amount of loans,” said John C. Dugan, the comptroller of the currency. “But the economics work so that it is in their interest to do so.”

Mr. Dugan added that he would not examine how the banks used the money, but he said their actions would “be open to the court of public opinion.”

In other words, the exhortations of government officials and elected officials are merely cosmetic, a charade designed to conceal one of the great thefts in world financial history. No doubt when the funds are gone, we will be treated to something similar to Captain Renault's cynically shouted justification to shut down Rick Blaine's club in Casablanca, paraphrased to conform to the circumstances: I'm shocked, shocked that the banks pocketed the money.

The willingness of bank managers to speak candidly about their true intentions reveals a confidence based upon an unassailable control of the US political system. It has been left to fiscally conservative budget hawks to summarize what has transpired:

“It is the government’s responsibility to set the terms and conditions on this money,” said David M. Walker, the former federal comptroller general and now president of the Peter G. Peterson Foundation. “This is the people’s money. They’re giving it out with no rules.”

Stiglitz has again exposed the corruption of the enterprise:

Britain showed at least that it still believed in some sort of system of accountability: heads of banks resigned. Nothing like this in the US. Britain understood that it made no sense to pour money into banks and have them pour out money to shareholders. The US only restricted the banks from increasing their dividends. The Treasury has sought to create a picture for the public of toughness, yet behind the scenes it is busy reassuring the banks not to worry, that it's all part of a show to keep voters and Congress placated. What is clear is that we will not have voting shares. Wall Street will have our money, but we will not have a full say in what should be done with it. A glance at the banks' recent track record of managing risk gives taxpayers every reason to be concerned.

For all the show of toughness, the details suggest the US taxpayer got a raw deal. There is no comparison with the terms that Warren Buffett secured when he provided capital to Goldman Sachs. Buffett got a warrant - the right to buy in the future at a price that was even below the depressed price at the time. Paulson got for the US a warrant to buy in the future - at whatever the prevailing price at the time. The whole point of the warrant is so we participate in some of the upside, as the economy recovers from the crisis, and as the financial system starts to work.

The Paulson plan responded to Congress's demand to have something like a warrant, but as a matter of form, not substance. Buffett got warrants equal to 100% of the value of what he put in. America's taxpayers got just 15%. Moreover, as George Soros has pointed out, in a few years time, when the economy is recovered, the banks shouldn't need to turn to the government for capital. The government should have issued convertible shares that gave the right to the government to automatically share in the gain in share price.

Whether we were cheated or not, the banks now have our money.

Unfortunately, Stiglitz is just another one of many Captain Renaults. Despite condemning the bailout before passage, he, like many other liberals, such as Paul Krugman and the Democratic leadership of Congress, supported it while saying that we should urge the next President and Congress to reform it, a position that he reiterates in this article. Perhaps, Stiglitz really believes this is possible, but, in the unlikely event any action is actually taken, the recipients of the funds will have already insulated themselves against it. In a political system greased by crony capitalists, one can be certain the corrupt will invariably prevail.

Labels: American Empire, Bailout of Finance Capitalists, Credit Crunch, Democrats, Housing Bubble, Liberals, Neoliberalism

Another selection of essential reading, this one courtesy of Mr. Mortgage. Click on the link, and find two interrelated posts that reveal the extremity of the insolvency within the global financial system, and the exposure of US banking institutions in relation to Level II assets that aren't actively traded, but marked to market, like their more commonly maligned Level III relatives.

Mr. Mortgage again questions whether the $700 billion bailout is anywhere near enough to deal with the insolvency of the US financial system, a subject that motivated me to perceive more sinister motivations inherent within a capitalist financial system. He also notes that the frightening fact that the US system may be among the better capitalized ones when compared to the EU and Turkey. One suspects that even an initially mild recession would provoke serious defaults among these financial instruments, a subject that has been heretofore ignored. After reading these two posts, all I can say is . . . . Yikes! I try to resist a survivalist mentality about the future, but it can sometimes be difficult.

Labels: American Empire, Bailout of Finance Capitalists, Credit Crunch, Housing Bubble, Neoliberalism

An excellent presentation about how the deregulation of finance, proselytized by Reagan and Thatcher and subsequently forged into a bipartisan consensus by Clinton, Blair and Schroeder, among others, pushed the global economy over the precipice. Complex concepts are broken down and conveyed simply and concisely. One looks forward to the forthcoming book by the author, Arun Gupta, an editor at the Independent, about the decline of the American Empire. Hat tip to Sam Smith over at the indispensable Progressive Review.

Labels: American Empire, Bailout of Finance Capitalists, Credit Crunch, Housing Bubble, Neoliberalism

Every now and then, we encounter books that transform the way that we perceive history and human experience. The London Hanged is one of them. Written by Professor Peter Linebaugh, and published in 1991, it presents a fascinating portrayal of class conflict in England in the 18th Century. It is also one of the most exciting, idiosyncratic books in terms of its language and storytelling method that I have stumbled across in quite some time.

Linebaugh selects a provocative entry into the subject: the public hangings at Tyburn in London, hangings that, according to Linebaugh, exposed the relationship between the concepts of crime, primitive accumulation by the emerging merchant classes and perpetual class conflict. During this period, civil society as we know it today, with strictly defined property rights, protected by professional police and the judiciary, and facilitated by technological advances motivated by the need to create a disciplined workforce compensated through wages, came into existence.

Accordingly, there is a profound social context to the hangings, as they involved the creation of a system of justice by which individuals who transgressed the commercial values of the new order were charged, convicted and publicly hung in front of large crowds as an example to others. At the heart of the struggle was the unwillingness of the English working class to accept the loss of what was then commonly known as custom, or, alternatively, perquisities.

Neither term is easy to define, but they involve at least two notions. First, the accepted practice that a worker, based upon the residue of feudal social relations, shared in the materials used in production. The merchant possessed a limited right of ownership, subject to the right of the worker to take for his own use waste or even a small percentage of the total amount. Accordingly, it was implicitly acknowledged that the merchant and the worker had a shared ownership, even if the merchant's was by far the greater one. Such a right in the workplace was often critical to the survival of the workers and their families, as, alarmingly described by Linebaugh, most English workers in this period could not subsist on what they were paid.

