Friday, October 03, 2008
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:
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.
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.