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Dear Angry Lefties: Your Imported Pitchforks are Foreign Financed
Credit: Reputation for
solvency and integrity entitling a person to be trusted in buying or
borrowing: You should have no trouble getting the loan if your credit
is good
We digested the American pie over three decades ago, and we now owe even the Indonesian soles of our shoes to foreigners. Our trade deficit based service economy has for the past three decades been one of increasingly borrowing from abroad to purchase from abroad, and Americans have survived by suckling from the global financial teat, and the world was all dandy with this because of our unique credit. The fact is that credit has been for a long time the US's one true asset, and with a global financial crisis and our nation collapsing into a depression, the consensus is that investment is our least painful way ahead, but in order to invest we must more than ever resort to our credit.
However, in many circles there are cries that we should stiff the sovereign bondholders who invested in major private bond markets in institutions such as Citi. Puzzlingly it should be Treasury that steps in to effectuate the stiffing, the very same Treasury which must maintain credit to finance our recovery. After stiffing these creditors, we then simply expect them to return business as usual and buy our Treasury Bonds so we can finance our much coveted healthcare reform and other liberal dreams.
Sovereign funds from abroad are already growing impatient, and although they too are inextricably intertwined with us in our financial bacchanal, they do not necessarily have to continue in this path. We are in a position to call China's bluff, since everyone knows that the value of the US bonds they hold will only diminish as they let go of them. However, to what extent must any longterm lenders continue to give us fresh credit for our dream supertrains and investments in new energy if we make the decision to stiff them through the private institutional bondmarket, all in the name of politics and pitchforkers threatening with imported pitchforks purchased at Walmart. Of course, many will disingenuously attempt to blurr the difference between stiffed Citi bonds and Treasury bonds, but from the eyes of a world of sovereign lenders, the difference will at best be fuzzy, but their lost wealth will be as real as their diminished capacity to lend to us and also as real as our evaporated credit.
How ironic it is that the cry for Treasury to step in and stiff international bondholders at Citi and other institutions is advanced by precisely those who most wish that Treasury issue debt to finance their dream healthcare reform. There is a typically American hubris-filled notion that we can stiff our foreign creditors on one end and expect them to continue offering us trillions on the other, via Treasury bonds, to finance our safety net and our pet projects. I, for one, know that my credit is based on my payment history to all of my debtors, and the world will judge the US likewise.
Perhaps some of us need to pause and reconsider, put down our Chinese manufactured pitchforks, and place practicality before moral indignation, and most of all admit to ourselves that we all partook in the loot.
We digested the American pie over three decades ago, and we now owe even the Indonesian soles of our shoes to foreigners. Our trade deficit based service economy has for the past three decades been one of increasingly borrowing from abroad to purchase from abroad, and Americans have survived by suckling from the global financial teat, and the world was all dandy with this because of our unique credit. The fact is that credit has been for a long time the US's one true asset, and with a global financial crisis and our nation collapsing into a depression, the consensus is that investment is our least painful way ahead, but in order to invest we must more than ever resort to our credit.
However, in many circles there are cries that we should stiff the sovereign bondholders who invested in major private bond markets in institutions such as Citi. Puzzlingly it should be Treasury that steps in to effectuate the stiffing, the very same Treasury which must maintain credit to finance our recovery. After stiffing these creditors, we then simply expect them to return business as usual and buy our Treasury Bonds so we can finance our much coveted healthcare reform and other liberal dreams.
Sovereign funds from abroad are already growing impatient, and although they too are inextricably intertwined with us in our financial bacchanal, they do not necessarily have to continue in this path. We are in a position to call China's bluff, since everyone knows that the value of the US bonds they hold will only diminish as they let go of them. However, to what extent must any longterm lenders continue to give us fresh credit for our dream supertrains and investments in new energy if we make the decision to stiff them through the private institutional bondmarket, all in the name of politics and pitchforkers threatening with imported pitchforks purchased at Walmart. Of course, many will disingenuously attempt to blurr the difference between stiffed Citi bonds and Treasury bonds, but from the eyes of a world of sovereign lenders, the difference will at best be fuzzy, but their lost wealth will be as real as their diminished capacity to lend to us and also as real as our evaporated credit.
How ironic it is that the cry for Treasury to step in and stiff international bondholders at Citi and other institutions is advanced by precisely those who most wish that Treasury issue debt to finance their dream healthcare reform. There is a typically American hubris-filled notion that we can stiff our foreign creditors on one end and expect them to continue offering us trillions on the other, via Treasury bonds, to finance our safety net and our pet projects. I, for one, know that my credit is based on my payment history to all of my debtors, and the world will judge the US likewise.
Perhaps some of us need to pause and reconsider, put down our Chinese manufactured pitchforks, and place practicality before moral indignation, and most of all admit to ourselves that we all partook in the loot.
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"most of all admit to ourselves that we all partook in the loot."
I didn't, my job was exported.
April 6, 2009 3:55 PM | Reply | Permalink
That's tellin him.
April 6, 2009 4:37 PM | Reply | Permalink
Rec'd for the title there AA!! Nice presentation as well. don't agree, but much to mull over. Thanks.