Linebaugh addresses this aspect of the meaning of these terms in extraordinary detail, providing us with a fascinating glimpse of the trades practiced in London at the time, explaining, for example, how tobacco was transported from the Tidewaters of Virginia to London and the specialization of labor that it engendered. Tobacco ignited a remorseless conflict between workers and merchants over the extent and nature of the perquisites associated with it, as everyone involved in the transport of the valuable commodity took the opportunity to help themselves to a share of the crop, even customs officers. Other instances of this conflict include the rags associated with silk production, the cabbage related to the fitting of clothes by tailors and the chips taken from the yard by dock workers.

Second, the terms also involved a certain amount of control by workers over the means by which they performed their tasks, and the nascent capitalists of England perpetually complained about their idleness and the need to impose discipline upon them. Hence, the factory workhouse, the textile mill and the notorious brutalities inflicted upon sailors. Indeed, while sailing in the 18th Century is now often retrospectively romanticized, Linebaugh quotes a colleague to the effect that sailing prefigured the creation of an industrial, factory proletariat. He cites Professor Rediker to the effect that sailing resulted in the first collective laborer, based upon a sophisticated specialization of tasks and the use of an international work force.

Of course, the ultimate goal was not the elimination of an abstract evil like idleness, but the submission of workers to a wage system whereby they would be closely monitored, supervised and compensated based upon a quantification of a portion of the value of what they produced. Workers, quite predictably, resisted it, and Linebaugh explains how the hangings at Tyburn, with their emphasis upon property crimes, such as theft, embezzlement and larceny, should be properly understood as one of the measures of the harshness of this conflict. In fact, these property crimes were more and more rigidly defined and enforced as a means of destroying the system of perquisites that workers so zealously asserted.

Linebaugh is especially good when he places these trends in the context of the emergence of London as the center of a global economic system, ravenously searching the world for more commodities and more workers to fuel the transformation of England from a mercantile society to a capitalist one. His descriptions of the involvement of black and Irish peoples in this struggle are especially compelling. On the other side, it was a struggle personified in Patrick Colquhoun, a man who implemented the concept of the urban police as a necessity for protecting the public against what he perceived as the immoralities and predations of the working class in the 1790s, during struggles with silk and dock workers. As described by Linebaugh: Thus, he knew the meaning of the 'division of labor' in both senses--namely, as commerce (the social division of labor) and as fractionalization (the specialization of tasks).

Colquhoun and those who saw the future like him prevailed, imposing a division of labor in both aspects, but, and this is an essential point, they never succeeded in destroying the willingness of people to resist, a resistance that continues to this very day. Linebaugh presents us with a social history that speaks strongly to us in the present, defiantly refusing to accept the end of history, rebelliously rejecting Thatcher's dictum that there is no alternative to the present neoliberal order.

Labels: Activism, Book Reviews, From the Archives, Neoliberalism, Political Violence

Part 1 is a retrospective evaluation of Pontecorvo's most popular, and most critically well-received film, The Battle of Algiers.

If The Battle of Algiers is revered for being a nearly perfectly executed, almost surgical, exposition of the contours of the violent struggle for Algerian independence, so skillfully rendered that it was mistakenly accepted as an archetype for such struggles globally, Queimada, or Burn!, as it was titled upon release in the US, is the opposite, a film that mesmerizes precisely because of the grandiosity of Pontecorvo, and his scriptwriter, Franco Solanis, in attempting the impossible task of encapsulating the lessons of three hundred years of imperialism in a 2 hour and 12 minute film. If one considers Queimada as a sort of prequel to The Battle of Algiers, a film in which Pontecorvo took almost exactly the same amount of time to focus upon a three year period in the independence struggle, 1954-1957, the absurdity of the enterprise becomes apparent.

With the exception of describing Queimada as a sequel to The Battle of Algiers, despite the fact that the events of the film predate the Algerian independence struggle by about 100 years, Geoff Andrew's capsule review for the TimeOut film guide is fairly good:

Pontecorvo's memorable sequel to Battle of Algiers sees Brando in finely ambiguous form as the drunken, cynical Sir William Walker, a British agent sent to the Caribbean island of Queimada in the mid-1800s to stir up a native rebellion against the Portuguese sugar monopoly; ten years later, he is forced to return there to destroy the leader he himself created, in order to open up trade with Britain. Falling between epic adventure and political allegory, the film is occasionally clumsily structured and poorly focused; but Pontecorvo, working from a script by Franco Solinas, provides a sharp, provocative analysis of colonialism, full of telling irony, bravura set pieces, and compelling imagery, while Brando's stiff-lipped performance, emphasising his character's confused mixture of dignity and deceit, intelligence and evil, determination and disillusion, never allows the allegory to dominate the human content. A flawed but fascinating film.

As an important aside, it should be noted that Pontecorvo and Solinas substituted Portugal for Spain after being subjected to pressure by the Spanish government, historically, there was no Portuguese sugar monopoly, so the film is really centered around the substitution of a feudal form of exploitation with a mercantile one.

Now, as to the flaw, it is readily identified. Unlike in The Battle of Algiers, Pontecorvo and Solinas could not rely so strongly upon the accumulation of detail as a form of narrative. Instead, they had chosen a project with such a broad canvas that it was necessary to dramatically interweave three challenging elements, an evocation of a particular time and place, unfamiliar to most viewers, a more romanticized storytelling approach and a sharp ideological perspective. Furthermore, the story itself was a much more abstract one about the relatively distant past, and hence, they lacked personal access to individuals, as they did prior to making The Battle of Algiers, who, as participants in the conflict, could relate personal experiences upon which the film could be grounded.

Despite an inability to maintain a clear, consistent perspective, Queimada remains, to this day, a riveting film to watch. As New York Times film critic Vincent Canby wrote upon its release, after describing his own dissatisfactions with it: Having said all this, I must add that I wasn't bored by the film for a minute. That was my experience when I watched it on television, in a dubbed American version, in the 1970s.

