Economic and political analysis-Window on culture-Media criticism

Saturday, December 13, 2008

Solution to credit crisis masks massive corporate giveaway

The Troubled Relief Assets Program (TARP) has become a giant slush fund. Even the mainstream media appears to be taking notice of the lack of accountability. Once given authority of the money, Treasury Sectetary Paulson appears unconcerned about how it looks to be helping his banker friends. Why should he care what the public thinks? Most likely, this very much artificially generated crisis has provided a consolidation opportunity for surviving banks, who've used some of the new money to buy up smaller banks.

Suspicious is the lack of transparency. The Federal Reserve has expanded on the TARP program, using the crisis as an excuse to trade U.S. Treasuries for toxic debt. There are apparently 11 Federal Reserve programs in effect, loaning out over a trillion dollars since mid-September, according to (abolishthefederalrreserve.com)

As long as the results of the financial bailouts remain unrevealed, public criticism is limited. More "loans" using public credit can be extended by the Fed, with unknown or far more limited conditions than those placed on the TARP.

A private for-profit entity, the Federal Reserve, composed of major banks, has a limited profile and a penchant for secrecy. It recently responded to a lawsuit by Bloomberg by "saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information." (link from above)

No one in the Bush government appears concerned whether or not the programs are actually working. Now of course the lack of results will be attributed to a delay in "unfreezing" the credit markets. The disconnect between the Fed's shadow banking transactions and the heavily criticized auto bailout show the media wants our attention elsewhere.

Managing public perception has always been a hallmark of the new Washington; as long as government claims to be doing something, we are expected to feel better, as if Big Daddy were taking good care of us. Never mind that the allocation of TARP funds is under the discretion of the Secretary of the Treasury, or that the Fed is replacing bad debt with Treasuries without the consent of Congress or any Congressional oversight. We have truly lost control of our money--Jefferson warned us about that.

With TARP there has been a pattern of half-truths and lies meant to justify the giveaway. First, we were led to believe that increasing the oodles of cash out there would help the economy, largely by running up home prices and providing rising home equity. Then, when inadequate regulation popped the speculative bubble, we were told the Fed needed to buy up the failed mortgages. Then, when it was clear the subprime mortgages were the base of a broader credit derivatives problem, the plan shifted. All of a sudden TARP funds were re-directed to buying bank stock. At that point the extent of the Treasury Secretary's personal connection to the banking industry became clear.

Government intervention appears to be at the root of the problem--any solution rooted in bigger Government can hardly be trusted to relieve the problem, only mask or delay it. Since World War Two, the pattern has been larger government accompanied by promises to shrink it. In this respect the Democrats have been far less deceptive than the Republicans, who've only recently reacquainted themselves with the principle of fiscal conservatism abandoned during the Bush years.

The proposed auto bailout has been resisted by GOP Senators, many of whom come from Southern states with automobile factories run by foreign firms. Their reattachment to fiscal restraint hides a narrower agenda, to help cronies and campaign contributors. In Washington, helping the private sector isn't a problem in general, although certain companies are seen as more deserving than others. The extent of giving and choice of recipient is a simple matter of perspective.

I'm guessing that the GOP is opposed to anything that the UAW wants. Federal aid that furthers the interests of organized labor will be viewed as a threat to anti-union, generally GOP business interests. I say "generally" because the neoliberal principles under which Bill Clinton worked (and Obama perhaps less so) look at labor unions unfavorably, as a threat to business owners and the investor class.

The ultimate indicator of a bait-and-switch is the intensity of media coverage of the auto bailout, while the far larger TARP and Fed programs go by largely ignored. We've known for a while how closely the corporate media defends the interests of its owners, the uber-class which seeks to enslave us Little People in the chains of celebrity fixation and debt servitude. Fussing over a puny bailout package as the Fed floats literally trillions to troubled corporations shows us the debate over which the investor class would like to direct any controversy. So extreme is the coverage bias that some in the mainstream media have noticed this discrepancy.

