I tried to write this post several times over the past week or so. What follows is more or less my notebook, 21st century style.
Just to come out with it right away, things are happening to the structure of US capitalism that are very disturbing.
The ink from Bush’s pen had not yet dried when the execution of the bailout plan was delayed until after the elections. Meanwhile the Fed has begun lending directly to corporations. “Investors remain unconvinced any of it will work,” as if the four wisest oligarchs were working for anyone except their own power circle. There’s a crisis, you understand, and one must take care of one’s own. Now they’re talking about changing things up, which is a priori justified because no one liked the bad asset-buying plan the Senate gave Paulson the authority to enact. Contrary to popular belief, no previous version of it was ever going to do anyone any good, not until after things stabilize and we get to see which CEOs are on Paulson and Bernanke’s Blackberries (as if we can’t already guess). The progressive left, who were generally aware along with almost everyone not on television that the bailout was always a scam, should match their rhetoric to the only rational conclusion at this point: that the purpose of the plan was to concentrate power in the finance sector, not fix the economy. All signs suggest that aim is still intact. According to numerous observers, including the Treasury itself in that conference call, the new bill’s much-hyped oversight is navigable. If it weren’t, Paulson would not have the flexibility he needs to do what he needs to do, whenever he needs to do it. Instead of a democratic or even a meritocratic solution, responsibility has been delegated to another decider and his cronies.
A quick browse of Nouriel Roubini’s archives reveals that this whole thing is the performance of last year’s dress rehearsal, when Citigroup, JPMorgan Chase, Bank of America, and Wachovia banded together to create a multi-bank asset-buying machine, or more precisely a MASTER LIQUIDITY ENHANCEMENT CONDUIT. Despite Paulson’s (and covertly the Fed’s) enthusiastic support, this “super SIV” (security investment vehicle) was denounced as a cartel intended to insure the survival of the institutions most responsible for the housing bubble and eventually canned. Does this (from October ’07) sound familiar to anyone?
The new entity would raise money by selling commercial paper and use the proceeds to purchase highly rated assets from certain existing vehicles “that choose … to take advantage of this new source of liquidity,” the banks say in a press release.
In other words, it would move good loans out of the existing vehicles, leaving them with the bad ones.
Why investors would be willing to fund these assets by buying commercial paper from the new entity but not the old ones is not clear to me.
Citigroup spokeswoman Danielle Romero-Apsilos says in an e-mail, “Some of the recent stresses that we have seen in the market have developed more as a result of illiquidity rather than deteriorating credit. As a result, some sectors of the market, such as (asset-backed commercial paper), have been functioning less efficiently than previously. Given the importance of this sector, the private sector created this (conduit) as an alternative, optional source of liquidity for the SIVs, with the objective to facilitate a solution that enhances the orderliness of the market for high-quality, highly rated assets.”
Mike Englund, chief economist with Action Economics, explains it another way:
“Suppose there is a line of Fords whose engines blow up in flames. Customers can’t differentiate these cars from other cars, so they stop buying all cars. The automakers say, ‘We’re going to buy the good cars and distribute them through a special vehicle that ensures they don’t blow up.’ It’s the deterioration in good assets that’s the problem here.”
Whalen isn’t buying it. The new conduit “is exactly the same” as they old ones, he says. “They’re going to aggregate them, sprinkle magic dust on them, the Treasury secretary will issue statements and everybody hopes it will be better. They’re just making a bigger mess, putting it all together in one place. It’s tantamount to a government bailout later this year.”
Oh, and speaking of power grabs, fears among Democrats of martial law during bailout deliberations were not entirely unjustified, since with the combination of the John Warner Defense Authorization Act, the Military Commissions Act, and the National Defense Authorization Act, the laws are in place for it, at the order of any future president.
(which is exactly what they want you to think)
An irrepressible desire to believe in bullshit on the part of most educated middle-class Americans has neatly bottled up media dissent over this cascade of violations. Group psychology does not function dissimilarly from an individual body. Once the center of gravity is taken, the body is not just subject to outside influence, but dependent on it, while the brain is reduced to an observation deck. This moment between loss of stability and pain has a narcotic effect. The mediasphere equivalent begins with the extraction of the right compromise, uttered in the name of reason and solidarity, brought about in this case by the irrational simplification of crisis. “Well, it wasn’t ideal, but it was necessary” = our song of innocence and absolution. We heard the cries of moral outrage, now we’re all ready to “move on.”
(I will now spend the days before the election speculating on just how Kerry’s significant October lead in 2004 could possibly have failed him against an already much-loathed incumbent.)
(encouragingly, the U.S. may be forced into changes that are sensible, before the next election)