Why does the film remain so compelling? Well, first of all, it is one of the finest films ever made in regard to personalizing the brutalities of colonialism so as to force us to emotionally respond. For example, the racism by which Europeans, and their mixed race offspring, governed their Carribbean colonies with contempt for the indigenous populace is effectively conveyed through everyday social contact. It is unflinching in its presentation of counterinsurgency violence, most graphically in a scene where Walker orders his troops to burn a sugar cane field, forcing the rebels hiding within to try to escape by running out of the other end, only to be shot down. The sheer physicality of the people and events is a wonder, especially when contrasted with today's digital cinema.

As Amy Taubin observed:

Here, as in The Battle of Algiers, Pontecorvo is masterful at conjoining camera movement and the choreography of large groups of people so that the screen becomes charged with collective desire. Ennio Morricone's score, similar in its insistence and repetitiveness to the one he composed for The Battle of Algiers, employs the choral harmonies and modalities of Gregorian chants with a syncopated beat that has you just about leaping out of your seat when the victorious slave army, ragtag and radiant, comes dancing and prancing on the backs of plumed horses to claim the prize for their hard-won, bloody rebellion. The prize, of course, will not be theirs. The fork-tongued Walker will convince José Dolores (Evaristo Márquez), the rebel general he has mentored, that he's gone as far as he can go - that blacks cannot govern themselves or trade on the world market.

Interestingly, as with The Battle of Algiers, a retrospective viewing of Queimada reveals some problematic aspects that may not have been recognized when it was released because of its raw emotional power. Given its scathing indictment of colonialism, one can easy to miss the rather obvious fact that the film relies upon a narrative structure that is, in itself, imperialistic, the centering of a story about the abuse and revolutionary aspirations of the people of Queimada primarily in the person of Walker, the British mercenary. Pontecorvo and Solinas may have been an inspiration to filmmakers throughout the Global South, but with this film, unlike The Battle of Algiers, they left it to those they inspired to make films from the perspective of the colonized.

In effect, the film, despite the best efforts of Pontecorvo and Solanis, is a European critique of an odious aspect of European history, not a multicultural presentation of the tragic intersection of European and Carribbean experience. This is most blatantly exposed in the nature of the plot itself. Walker must travel to Queimada to discover and, as Taubin accurately describes, mentor Jose Dolores so that he can expel the feudal Portuguese. Walker provides Dolores with weapons, and even instigates an incident by which the rebellion is violently launched towards its success. The possibility that the people of Queimada possessed a history and a culture by which they might have ultimately organized themselves to overcome the Portuguese apparently never occurred to Pontecorvo and Solinas. Such a lack of agency, in contrast the Algerians in The Battle of Algiers, is remarkable, and may reflect an inability of the filmmakers to understand the social world of an indigenous people prior to being subjected to the transformative aspects of the imperial project.

Indeed, when viewed in this light, Pontecorvo's selection of an amateur actor, Evaristo Marquez, to play the role of Dolores takes on a different cast. Just as it was necessary for the fictional Walker to mentor the fictional Dolores, so it was equally necessary for Pontecorvo to mentor Marquez, as if Pontecorvo had more to contribute to the cultural aspect of a film about the revolutionary potential of indigenous Caribbean peoples. Taubin identifies the most Eurocentric aspect of Pontecorvo's interpretation when she astutely emphasizes the implicit homoeroticism in the relationship between Walker and Dolores.

In other words, we have yet another exoticized, sexualized interpretation of an encounter between white and dark skinned people. By 1969 standards, it was all very daring, but from our seat in the theater in 2006, it is shop worn. Pontecorvo and Solinas made a striking film based upon the Tinkers to Evers to Chance ideological construct of the day, feudalism to capitalism to socialism, with Walker and Dolores, subjected to the personal and sexual anxieties of the filmmakers, serving as the mechanism by which the process invariably moves forward, a process made even more explicit by the ending of the film. Depending upon your political philosophy, our perspective has become either more sophisticated, or more confused, and awaits artists with the talent of Pontecorvo and Solanis to bring it to the screen.

Labels: Film Notes, From the Archives, Neoliberalism, Political Violence, Racism, Self-Determination

I will be away on vacation until Tuesday, so I have scheduled the posting of a couple of items from the archives that you may have missed, a film review on Saturday (Burn!) and a book review (The London Hanged) on Monday. In the meantime, feel free to comment about anything you consider worthwhile if you are so inclined.

Meanwhile, you might also consider this article by Ishmael Hossein-zadeh, Parasitic Imperialism, an article from last year that, when read retrospectively, reveals the relationship between the current financial crisis and US militarism:

Since imperial policies abroad are widely discussed by others, I will focus here on parasitic military imperialism at home, that is, on what might be called domestic or internal imperialism. Specifically, I will argue that parasitic imperialism (1) redistributes national income or resources in favor of the wealthy; (2) undermines the formation of public capital (both physical and human); (3) weakens national defenses against natural disasters; (4) accumulates national debt and threatens economic/financial stability; (5) spoils external or foreign markets for non-military U.S. transnational capital; (6) undermines civil liberties and democratic values; and (7) fosters a dependence on or addiction to military spending and, therefore, leads to an spiraling vicious circle of war and militarism.

A sober, thorough going analysis worth reading in its entirety. As I watch the collapse of global equity markets unfold, I can't help recalling that the event that pulled them out of their doldrums after 9/11 was . . . the invasion of Iraq.

In a short, surgically sharp article in the most recent New Left Review, Walter Benn Michaels examines the social perspective interwoven into the Obama campaign effort:

After half a century of anti-racism and feminism, the US today is a less equal society than was the racist, sexist society of Jim Crow. Furthermore, virtually all the growth in inequality has taken place since the passage of the Civil Rights Act of 1965—which means not only that the successes of the struggle against discrimination have failed to alleviate inequality, but that they have been compatible with a radical expansion of it. Indeed, they have helped to enable the increasing gulf between rich and poor.

