Tuesday, February 17, 2009
As with the bailout, Geithner and Summers will act to ensure that capital, that is, the investors, are favored over the proletariat, that is, the workers, thus serving to further depress demand and intensify deflation. They will continue to channel federal funds for the benefit of what Michael Hudson and others have described as FIRE, the finance, insurance and real estate sectors of the economy, to the detriment of tangible production and consumption. As Hudson explained last week over at Counterpunch in relation to Geither's skeletal plan to revive the banks:
Accordingly, one should perceive the selection of Geithner and Summers to oversee efforts to revive the automobile industry as part of a larger effort to revive the bubble economy of the last 15 years. What does this mean? Further subsidization of investors by the government and the workforce so as to create future speculative opportunities. Workplace protections will be eroded, if not eviscerated, while a program is developed, probably in association with the development of so-called green technologies for automobiles, to attract future investment.
The three-pronged Treasury program seems to be only Stage One of a two-stage “dream recovery plan” for Wall Street. Enough hints have trickled out for the past three months in Wall Street Journal op-eds to tip the hand for what may be in store. Watch for the magic phrase “equity kicker,” first heard in the S&L mortgage crisis of the 1980s. It refers to the banker’s share of capital gains, that is, asset price inflation in Bubble #2 that the Recovery Program hopes to sponsor.
The first question to ask about any Recovery Program is, “Recovery for whom?” The answer given on Tuesday is, “For the people who design the Program and their constituency” – in this case, the bank lobby. The second question is, “Just what is it they want to ‘recover’?” The answer is, the Bubble Economy. For the financial sector it was a golden age. Having enjoyed the Greenspan Bubble that made them so rich, its managers would love to create yet more wealth for themselves by indebting the “real” economy yet further while inflating prices all over again to make new capital gains.
The problem for today’s financial elites is that it is not possible to inflate another bubble from today’s debt levels, widespread negative equity, and still-high level of real estate, stock and bond prices. No amount of new capital will induce banks to provide credit to real estate already over-mortgaged or to individuals and corporations already over-indebted. Moody’s and other leading professional observers have forecast property prices to keep on plunging for at least the next year, which is as far as the eye can see in today’s unstable conditions. So the smartest money is still waiting like vultures in the wings – waiting for government guarantees that toxic loans will pay off. Another no-risk private profit to be subsidized by public-sector losses.
In the unlikely event that Geithner and Summers succeed in their regressive effort to return to the bubblicious world of the Clinton and Bush presidencies, don't be surprised if one of the first bubbles of this brave new world emerges in spinoff companies associated with GM, Ford, and, if it survives, Chrysler. Companies free, of course, from the constraints of a unionized workforce. Eric Janszen of iTulip, has already generally anticipated such a development in relation to alternative energy, and the distressed automobile industry looks like a good laboratory for it.
As for the automobile workers themselves, they obviously had good reason to distrust Obama during the 2008 election, despite attempts to characterize their suspicion of him as racist. They are about to get royally screwed by a President from a political party that poses as their protector. Just in time to face the prospect of lower social security and Medicare benefits upon retirement.