A Watershed Moment
Whatever yet may happen on Wall Street, to the economy, or in the election, something has profoundly changed in the United States when a senior editor for the Weekly Standard writes this:
Republicans may suffer damage not because their remedies are worse but because a lot of their ideology about how markets work has been belied by events. Republicans are the party of rewarding people for risk-taking. If the government covers part of the losses, then the risks were illusory in the first place. (So, of course, were some of the rewards. A good percentage of the proceeds from the controversial Bush tax cuts was surely poured into this black hole of speculation and unknowability.)President George W. Bush, Fed chairman Ben Bernanke and treasury secretary Hank Paulson all declare their preference for free-market solutions and a desire to minimise moral hazard. But they sound like François Mitterrand in mid-1983 when he abandoned his socialist programme commun in the face of capital flight and a collapsing franc, all the while proclaiming his devotion to socialism.
Panicked actions speak louder than words - and have more lasting consequences. The financial era that started a quarter-century ago is drawing to a close. Since the instruments that permitted an extraordinary leveraging of assets have been discredited without really being understood, leverage itself will be regulated against. Once that happens, there simply will not be the profitability in investment banking to enable hundreds of well-connected Ivy League kids of middling talents to become multi-millionaires every year.
By the time the situation calms and memories fade, there is unlikely to be enough capital in the economy to fund a restoration. Right now, the oldest baby boomers are 63. The ratio of earners to dependents has been at an all-time high. A vast earner generation is about to begin its transformation into a dependent generation. Probably a more dependent one than anticipated.
On the surface the Republicans look almost like socialists--nationalizing industries. Before we get too excited, however, let's be clear that they are nationalizing Wall Street's losses while leaving Wall Street's profits firmly in private hands.
September 19, 2008 5:31 PM | Reply | Permalink
Privatize profits, socialize risk.
September 19, 2008 5:37 PM | Reply | Permalink
I have to respectfully disagree.
The Republicans are yesterday's news. It's Frank, Dodd, and apparently, Shumer who are running this show.
They're the ones who are bailing out "Wall Street" -- not Bush (who's barely involved), not Paulson and Bernanke (who need Congressional authorization) and certainly not Alabama Republican Senator Shelby, who wouldn't be bailing out any of these speculators.
September 19, 2008 6:21 PM | Reply | Permalink
Good points, but I wouldn't say that Republicans are yesterday's news. And with the always-willing-to-get-on-her-knees Nancy Pelosi at the ready, their legacy will live on and on (and on and on...)
September 19, 2008 6:36 PM | Reply | Permalink
I think Paulson is in the lead, Ellen, but you're absolutely right that it's the Democrats who are jumping in line to give him the authorization he needs to keep running.
September 19, 2008 6:54 PM | Reply | Permalink
So the GOP, including Paulson and Bernanke and Bush/Cheney are the staunch upholders of letting the $1T worth of chips fall where they may. That's very principled of 'em. So how come they're not out there making the case for not doing anything en masse? How come they're not making a huge political issue of how it's the Dems who want to leap in and bail out them nasty High Finance High Rollers?
Probably because they're scared shitless of what would happen if we actually didn't do anything.
I'm not a big fan of privatize profit/socialize cost, and this is surely the starkest example I've ever seen. But I'm also not a big fan of letting the whole Self-Correctin', Invisible Hand house of cards collapse, since that's a much harsher way of socializing the costs. We'd all be Hoovered then.
September 20, 2008 9:47 AM | Reply | Permalink
Amplifying and extending my remarks:
Yup, they're way in the back seat,
Gotta love that Adam Smithean purism there. It's a good thing the Busheviks and Cheneyists are so interested in shrinking the scope of government in general and executive power in particular, or we'd have stuff like torture and abrogation of the 4th amendment going on. But I digress...
You can just sense the urgency with which they're trying to get out of the way and let Pelosi lead the way there, can't you.
September 20, 2008 9:59 AM | Reply | Permalink
This from The Weekly Standard, and a Wall Street Journal Editorial blasts McCain's understanding of finance.
The Republicans are eating their young.
September 19, 2008 5:34 PM | Reply | Permalink
I think the real power base of the GOP (Bush's base of the super affluent - not Rove's base of the rabid) has decided that the risks of McCain just don't pencil. Do you think a bunch of right-to-life wingnuts have been feeding his campaign?
The super-wealthy pretty much control the media, so if they decide McCain isn't worth the risk - IMO that will become the media consensus.