Why? Because it is exploitation, not discrimination, that is the primary producer of inequality today. It is neoliberalism, not racism or sexism (or homophobia or ageism) that creates the inequalities that matter most in American society; racism and sexism are just sorting devices. In fact, one of the great discoveries of neoliberalism is that they are not very efficient sorting devices, economically speaking. If, for example, you are looking to promote someone as Head of Sales in your company and you are choosing between a straight white male and a black lesbian, and the latter is in fact a better salesperson than the former, racism, sexism and homophobia may tell you to choose the straight white male but capitalism tells you to go with the black lesbian. Which is to say that, even though some capitalists may be racist, sexist and homophobic, capitalism itself is not.

This is also why the real (albeit very partial) victories over racism and sexism represented by the Clinton and Obama campaigns are not victories over neoliberalism but victories for neoliberalism: victories for a commitment to justice that has no argument with inequality as long as its beneficiaries are as racially and sexually diverse as its victims. That is the meaning of phrases like the ‘glass ceiling’ and of every statistic showing how women make less than men or African-Americans less than whites. It is not that the statistics are false; it is that making these markers the privileged object of grievance entails thinking that, if only more women could crash through the glass ceiling and earn the kind of money rich men make, or if only blacks were as well paid as whites, America would be closer to a just society.

It is the increasing gap between rich and poor that constitutes the inequality, and rearranging the race and gender of those who succeed leaves that gap untouched. In actually existing neoliberalism, blacks and women are still disproportionately represented both in the bottom quintile—too many—and in the top quintile—too few—of American incomes. In the neoliberal utopia that the Obama campaign embodies, blacks would be 13.2 per cent of the (numerous) poor and 13.2 per cent of the (far fewer) rich; women would be 50.3 per cent of both. For neoliberals, what makes this a utopia is that discrimination would play no role in administering the inequality; what makes the utopia neoliberal is that the inequality would remain intact.

Such a perspective is not markedly different than the one presented by the hip hop artist Immortal Technique in his incendiary rap video The Poverty of Philosophy, posted here in February 2007:

My enemy is not the average white man, it's not the kid down the block or the kids I see on the street; my enemy is the white man I don't see: the people in the white house, the corporate monopoly owners, fake liberal politicians those are my enemies. The generals of the armies that are mostly conservatives those are the real Mother-Fuckers that I need to bring it to, not the poor, broke country-ass soldier that's too stupid to know shit about the way things are set up.

In fact, I have more in common with most working and middle-class white people than I do with most rich black and Latino people. As much as racism bleeds America, we need to understand that classism is the real issue. Many of us are in the same boat and it's sinking, while these bougie Mother-Fuckers ride on a luxury liner, and as long as we keep fighting over kicking people out of the little boat we're all in, we're gonna miss an opportunity to gain a better standard of living as a whole.

In other words, I don't want to escape the plantation I want to come back, free all my people, hang the Mother-Fucker that kept me there and burn the house to the god damn ground. I want to take over the encomienda and give it back to the people who work the land.

Immortal Technique may have voted for Obama in the New York primary because of Obama's refusal to scapegoat immigrants, but, as his remarks during this London appearance indicate, he refuses to romanticize him.

Obama does not hide the neoliberal emphasis of his candidacy. Quite the contrary. As the election nears, he highlights it, consistent with a strategy of placating the elites that he fears could deny him the presidency. During the debate on Tuesday night, he played along with the socially conservative bias of the moderator, Tom Brokaw, who exalts the primacy of sacrifice within the American experience because of his infatuation with the World War II generation that he profiled in his book, The Greatest Generation. Hence, he accepted Brokaw's premise that the next President must have the ability to motivate Americans to sacrifice, a premise crystallized in Brokaw's insistence that entitlement reform, more properly understood as the curtailment of social assistance to the middle and lower classies, is a major issue of concern.

Obama did not challenge this, either, taking care to evade the notion that the wealthy, after, in many instances, profitting from the circumstances that caused this crisis, should bear some responsibility for paying for it. In other words, he has already internalized the newly emerging consensus that the we are going to have to lower our expectations, or, more bluntly, tighten our belts. With McCain joining him in a duet on this subject, it became very obvious that fiscal austerity looms just over the horizon, regardless of the winner of the election. Given that both candidates advocate even higher levels of defense spending, significant cuts in domestic spending are inevitable. If I had still been single, instead of married, with a young son, I would turned off the debate, and watched something more uplifting, like, say, Sid and Nancy.

Things only got worse, as you might have guessed. McCain, desperate to reenergize his campaign, proposed that we buy the mortgages of distressed homeowners so as to enable them to avoid foreclosure, thus stabilizing their communities. $300 billion of the $700 billion appropriated to the Treasury to bail out global financial institutions would allocated for this purpose. It was a rare moment of Keynesian pragmatism in a debate that otherwise stayed within a irrelevant discourse of abstract, regulatory solutions and voting records.

Afterwards, McCain's domestic policy advisor, Douglas Holtz-Eakin described the proposal in more detail:

. . . under McCain's plan, homeowners would get new fixed-rate mortgages based on the homes' current value with an interest rate of about 5 percent, a percentage point less than the average current rate. The government would pay the difference between the original mortgage amount and what the homes are now worth.

During the debate itself, McCain nailed it in regard to the urgency of this sort of approach, an approach that would reinvigorate the economy and communities around the country:

Is it expensive? Yes. But we all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy, and we've got to give some trust and confidence back to America.

It was a shocking moment of candor. Of course, the proposal is not a complete solution to the financial crisis, but it does direct relief to a broad group of middle and lower income people who are being economically devastated by the crisis. And, the Obama reaction? Straight out of Goldman Sachs:

"John McCain wants the government to massively overpay for mortgages in a plan that would guarantee taxpayers lose money, and put them at risk of losing even more if home values don't recover," Jason Furman, Obama's economic policy director, said in a statement. "The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud.

This is the sort of corporate populism that made the Clinton campaign so offensive in the spring, the manipulation of resentment to generate support for corporate friendly policy, as manifested most clearly in her request for a gas tax holiday. It always relies upon cynicism and the susceptibility of the intended audience to emotional manipulation. In this instance, Furman is particularly brazen, because, after all, Obama had just voted, along with McCain, to deliver $700 billion to financial institutions in return for nearly worthless debt instruments, generously priced in accordance with hold to maturity valuations, instead of the much lower ones in the market.