Just as Caylee is supposed to distract us from the news that really matters, so too does talk of an auto industry bailout redirect public attention away from the massive theft that is TARP. Under this cover of distraction, the Fed has loaned over a trillion dollars of our money, with no oversight or accountability. Once the TARP program was funded, the money appears to have simply disappeared, not unlike the trillions of dollars that have gone unaccounted for in our defense spending, or funds designated to rebuild Iraq that somehow got lost in transit.

Ignorance as bliss

Is anyone really surprised by the last minute plunder of our Treasury? There's a culture of robbery that's been going on in Washington for quite some time, reaching its zenith with Bush's record spending.

I didn't think the ruling/investor class would get this far, or get away with the largest wealth transfer in history, but they have. No doubt the media redirection has helped, especially with the average American's understanding of economics so poor (coupled with a bad streak of anti-intellectualism--not only not knowing, but not wanting to learn.) One wonders as to the level of deprivations and suffering that will have to occur to jerk the American people from their sleep not by choice but by necessity.

So bad have things gotten that the Fed is now operating independently, trying to issue its own debt rather than Treasury bonds. In the past, the Fed was limited to purchasing notes, bonds, and bills sold by our Treasury. This legitimized the open market purchase of debt issued by our government. Unfortunately, the Fed's actions create a middleman, originating a level of interest payments that really doesn't need to be paid. Issuing debt directly would be an easy process--if things got bad enough, the Treasury could print and distribute money directly.

The banks would of course take that gesture as a direct threat to their monopoly over the issuance of money. They'd strike back, knowing that their survival hinges on their control over our money system. Underestimating the greed of America's central bankers is a mistake that Kennedy apparently made shortly before his assassination. And Lincoln. And Garfield or was it McKinley? Both. The message has been sent--I don't think any President would be safe trying to assert the Constitutional right to control our currency. Kennedy's Executive Order 11110 still stands today; it would allow the Treasury to issue directly,a move that would make the Federal Reserve superfluous overnight.

Who needs the Fed anyway? Well, to be honest, private sector banking has its benefits. Without a healthy lending system, we can't borrow. Borrowing has become the lifeblood of our economy. With savings so anemic, we need to continue to borrow more in order to spend more; hardly sustainable but true. As a matter of fact our entire society has become hyper-consumerist. The cause may be constant marketing, hyping wants as needs endlessly 'til we submit to our artificially stimulated impulses.

We've grown up in a culture where spending is the preeminent behavior. We feel sorry for ourselves when we can't buy what we want. In a consumer society happiness is buying what we want; vice versa, we are unhappy when we don't get to buy what our heart craves. Like little kids, we whine when we can't get what we want. We blame ourselves, our inability to earn more. Underneath it all though we're unhappy because we can't get everything we want, no matter how hard we try. Anti-depressant use rises year after year. Most Americans just try to avoid the simple act of explaining how things really are. Ostrich-like, they bury their heads in the sand, fearing the truth far more than the consequences of ignoring it.

Background on the crisis

The repeal of Glass-Steagall--an important bill passed during the Depression which kept banks from over-borrowing and risky speculation--allowed investment banks to merge with their commercial brethren. Still, until the collapse of the vital regulatory element, I guess we weren't doing that badly. Being an economy based on consumer spending, this means we were buying more. And being a nation of non-savers, sales growth is synonymous with consumer borrowing. We racked up the debt.

Debt is money. By accumulating more money, we gather IOUs. The money has no intrinsic value, just a promise to be worth what it once was. Without the issuance of more money, we don't have more growth. More money being spend is therefore more money being borrowed, and more interest incurred. Eventually, the speed in the growth of money outpaces demand. We simply can't borrow enough to keep spending as we have.

If something can't go on forever, it won't. We've reached the point in the development of our society that we need to choose between saving and wild swings in wealth and income. Feast or famine has come back into vogue. Perhaps it's been so long that we don't recognize the risks of our precarious fiscal position; we just take it on faith that we'll always have more. Why? Because we're Americans. Because we're entitled to it.

We've gone long enough on the false elixir of hyper-consumerism. Yet we don't know any way out. All we can do is wait for the pain of going on to increase to the point we can't go on any longer. Exhausted, we can choose to stop spending so much and let our society mature beyond simple consumption.

Quite frankly,the Earth can't take it anymore. If American-style consumerism is repeated by just a small fraction of the rest of the world, we'll see environmental devastation and over-depletion.