September 19, 2008 6:00 PM | Reply | Permalink
kgb999 said:
I never asw it put that way before, good one.
September 20, 2008 10:32 AM | Reply | Permalink
And it's a beautiful, beautiful thing. I truly never thought I would live to see the day when the greed of the deregulators and the trickle down Reaganites and investment bankers would be getting their asses whipped and have to submit to a massive public humiliation as their economy came crashing down around them. This is truly a moment like the Wall Street crash - we know what cured the Great Depression - the New Deal. It is a mandate for President Obama and another 40 years of bringing back what worked the first time. Maybe a 90% upper tax rate for the billionaires like we had back in the 40's, to fight tomorrow's Hitler, too. And we can have a middle class again.
September 19, 2008 9:24 PM | Reply | Permalink
Where's Senator Obama?
He should have been center-chair at that "dog and pony" show run by Paulson and Bernanke on Capitol Hill last night.
Is he too cowardly to tell Bush, Paulson and Bernanke, the three men who "destroyed" the financial system, that their days of lording it over us are over?
September 19, 2008 5:57 PM | Reply | Permalink
The changing climate, and the ensuing wild weather events that are accelerating in frequency, are about to change the current socio-economic configuration in ways that humanity has only ever confronted in places like Easter Island and the Chaco Canyon.
Our global economy is unsustainable. It is a false economy. We will continue to gobble up the worlds un-renewable natural resources--and soon, it may be very difficult to live on the surface of this planet. Imagine an unpredictable Cat 6 tornado visiting somewhere on the surface every day. Imagine droughts that last years, and rainy seasons that last years. Imagine 30 cat 5 hurricanes hitting the southern seaboard every season. Imagine wars over potable water. Imagine no more fish in the sea. Imagine food shortages, and millions of climate refugees, worldwide.
Imagine a new reality that we are creating for ourselves. If you cannot--then you are failing to extrapolate from knowledge available to you today.
What are the government configurations that can be forged to address this coming reality? Everything we know is wrong. Everything we think and do must change. There will be no way to avoid massive catastrophic collapses of the human population, and mass extinctions. I am not being alarmist, I am trying to be a realist who is trying to extrapolate various scenarios that are sure to play out. This is not merely a possibility. Not a maybe. It is a near certain probability. What has to happen before the world awakens to the coming new reality? Because it is unfolding now...and what are we talking about--whether today's college graduates will as easily become multi-millionaires? How about whether or not any of them will ever grow old.
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?
September 19, 2008 6:53 PM | Reply | Permalink
You should change your screen name to Jeremiah.:-)
September 19, 2008 11:03 PM | Reply | Permalink
'...a prophet hath no honor in his own country.'
September 20, 2008 12:48 AM | Reply | Permalink
Certain top establishment Democrats may be signing off on these plutocratic corporate-socialist plans, but certainly they aren't running the show like Ellen of the black eye suggests.
Culpable? Yes.
Ringmasters? Hardly.
It's hard to tell if Ellen is simply a run-of-the-mill though intelligent Republican troll or a utopian kibbutzer whose got it in for Democrats.
September 19, 2008 8:18 PM | Reply | Permalink
Bull.
Dodd, Frank, and Shumer have all -- all -- the power. Nothing moves on this bailout unless they authorize it. Nothing.
September 19, 2008 9:56 PM | Reply | Permalink
Well, strikes me you're the one who's living in lalaland, not her. Despite your user name, you obviously haven't been following the chronology of the financial news, regarding who proposed what first, and how reluctant the Bushies and the Feds have been to do anything like this.
For just one example, Schumer's proposal on the Sentate floor was timed for Thursday's trading day:
This morning's NYT:
I heard him call in for a short interview with CNBC before giving it; any Fed involvement at the time was just rumor.
The Dems have been planning something big but they expected it to be a months long fight. Seems to me that they seized the day; they're ready with proposals they've been working on for quite some time, while the Bushies and Feds were more like "halp, anyone, halp, we tried all the old tricks and it's still not working and we don't know what to do!"
September 19, 2008 10:46 PM | Reply | Permalink
Agree with you and Ellen. I really hope Democrats don't start this business of believing ideology over reality. It's too Republican for one thing and it doesn't solve anything for any other thing.
In thinking about it though, Sen. Obama may have been smart to stay away. Let Congress take the lumps that are coming, too. (They always do.) Serve crow later as a Presidential candidate.