Accordingly, it is not, as asserted by Furman, a question of unfairly enriching financial institutions, McCain and Obama have already agreed on that one. Instead, McCain, upon reflection, admirably decided that the government must do something to stimulate consumer demand in addition to providing supply side incentives to extend credit. So, he decided that it was necessary to allocate a substantial portion of the bailout monies to purchase mortgages and free borrowers from increasingly onerous terms of repayment.

Furman can't openly say that his candidate prefers a trickle down solution, so he must instead resort to obfuscation. But then, we shouldn't be too shocked. He is known for his assertion that Wal-Mart is a progressive success story, his willingness to consider private retirement accounts for Social Security and his close connections to Wall Street through Robert Rubin. In his current role, he is making sure that Obama never strays from the Wall Street line.

Having used his campaign to legitimize the delivery of $700 billion to the Street and the global instituions with which it does business, Obama, faced with what must have been a surprise, relied upon Furman to confront the threat. Obama didn't spend a day and a half at campaign appearances promoting the bailout to solidify his support in the financial sector just to turn around and hand nearly half of the money over to the middle and lower class. If you aren't a military contractor or a banker, the next four years don't look too promising.

Michaels sums it up pretty well:

There is a real difference between Obama and McCain. But it is the difference between a neoliberalism of the centre and a neoliberalism of the right. Whoever wins, American inequality will be left essentially untouched. It is important to remember just how great that inequality is. A standard measure of economic inequality is through the Gini coefficient, where 0 represents perfect equality (everybody makes the same), and 1 perfect inequality (one person makes everything). The Gini coefficient for the us in 2006 was 0.470 (back in 1968 it was 0.386). That of Germany today is 0.283, that of France, 0.327. Americans still love to talk about the American Dream—as, in fact, do Europeans. But the Dream has never been less of a reality than it is today. Not just because inequality is so high, but also because social mobility is so low; indeed, lower than in both France and Germany. Anyone born poor in Chicago has a better chance of achieving the American Dream by learning German and moving to Berlin than by staying at home.

Meanwhile, Immortal Technique is more succinct:

And they might even have a black president but he's useless

Cuz he does not control the economy, stupid!"

Labels: Bailout of Finance Capitalists, Barack Obama, Credit Crunch, Housing Bubble, John McCain, Neoliberalism, New Left Review

The Baseline Scenario confirms what you already knew, with an emphasis upon three alarming concerns:

First, there are worrying signs that the credibility of the US authorities is on the decline. Despite passing the $700bn TARP program last Friday, and the Fed announcing it will potentially purchase even more in unsecured commercial paper, plus the provision of $450bn of additional liquidity to banks, credit and equity markets continue to decline. This pattern is reminiscent of the Asian crisis in 1998, when successive IMF programs provided briefer and briefer respite from market routs in emerging economies. . . .

Second, the ramifications of Iceland’s misery are probably more serious than people realize. With bank assets in the country at ten times GDP, and the banks obviously insolvent, the country clearly cannot afford to bail them out. This is going to be a large default, with many counterparties impacted. . . .

There is a broader concern here. When the Icelandic Prime Minister returned empty-handed from Europe on Monday, he commented that it was “now every nation for itself.” This smacks of the financial autarchy that characterized defaulters in the 1998 crisis. When Argentina defaulted on its debt in 2001-2002, the politicians faced enormous pressure to change the rule of law to benefit domestic property holders over foreigners, and they changed the bankruptcy law to give local debtors the upper hand. In Indonesia and Russia, local enterprises and banks took advantage of the confusion during default to grab property, and then found ways to ensure that courts sided with them. . . .

Our third concern is that we seem likely now to see substantially more defaults and credit panics in smaller countries and emerging markets. . . . Much of Eastern Europe, Turkey, and parts of Latin America are obvious risks. The difficulties in Russia show that seemingly solvent countries can be high risk: while the central bank has reserves of $556bn, the non-public sector has recently built up an estimated $450bn of debt. Creditors don’t want to roll over this debt, so the government is using its reserves to do this. The government has already ordered $200bn to be channelled through state banks to companies repaying debt. If the oil price falls further, a seemingly highly solvent country could quickly look near insolvent. Some other rising stars, such as Brazil, and even India, may have similar problems.

The authors of this report, well worth reading in its entirety, are Peter Boone, an associate at the Centre for Economic Performance, London School of Economics, and Simon Johnson, a former chief economist of the International Monetary Fund, currently a professor at the MIT Sloan School of Management as well as a senior fellow at the Peterson Institute for International Economics. One doubts that the US, Europe and Japan are capable of taking the kind of concerted action that Boone and Johnson describe as essential elsewhere in the article.

Even if these countries prove themselves capable of it, Boone and Johnson acknowledge that the immediate economic future remains gloomy:

Finally, it is important for everyone to recognize that we are well past the days where even dramatic steps could have stopped the repercussions of the panic and prevented a major recession. A successful program will not prevent recession, and we will still see many personal, corporate and perhaps even national bankruptcies.

No wonder several members of OPEC are concerned:

Almost half the members of the Opec oil cartel are considering an emergency meeting in Vienna next month as oil prices dropped to their lowest level in nearly a year.

Almost half the members of cartel have in the past few days called on the group to act to halt the slide before their next official meeting scheduled to take place in Algeria in late December.

Iran, Libya, Nigeria, Iraq, Venezuela and Ecuador, whose economies tend to be most dependent on high oil prices and whose ministers are among the most hawkish of the 13-member group, have all lobbied for the cartel to drop output.

Purchasers may also be having difficulty accessing short term credit to pay for their oil supplies.