Looking at so much misery inflicted on the developing world, it's as if the developed nations simply don't care what their over-consumption is doing beyond their borders. The interconnectedness of our planet's ecology might end up forcing people in the developed world to assume responsibility for the consequences of their consumerism. If not, and we all simply pursue our own material gratification, eventually the planet will make us pay.

Too bad we haven't grown up like we need to as a society in order to advance beyond the pursuit of material gratification and the self-absorbed individualism that self-fulfillment entails. We've wrapped our identity around the things we buy--they define us. In order to break the spell cast on a society shopping 'til it drops, like little drug-addicted rates accepting a shock for a few seconds of pleasure, we'll need to divorce our purchasing decisions from our self-image--we are more than the sum of what we buy, as Rachel Corrie said.

Paradoxically, to escape our constant infatuation with the accumulation of wealth we need to achieve a certain level of income. The world's first democrats, the ancient Greeks, were only able to debate philosophy once the laundry was done, meals prepared, and frontiers guarded. Often these tasks were the duty of slaves. No society can progress without meeting base needs.

Our fascination with the electronic media has clearly blinded us, atomized us, led us to cocoon. All is well if we have what we need--why do we need to be concerned with the less fortunate? Self-aggrandizement is the hallmark of the Baby Boomer generator, at each stage of its progression have come unparalleled levels of greed and hyper-consumption.

The economy built by that generation is collapsing under the weight of its own excess. Rather than leave a sustainable path for the next generation of Americans to follow, it will leave behind the consequences of too much--too much work, not enough family, too much spending and not enough saving. The Boomers will leave nothing, save mountains of government debt they racked up to gorge themselves in the glorious, health care-sucking end of their life-cycle. There is much they could give, in terms of their legendary work ethic and work skills, so let's hope they'll help the next generation. Lord knows were gonna need it.

New Feudalism

I guess the unfairness and inadequacy of our present political system shows just how badly we need change. Our two-party political system simply doesn't represent the interests of the people. So much money and power flow through Washington that it's simply impossible to have true representation. The architecture of the system rewards entrenched interests who can bring the most money and influence to bear.

The Little People are forced to provide the manpower and taxes. They can pick their representatives, but are rarely offered any choice between A or B, both of whom have their first loyalty to those who funded their campaigns. Therefore those with the most money do make the rules, as Machiavelli might have said.

The recent credit collapse may be part of a reversion to the Middle Ages. We have the new kings and the supporting cast of Court jesters, courtesans, with all the intrigue and double-dealing. Thankfully those who rule are chosen by their merit, with a few exceptions of brith-right like Bush, who was the second in a broken line of succession.

In our new medievalism, what can the lowly peasant hope to achieve through all his political will? Very little. Lacking the resources to take even the shortest of breaks from laboring in the fields, he can only pray for deliverance from his daily struggles. Philosophy and deep thought are beyond him. He cares little for who becomes his ruler, so distant they are, but rather he obeys his best and tries to avoid the taxman and conscription.

The middle class on the other hand presents a threat. It can think and because it has a small measure of savings, which it can pool and make a political impact through force of numbers. It is in short a threat to the noble classes, who would like to see them impoverished, taxed, and basically beaten down to the point they assume any resistance to the status quo is pointless--made peasants politically if not economically.

The modern equivalent of this oppression is the constant uncertainty in the job market. Unions, bent on improving the standard of living, have been neutered by the downward pressure on manufacturing, once the heart of this nation's economy but now, thanks to outsourcing embraced by the investor class, is but a shadow of itself. Lacking any sustained marketability, the workforce is at the mercy of the employer, a situation which keeps downward pressure on wages.

Rather than impose trade protections, free trade has come in the guise of creating jobs. We were told everything would be better with NAFTA, but our leaders knew differently. Free trade was the answer not to the needs of a changing economy but instead led to the de-industrialization of America--the lucrative practice of exporting jobs and production to places with a lower cost of labor, fewer unions, and weaker environmental standards.