But the Weakly Standard just put the Reagan era into its final grave. Now it's official.
September 19, 2008 11:12 PM | Reply | Permalink
Barney way back in March:
September 19, 2008 11:37 PM | Reply | Permalink
link to full Barney Frank op-ed:
http://www.washingtonpost.com/wp-dyn/content/article/2008/03/07/AR2008030702896.html
September 19, 2008 11:39 PM | Reply | Permalink
Thanks, art. Have you read any reports on yesterday's meetings with Congressional leaders where Frank was mentioned as being in attendance? I haven't and that seems odd as he has been the Democrat with the most to say on the crisis.
2 Questions for anyone that can answer:
1) Even though I agree that Dodd, Frank(?) and Schumer have the power on the bailout -- in theory, couldn't the Fed have more or less done the bailout (or do it if Congress doesn't) just as they have unilaterally put $85b in AIG, absorbed $??b on the Bear Stearns rescue, opened their windows to investment banks, etc, etc, etc...? I know Harry Reid was loudly complaining about it, but complaints are common on the Hill. $700b bailouts, not so much. This WaPo article says "Bernanke had been leaning toward comprehensive government action for some time. But he didn't want to spend any more of the Fed's money without the blessing of Congress." Lame?
2) All the pundits, players and anyone else with an opinion cite the dangers of the worst financial crisis in history, but not a one of them spells out what one of those might look like. Is it a case of closed banks and empty ATM's,a depression with tent cities and apple sellers or generally what? Liquidity or trust crisis, or solvency, liquidity and trust or a combo or none of the above?
September 20, 2008 11:37 AM | Reply | Permalink
WTF?
And just who is in charge that came up with it in the first place?
Dodd, Frank, and Shumer?
If you answer yes, then you are unquestionably a troll. If you answer no, then you are admitting they do not have all the power and you are likewise full of shit.
Either way, you lose. Begone Ellen the Trollish Unwonder.
September 19, 2008 10:40 PM | Reply | Permalink
And I think you're another one who appears to have been totally ignoring what certain members of Congress have been up to. Clue: campaign propaganda and hijinks are fun, but not too connected to reality.
September 19, 2008 10:54 PM | Reply | Permalink
How much you want to bet Senator Obama's going to be voting for the bailout and Senator McCain against it? It's going to be a Dem plan. Paulson and Bernake are sort of in an advisor position. Sure, they'll try to convince to include that which be pleasing to some Republicans (just like Greenspan used to do), and the Dems will listen because they will want to get some GOP votes, but they are in the driver's seat.
P.S. No bet needed. Here you go, I just googled it:
September 19, 2008 11:05 PM | Reply | Permalink
In the news clips I heard yesterday, Obama was backing the bail out and McCain was talking about getting the Fed out of the bail out business (while remaining quiet about this particular bail out proposal).
Don't be surprised if McCain takes a populist tack (no more bailing out Wall Street with ordinary taxpayers' money), while Obama aligns himself with the financial elite who all believe the bail out is necessary.
September 20, 2008 8:17 AM | Reply | Permalink
Oddly, that's not how Paulson, Bernanke and Bush see it.
September 20, 2008 10:48 AM | Reply | Permalink
"The President (Paulson and Bernanke) proposes; Congress (Dodd, Schumer, and Frank) disposes."
September 20, 2008 11:53 AM | Reply | Permalink
Precisely my point.
September 20, 2008 12:07 PM | Reply | Permalink
If this thing goes like all the crisis legislation we've seen in the last 8 years, the Bushoids will "propose" something ineffectual or ridiculous, threaten the Dems with accusations of terrorism or the like if they don't pass it exactly as-is, and the Dems will cave. In this case there just might be some hint of an actual compromise, but it's hardly been the rule. To claim that the Bushies are passive backseat players here is ridiculous.
September 20, 2008 1:16 PM | Reply | Permalink
As my mother would say, "If Alice (the Repugs) jumped off the roof, would you (Our Dems) jump off, too?"
Cowardice which results in failing to exercise one's rights and powers is no evidence whatsoever that you didn't have them in the first place -- and obviously, is no excuse.
September 20, 2008 1:49 PM | Reply | Permalink
If we're just talking about the academic Constitutional issue, yeah, Congress has the power of the purse. But the subthread was about this:
Purple State: "On the surface the Republicans look almost like socialists--nationalizing industries."