While Boone and Johnson are mainstream economists, we should not summarily dismiss their insistence upon the urgency of collective action. Instead, as leftists, we should incorporate such a perspective into our own approach to social and political action. Accordingly, we should think seriously about how we are going to work together to help those in immediate need, and how to reach the people that this crisis has only begun to victimize,

Johnson and Boone, as economists, are focusing upon the financial institutions upon which the global economy is financially grounded. We need to emphasize the people that are going to suffer because of the greed and arrogance of the neoliberal generation. Otherwise, this crisis will consolidate the power of the most privileged members of it, subjecting the rest of us to even more insecurity, more impoverishment, more sharply curtailed liberties and political irrelevance. Or, to put it more starkly, a lot of people around the world are going to be pushed to precipice of starvation and death.

Labels: Activism, American Empire, Bailout of Finance Capitalists, Credit Crunch, Food Crisis, Housing Bubble, Neoliberalism

The International Monetary Fund crunches the numbers. As you might have guessed, the bursting of housing bubbles and the onset of credit crunchs tend to persist for quite awhile. For the short version, click on the link provided within the title, a good summary provided by naked capitalism.

For the complete version, check out the article by Claessens, Kose and Terrones of the IMF.

Contrary to the view of some commentators, the triple whammy of a house price bust, a credit crunch and an equity price bust has not always led to an eventual recession. What is true is that many recessions are indeed associated with credit crunches or asset price busts. In about one out of six recessions, there is also a credit crunch underway, and in about one out of four recessions a house price bust. Equity price busts overlap for about one-third of recession episodes. There can also be considerable lags between financial market disturbances and real activity. A recession, if one occurs, can start as late as four to five quarters after the onset of a credit crunch or a housing bust.

One of the key questions surrounding the current financial crisis is whether recessions associated with crunches and busts are worse than other recessions. Here, the international evidence is clear: these types of recessions are not just slightly longer on average, but also have much more output losses than others. In particular, although recessions accompanied with severe credit crunches or house price busts last only a quarter longer, they have typically result in output losses two to three times greater than recessions without such financial stresses. During recessions coinciding with financial stress, consumption and investment usually register much sharper declines leading to the more pronounced drops in overall output and unemployment.

Translation: if you are lucky, the interrelated bursting of a housing bubble, a credit crunch and a stock market crash don't necessarily result in a recession, but, if it does, look out below. Given that 159,000 Americans lost their jobs in September, and that employment has been dropping for 9 straight months, things don't look too good. I try to avoid financial hysteria, but I am beginning to understand why Southerners developed the practice of having money buried in the backyard after the trauma of the Civil War. You just never know what might happen, they'd tell their friends. And the others, shaking their heads wisely, would reply, No, you sure don't.

Labels: American Empire, Bailout of Finance Capitalists, Credit Crunch, Housing Bubble, Neoliberalism

Barely a day goes by without me receiving an e-mail about Sarah Palin and her purported inability to effectively serve as Vice President, or, heaven forbid, President. Liberals are gleeful that, for once, much of the public and the media are seeing things their way. Palin appears to have damaged the McCain campaign in numerous battleground states, like Ohio and Florida.

But does this mean that the Democrats and their enthusiastic liberal partisans are correct in their condescending putdowns of Palin? No, it doesn't. In fact, Joe Biden is every bit as misinformed as Palin, as the recent Vice Presidential debate revealed, especially in the area of foreign policy. And, of course, there was his assertion that FDR immediately calmed the country after the 1929 stock market crash.

Furthermore, like Palin, Biden has an incorrigible tendency to talk without thinking, and, once he has started talking, to persist in the hope that a more extensive exposition will result in greater clarity instead of the usual outcome, a descent into outright confabulation. Both Biden and Palin just can't stop talking until they reveal their pretentious belief that they know everything about subjects about which they know nothing. Or, more accurately, they stand as proof of the old adage about knowing just enough to be dangerous.

Biden gets away with it for obvious reasons. He's been around DC forever, and, hence, he is considered a statesman, despite all evidence to the contrary, and she hasn't. He is the senior Democratic member of the Senate Foreign Relations Committee, and she isn't. He has appeared too many times to be mentioned on the Sunday political talk show circuit, and established a warm rapport with the disproportionately male hosts there, she hasn't.

Palin is a woman of local accomplishment with no national credentials; Biden is a man of national credentials with no accomplishments. It's an old story. But there is more to it than just old fashioned sexism. Palin's social experience is too far removed from the political establishment to be acceptable. No Ivy League education, not even a respected Catholic or state school one, like Berkeley or Michigan. She didn't go to law school, as the vast majority of successful politicians have done. She certainly didn't teach constitutional law at one.

No, Palin is the worst nightmare of the political establishment: someone who was actually personally motivated to enter politics at the local level and through a combination of drive and ruthlessness, became governor of her state. Her politics are therefore heavily influenced, dangerously so from an establishment perspective, by her local, as opposed to elite, experiences. With someone like her, there is always this fear, who knows what she might do? In other words, she might not do what we say. And, even worse, she might even encourage the lower middle class to believe that they actually have power and exhort them to use it. In this respect, comparisons to the career trajectory of Ronald Reagan are apt, and she, like Reagan, will eventually find elite acceptability when it becomes obvious that she is no threat.

Labels: Democrats, Elections, Elitism, Liberals, Sarah Palin, Sexism

Eli, over at Left i On the News, yet again helpful on a subject that most Americans want to either rationalize or ignore. Most media commentators, predictably, celebrate it, as they do the worst excesses of the current war on terror.

Labels: "Support the Troops", American Empire, John McCain, Republicans, US Military

I really should have known better. I guess that I still possess too much of that naive American optimism, an optimism that resists the harsh dialetical realities of European Marxism and anarchism. How else to explain my gullibility in believing that the House would resist the importunings of finance capital, and its seemingly ubiquitous political and social allies, and again refuse to move the bailout bill to the President's desk? Time for a moment of self-criticism and a rededicated resolve to avoid substituting wish fulfillment for hardened analysis.

