'Intelligent discontent is the mainspring of civilization.' -- Eugene V. Debs

Wednesday, September 10, 2008

War Neoliberalism 

Economist Nouriel Roubini, one of the first to recognize the current, ongoing process of asset destruction ignited by the bursting of the housing bubble, is angry about the bailout of Fannie Mae and Freddie Mac. Roubini, in language curiously evocative of Christian prophets and contemporary populist demagogues, has issued his bill of particulars against the neoliberals. Unable to evade the catastrophic implosion of the global financial system caused by their rigid adherence to their secular economic beliefs, the proponents of neoliberalism have repudiated everything that supposedly mattered to them.

To survive, as ascerbially described by Roubini, they have adopted policies against which they have historically rebelled, those associated with a strong state role in the economy, such as regulation of financial activity, public subsidy and, in emergency situations like the one that faced Freddie and Fannie, nationalization. Indeed, they have undertaken actions far beyond those of their enemies that they successfully confronted in the past. As during the Russian Civil War, extreme threats apparently require extreme measures in response:

The ideologue “regulators” who literally held a chain saw at a public event to smash “unnecessary regulations” are now communists nationalizing private firms and socializing their losses: the bailout of the Bear Stearns creditors, the bailout of Fannie and Freddie, the use of the Fed balance sheet (hundreds of billions of safe US Treasuries swapped for junk toxic illiquid private securities), the use of the other GSEs (the Federal Home Loan Bank system) to provide hundreds of billions of dollars of “liquidity” to distressed, illiquid and insolvent mortgage lenders, the use of the SEC to manipulate the stock market (restrictions on short sales), the use of the US Treasury to manipulate the mortgage market (Treasury will now for the first time outright buy agency MBS to manipulate and prop up this market), the creation of a whole host of new bailout facilities (TAF, TSLF, PDCF) to prop and rescue banks and, for the first time since the Great Depression, to bail out non-bank financial institutions, and a whole range of other executive and legislative actions (including the recent bill to provide a public guarantee to mortgage for banks willing to reduce their face value).

All for the benefit of the wealthy, of course. All to ensure that the hierarchy of existing social relations, and the power that goes with it, is preserved. Unfortunately for the neoliberals, Barnacke and Paulson have done nothing to suggest that they possess the pragmatism of Lenin and Trotsky, or even, say, J. P. Morgan in 1907.

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