To which you replied as follows, manifestly to rebut the charge that the GOP--principled Adam Smitheans all--would ever do such a thing:
I'm saying dat's crap. Bush/Paulson/Bernanke are clearly maneuvering to get out in front on this. They clearly want to take action and be seen to be taking action. They know it would be a political disaster (not to mention 18 other kinds) to do otherwise.
But hey, if I were a survivalist with a cabin in Idaho I'd maybe want to see what would happen if Adam Smith prevailed this time.
September 20, 2008 6:09 PM | Reply | Permalink
Thank you, Purple, but let's make one thing crystal clear: socialism is public ownership, not public funding of private ownership - that's fascism.
Buyouts would be socialism; bailouts are not socialism if they leave institutions in private hands.
So we socialists thank you for getting it straight, Purple. This kind of thing has been giving us a bad name for too long, and it has nothing to do with us.
Now, is anyone out there ready for eminent domain buyouts, i.e., real socialism, not just this fascist substitute which is only a short-term remedy at best?
September 19, 2008 11:17 PM | Reply | Permalink
Yes, but this particular deal is about privatization of profit, and socialization of loss
That is an equation that is hard to get one's mind around.
September 20, 2008 12:53 AM | Reply | Permalink
Why is it hard to get one's mind around? I'm not having any trouble with it.
"Ownership" of loss is not owning at all. A debtor doesn't "own" anything - the party to whom the debt is owed is the only owner in such relationships.
So "socialization of loss" is not socialism. When I refer to public ownership, I'm not talking about owning losses - the very concept is an oxymoron.
Who owns the institutions that incurred the losses, after their debt is paid by the public? The public? No. And that's the very simple point.
If this was a contractually logic situation, the
public would acquire a lien on the private institutions, and it would at least be ethically reasonable for it to take over its profits until the debt is repaid. That's not happening here - these are essentially gifts, for which the public gets nothing in return for its assumption of the debt.
Private profits with public losses, again, is fascism. Not socialism. It has no more to do with socialism than it does with capitalism.
September 20, 2008 3:00 PM | Reply | Permalink
Pardon me, but where is the "watershed" here? Someone from the Weekly Standard, a notorious and shameful neo-con propaganda sheet, takes a short break from drum-beating for the "war" against terror, the seven deadly sins, and common sense in order to intelligently -though briefly and rather aimlessly- ruminate on the country's future? Having hoodwinked America into wasting trillions slashing and burning its international credibility they are now moving on -without the slightest token apology- to search for new opportunities to enrich themselves by mischief-making. Why should we pay attention to these fast-talking fools?
September 20, 2008 4:41 AM | Reply | Permalink
PT, We don't have to pay attention to the fools if we don't want to. BUT, we want the fools who usually do pay attention to them to pay particular attention to this article. Besides, it's not every day, or even any day, that these fools actually get something right.
September 20, 2008 8:51 AM | Reply | Permalink
What did the author write in his own publication? It seems a particularly week kind of courage to write these things in the FT, where it is almost preaching to the choir.
September 20, 2008 8:46 AM | Reply | Permalink
This is not just stupid, corrupt, counterproductive and ineffective, it is treason against the population and the constitution. $700 Billion (and you can be assured it will be a LOT more than that in the end) with no judicial oversight to bail out the cannibals that have looted, rationalized and de-industrialized this country! Overseen by the very people that got us in this mess. This is insanity and if it allowed this country is finished. The financial oligarchy aims to use national governments to destroy any ability of any gov't to work for the common good. Their end-game is a kind of international feudal world order run by central banks, investment banks, hedge funds, the IMF and the uber-rich. A few billion useless eaters will have to be eliminated as they are economically superfluous and too much overhead for the new system to carry. Look for hot wars coming soon, as Russia and China will not simply roll over and accept this fascism that will be coming after them in short order.
This all started with Nixon sinking the Bretton Woods system in '71. Every Admin since then has been complicit in deregulating everything in sight and dismantling all New Deal protections. Yes, bring back Glass-Steagall, but more important put the whole floating-exchange rate system thru bancruptcy proceedings. Just write off the 100's of trillions of dollars of derivatives and exotic and toxic bad gambling debts, which are worthless and unpayable anyway. Then outlaw those instruments. That will crush the locusts. Then create a new Bretton Woods fixed rate system and start over by issuing credits to re-start productive investments in food production, large scale energy and transportation systems and other needed infrastructure. Anything else will doom the planet to a new dark age.
September 21, 2008 5:25 PM | Reply | Permalink