With the requisite mea culpa out of the way, I can now offer assistance in the process of drawing a few conclusions as to what has just transpired. First, as I observed in my first post on the subject, the same processes of secrecy that have been developed for the Pentagon and the intelligence services are about to be extended to governmental involvement in the financial markets. The government developed the bailout proposal in closed door meetings, and it was modified as a consequence of equally covert meetings between the White House and congressional representatives. No meaningful hearings were held, with the only public testimony provided by Treasury Secretary Paulson and Federal Reserve Chairman Bernanke. Understanding the rules of the game, they politely sat through a couple of days of verbal abuse as the price for getting their plan approved.

Furthermore, there was little consideration of any alternatives to the plan put forward by Paulson, alternatives such as ones that would benefit lower and middle income Americans as well as the financial sector. Indeed, there was not even an attempt to explain how the bailout would address the current crisis, and thereby initiate a dialogue as to how to most effectively confront it, except by reference to day to day events in the financial markets. As with the invasion of Iraq, the bailout was marketed through hysteria, and the need to relieve it. Substance was irrelevant, as there is nothing in the plan that necessitates that the recipients of funds through debt purchases actually resume extending credit.

Accordingly, we should presume that the extension of such secrecy into the realm of economic policy will become more and more of a feature of our domestic politics, regardless of whom wins the November election. And, more disturbingly, we should also assume that, contrary to expectations, manipulation of public ignorance, fear and anxiety in the service of capital and conquest will become even more frequent than it was during the Bush presidency. With the media as willing accomplices, there is no reason for politicians, and the interests behind them, to conduct themselves otherwise.

Second, along these lines, the passage of the plan reveals the irrelevancy of the Congress in regard to serving as a constraint upon the President. It is pretty much acknowledged that the changes to the plan related to executive compensation and oversight were cosmetic ones so as to serve the purpose of enabling congressional Democrats to claim that they had improved it. As with the adoption of practices of unprecedented secrecy, this abandonment of responsibility first manifested itself within the confines of military and intelligence activities, and has now crossed the boundary into the realm of economic policy.

Just as with the war in Iraq, Congress has not only relinquished oversight, but has also, even more shockingly, allowed the President to assume the power of the purse. It is easy to forget that, even before the bailout, Congress permitted Paulson and Bernanke to loan hundreds of billions of dollars against distressed, low value securities without objection. It also permitted Paulson and Bernanke to implement their own restructuring of the US financial system by brokering deals, such as the J. P. Morgan purchases of Bear Stearns and Washington Mutual, and nationalizing Fannie Mae and Freddie Mac without any review.

The US is now subject to a de facto government by decree as part of a global trend that includes countries as disperate as France, Venezuela, the Russian Republic and Great Britain. We cannot ignore the possibility, as absurd as it sounds, that there is more diverse participation in policy development in the People's Republic of China, a Communist dictatorship, with its plurality of emerging national and local interests, than there is in the US. Or, to put it differently, the US may well have a more centralized form of government than the People's Republic.

Third, as invoked by Joseph Stiglitz, Naomi Klein and many others, the invasion and occupation of Iraq is an inescapable metaphor for what has happened and what is about to happen. Bush and his allies have used the occupation as an opportunity to direct billions of dollars, much of it free from public disclosure, to private contractors. Some have provided military and security services, others focused upon more mundane things like rebuilding schools, public utilities and roads. Contrary to the musings of liberal defense policy critics who have limited their evaluations of the occupation to its military effectiveness, it has been a tremendous success in terms of accelerating the redistribution of income within the US. The US, along with Great Britain, now has the greatest inequality, among rich countries, as measured by the Gini coefficient.

Now, Paulson has the power to purchase $700 billion in distressed debt securities between now and January 20, 2009. The debt will be borne by all of us, while the recipients . . . well, the recipients, if the Bush record is any indication, will be financial institutions aligned with both the Bush regime and its bipartisan Congress allies, just as many of the occupation contractors, like Bechtel and Blackwater are. Crony capitalism is now official state policy. Predictably, Barack Obama supported the bailout, with an assertion that we can fix the problem later, even though the Democrats, after two years in control of the Congress, still haven't fixed a single problem identified with the Bush presidency. Expect a lot of talk, but little action, on a Democratic agenda of regulatory reform if he wins the election.

Finally, as noted here, many have recognized that the $700 billion is insufficient to deal with the amount of distressed debt, with Spengler over at Asia Times Online being one of the most recent to acknowledge it. The interests of the public appear to be subordinate to the interests of US finance capital, which seeks to retain its dominance within the this country and the world beyond. We are living through an inexorable process of asset destruction and recalculation of risk in relation to the extension of credit, and it is hard to imagine how the bailout can stop this merciless process, unless it can somehow reflate the housing bubble, an achievement that would be akin to levitation. Even then, we would just be kicking the can down the road a few years, with more extreme consequences when it invariably burst as well.

If the bailout does fail, there will, of course, be scapegoats, and the right has already obligingly targeted them for us. I reiterate what I posted here on Wednesday, because it is important:

And if conditions deteriorate to an extent not seen since the mid-1970s, or, one shudders to say it, even the 1930s, then, there are always poor people, people of color and undocumented immigrants to blame. The willingness of the mortgage lending community to target the requirements of the Community Reinvestment Act as one of the causes of this crisis is not reassuring in this regard. It suggests that the financial sector will, if no alternative is perceived, manipulate the bigotries of racist and xenophobic elements to resist any progressive assault upon its autonomy.

We may be about to enter a period with much more frightening dimensions than people being foreclosed out of their houses and forced to go to food banks.

Labels: American Empire, Bailout of Finance Capitalists, Barack Obama, Bush, Credit Crunch, Democrats, Housing Bubble, Immigration, Imperial Presidency, Neoliberalism, Postmodernism, Racism

Labels: Democrats, Elections, Hizbullah, Israel, Lebanon, NATO

Joseph Stiglitz continues to insist that the bailout is a bad idea and that Wall Street should be financially responsible for paying for the consequences of the financial crisis:

There is, in fact, a widespread consensus among economists about what should be done. The economy is weak, and would remain so even with a good rescue plan. That is why there is a need for a strong stimulus. The February stimulus package was badly designed, and its anaemic effects offset by soaring oil and food prices. Given the enormous increase in the deficit during the past seven years (from $5.7bn to over $9 trillion - and that doesn't include the bills yet to be paid for the Iraq and Afghanistan wars) we have to be sure that we get the biggest bang for the buck. We need increased unemployment benefits, and aid to states and localities, which otherwise will be forced to cut back on spending, depressing the economy further. We need more investment in both the public and private sectors.