More tangible, militarism been the opiate of the American masses, convincing them of the State's need for more: more power, more taxes, more lives, always more. Smoke and mirrors, nationalism blinds the people to the deprivations that await them once the state has grown. During wars, tax burdens expand, doubling for Americans during the Depression and Second World War, then staying there in perpetuity. Facing higher taxes, the middle and lower classes must do with less.

Meanwhile spending trickles up. Coupled with favorable tax policies, the rich enjoy the State's power and use it to secure their wealth. Under Bush tax cuts, which the now-entrenched Obama is reluctant to end, the wealthiest Americans had unprecedented increases in income. The rich wield disparate influence; they use it to control the political leadership of our country, whether Democratic or Republican.

It's an old game, one that the ruling elite have used to subjugate their far more numerous subjects since time immortal. The most remarkable trait of modern feudalism is how few Americans see it coming. And once things turn bad, far too many simply drop their heads and start scrounging for whatever work or handouts they can find. Apathy becomes a poison: these people, newly deprived, disconnect from their political rights and privileges, shun the power of the vote, which of course empowers the few all the more.

Any revolution will start by empowering the people. In Latin America, we saw this with Chavez in Venezuela, who made a huge grass roots effort in the barrio to get people informed, by distributing the equivalent of a Little Red Book to the poor, outlining their rights under the Venezuelan constitution. Lacking an education, many of these people knew little until Chavez managed to organize them into a political force, in the tradition of Simon Bolivar.

Politics have long been used as a tool to oppress and restrict the ability of the lower classes to organize or resist their own economic disenfranchisement. Should the masses all rise up, clearly the control over the political elite could be easily cast off. Knowing this, those in power in democracies resort to a variety of methods to undermine the ability of the more populous poor to unite and cast off the ruling elite.

If this all sounds like Marxism, or Leninism, it's because the flaws inherent in the capitalist system have been thrown open for the world to see. At its heart is the political disempowerment of the working classes. Each neoliberal agenda seeks to shepherd in some ultimately anti-democratic reform. Every economic law, every deregulatory effort has preceded a decline in the number of union and manufacturing jobs.

Unrestricted free trade has limited the power of labor, which has been a key constituency opposed to the accumulation of power by the owners of the means of production. Our leaders knew NAFTA would gut our manufacturing base, yet they pushed ahead, just as our leadership now is bent on pushing unrestricted financial assistance to corporations. Saving manufacturing jobs would have been as easy as not passing the agreement. Yet saving jobs was never the point.

The Middle Class has been drained on purpose. This most recent crisis is a wholly manufactured event. The chief result will be a net transfer of wealth to the wealthy, so that those who have more will retain a proportionally larger percentage of what remains after the smoke clears. Far fewer will have any appreciable financial security, which will make them dependent on government help. Meanwhile, the Keynesian approach which will shower billions on infrastructure and social services will quickly dry up due to lack of funds, the product of willful overspending on un-winnable wars--drugs, terrorism,etc.. A slowdown in spending could force a depression, but only if people aren't employed and the government can't simply print its way out.

I'd argue that employment will continue, but at lower wages and fewer benefits. To say that everyone will be out of work isn't accurate. We'll all just work less, make less, and ultimately have to work harder to keep up with the bills. More of our pay will end up in the hands of the rich and corporations, which will grow even wealthier.


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  • At 1:10 PM, Blogger jbpeebles said…

    The Bloomberg article is generating some really angry commentary. See truthout.org.

    People are waking up to the fact our political system has been dominated by corporation. It's not just Bush--it's an entire tax-robbing, inflation-creating cabal bent on bleeding the Little People dry.

    A while ago, I read that if the elite knew our country were bound to self-destruct, they'd do all they can to enrich themselves. They'd build palaces in places where no extradition to the US exists, like Paraguay--like Bush's huge camp there. They'd use the power of the military to preserve whatever credibility the dollar had. In short, control over the empire would be used as an instrument to plunder it.

    The way things are going, the way we are being led as if an end to American empire was soon to come, proves this point exactly. Rather than fighting the troubling indicators and threats to Fortress America, our leaders of both parties are enriching themselves, as if they knew there were nothing they could do to stop the pending collapse. Meanwhile of course they say how there's no problem--is this just cover to continue the plunder so the public does become alarmed?


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