The fundamental problem with the financial system is that there have been large losses. Loans were made to people who couldn't repay. They were made on the basis of collateral whose value was inflated by a bubble. That bubble has burst, and the collateral is now worth less than the loan. The experts believe real estate prices have still a way to fall. This is not a matter of market confidence. This is a matter of market reality. Paulson would have us believe otherwise, but the American people know better. The fact that he and Federal Reserve chairman Ben Bernanke don't seem to grasp these realities undermines confidence that they know what they are doing.

In environmental economics, there is a basic concept called the polluter pays principle. It is a matter of fairness, but also of efficiency. Wall Street has polluted our economy with toxic mortgages. It should now pay for the cleanup.

What is so sad about this whole debacle is that it was predictable. Predicatable and avoidable. Perhaps Paulson and the administration believed that they could bamboozle Americans into doing whatever they asked. But Americans had been bamboozled before - into signing a blank cheque for the Iraq war.

Both Barack Obama and John McCain disagree, and, as noted earlier, they turned their presidential campaign appearances into opportunities to advocate for a bailout on terms dictated by Wall Street. Just an hour or two ago, Obama spoke on the Senate floor in support of the bailout in his typically timorous style. Clinton didn't make his abandonment of the lower and middle class fully evident until he pushed through NAFTA almost two years into his presidency in the fall of 1994. Obama is making it obvious before he even enters the White House. No need to worry, though, the left is going to pressure him to do the right thing as soon as he has won the election.

Labels: American Empire, Bailout of Finance Capitalists, Barack Obama, Credit Crunch, Housing Bubble, John McCain, Neoliberalism

From today's New York Times:

Senators Barack Obama and John McCain put their battleground campaigning temporarily on hold and headed to Washington on Wednesday to vote in favor of the $700 billion financial bailout package, the consequences of which will help frame the remainder of the fall presidential race.

Mr. Obama intensified his efforts to rally support for the legislation as he sought to sell the idea to skeptical voters — and members of Congress — by presenting it as a plan to "safeguard the American economy."

"This plan is not perfect.,” Mr. Obama told thousands of people at a downtown rally here, not far from the Mississippi River. “Democrats and Republicans in Congress have legitimate concerns about it. I know many Americans share those concerns, but it is clear that this is what we must do right now to prevent a crisis from turning into a catastrophe."

In a speech in Missouri, Mr. McCain struck a similar tone on Wednesday as he characterized the urgency of the moment, which he called, "the greatest financial crisis of our lifetimes."

"It took Congress a while, and there were costs to these delays, but they have awakened to the danger," Mr. McCain told an audience in Independence, Mo. "And today, with the unity that this crisis demands, Congress will once again work to restore confidence and stability to the American economy."

Public rejection of the bailout is threatening to the presidential candidates for two reasons: (1) it prevents the political parties from fulfilling their responsibility to reinforce the political and economic power of finance capital; and (2) it represents an alarming repudiation of the entire system by which the US economy, and much of the global one, is secretly regulated, through institutions like the Treasury, the Federal Reserve and influential banking houses like Goldman Sachs.

Hence, it becomes essential for the candidates to proselytize for the bailout in a doomed effort to recover the lost prestige of these institutions. Otherwise, their influence will continue to dissipate in relation to their lost revenue and declining asset values. No longer able to justify their economic preeminence upon their centrality in the provision of credit and the incredible amount of capital that it attracted, both of which are now threatening their very survival, they have no recourse but seek a historically unprecedented governmental subsidy in order to preserve it. If it they get it, there is good reason to doubt that it will reverse the painful process of asset destruction caused by the deleveraging and accompanying deflation ignited by the bursting of the housing bubble.

After all, the initiatives undertaken by Paulson, Bernanke and the financial institutions that they regulate, like J.P. Morgan, Goldman, Bank of America and others, have been an abysmal failure in terms of restoring confidence to the financial markets. The release of hundreds of billions of dollars of liquidity through Federal Reserve loans secured by distressed collateralized debt obligations, the arranged marriages of Countrywide/Bank of America, J. P. Morgan/Bear Stearns, J.P. Morgan/Washington Mutual, and, possibly, within in a matter of days, Citicorp/Wachovia, as well as the shocking nationalization of Fannie Mae and Freddie Mac, have merely been signposts along the road leading to the collapse of the neoliberal economic system.

An attempt to soften the consequences of this collapse by voluntarily releasing much of their power as part of a broader, relatively mild reformist strategy of rescuing the lower and middle classes, and thus, constructing a floor to falling demand and asset values, has never been seriously considered, except by a group of liberal House dissidents and earnest economists. Fund a program for the federal government to buy distressed mortgages directly from the borrowers? If the government is going to shell out $700B, wouldn't it be better if the government spent the money to relieve the borrowers of these onerous debts, thus freeing them to resume their role as the consumers who drive much of global economic growth? Permit bankruptcy courts to step into the role formerly played by banks and savings and loans by empowering them to enforce workouts of underwater loans upon lenders, resulting in much the same?

Forget about it. There is no place for pragmatism within the existing American economic orthodoxy. And if conditions deteriorate to an extent not seen since the mid-1970s, or, one shudders to say it, even the 1930s, then, there are always poor people, people of color and undocumented immigrants to blame. The willingness of the mortgage lending community to target the requirements of the Community Reinvestment Act as one of the causes of this crisis is not reassuring in this regard. It suggests that the financial sector will, if no alternative is perceived, manipulate the bigotries of racist and xenophobic elements to resist any progressive assault upon its autonomy.

Labels: American Empire, Anarchism, Bailout of Finance Capitalists, Barack Obama, Credit Crunch, Elections, Housing Bubble, Immigration, John McCain, Neoliberalism, Postmodernism, Racism, Vote or Die