April 6, 2009 4:36 PM | Reply | Permalink
Much thanks, Obey. I do respect an expert's generosity toward the views of a neophyte.
April 6, 2009 5:13 PM | Reply | Permalink
AA - YOU seem like an expert - on EVERYTHING!! Always love everything you write.
;0)
a couple of points:
"How ironic it is that the cry for Treasury to step in and stiff international bondholders at Citi..."
There's something about the framing here I don't agree with. Treasury isn't doing the stiffing, the only reason those bonds still have any value is because of the ongoing gov't support in its various forms. At most, Treasury would be imposing a haircut or debt-for equity swaps, mainly on subordinate debt, and do so because the banks were either insolvent or had inadequate capital. Treasury isn't responsible for the 'stiffing', losses on credit is just what happens when your debtor goes bankrupt. The assumption behind your framing is that there was an implicit government guarantee on all bank debt. And that's not a view without merit. Fuld, for one, simply couldn't believe the gov't would 'stiff' Lehman's creditors. Personally I find it an unhealthy state of affairs, to be Explicitly debunked.
A second point - there is an important difference between the relation sovereign creditors have to bank and treasury debt: they hold much much less of the former and a great deal of the latter. So China holds probably 20 times more in treasury bills than in bank bonds. The big bank creditors are insurance companies and institutional investors. China also has already gotten quite burned by losses on bank shares held by their SWF's. They're worried about the Fed inflating away their treasury holdings, not defaulting on their corporate holdings. Personally, if I were China, I would be happy to see the gov't clean up and liquidate the big banks. Remember, each of the top 3 chinese state banks is equal to or bigger in market cap than all of the big US banks put together. I'm sure they'd love to buy up some US bank franchises once some transparency is brought back to the markets. That's the background against which one should judge their reaction to a bondholder bailout.
April 6, 2009 7:18 PM | Reply | Permalink
There is another side to this, though. We're bailing out foreign banks, using AIG as a conduit. Deutsche Bank knew the risks when it bought CDS contracts from AIG. But we're using taxpayer money so that Deutsche Bank doesn't have to bear the consequences of that risk.
So... yeah... our banks have been supported by foreign bondholders. And a lot of their banks are being supported by American taxpayers. The Europeans ain't the victims here.
April 6, 2009 5:26 PM | Reply | Permalink
Thanks Destor. To your comment I'll add Brazilian president Lula's rebuke:
Rather than to dress down the US, my aim with this post was to expand the sphere of discussed consequences to past and future policies and to make the discussion more international. I believe more can be understood about the administration's approach from a global viewpoint.
April 6, 2009 5:45 PM | Reply | Permalink
Well, Lula sure has a point as do you.
I just think there's a lot of European culpability here -- Wall Street is a very broad term now and UBS, Deutsche Bank and Soc Gen all count. But it's our Treasury and central bank doing all the bailout work and our taxpayers handling the stimulus.
Yeah, we caused a lot of this but so did they and we're picking up the whole tab.
April 6, 2009 9:24 PM | Reply | Permalink
You think Deutschebank hasn't suffered any consequences? Their share price was 47 and change today, down from 140 just about two years ago and 120 a year ago.
You want them to suffer more, fine. They probably could. They could go down in the same measure as Citigroup.
But what will it get us if every banking institution in the world goes down? And every country on the face of the earth goes the way of Iceland?
I mean, just what good do you think that will do us?
April 6, 2009 7:54 PM | Reply | Permalink
Deutsche Bank's traders boughts those CDS contracts because they sought immense profit. They took two risks in doing so: one that the underlying credits would never default and they'd make nothing and second that the institution issuing the CDS wouldn't be able to honor them. I see no reason why either risk should have been socialized. What is it, heads they win, tails we pay for it? Insane.
April 6, 2009 9:18 PM | Reply | Permalink
Also, it's a German bank. If it needs to be bailed out, that's what the ECB is for.
April 6, 2009 9:19 PM | Reply | Permalink
Neither of these is an answer to my question. What good will what you suggest do us?
April 7, 2009 10:12 AM | Reply | Permalink
It would save us billions of dollars and make the European Central Bank responsible for its own bailout decisions.
April 7, 2009 11:51 AM | Reply | Permalink
Deutche Bank got 2.8 billion in TARP funds from AIG. Looks like we're footing the bill.
April 7, 2009 11:14 AM | Reply | Permalink
.
Hmmmm . . .
Interesting angle. Think globally ... react locally?
My pitchfork, in addition to my shovels and rakes were all manufactured in Sepulveda, California. Circa 1915.
See, I am over 60 and I have taken good care of my tools. After all they made it through my Grandfather's life, my Father's lifetime and they are already earmarked to be turned over to our Grandson. But that is beside your point.
I do understand your point. But we've maintained a lifestyle that has been separated as much as possible from the mass consumption mentality of the consumer culture.
I guess that makes me a sensible "lefty." Whatever the hell a "lefty" is.
I refer to it as a pursuer of happiness . . .
~OGD~
April 6, 2009 6:03 PM | Reply | Permalink
There is no reason to ever discard a garden tool. But we have become accustomed to doing it. What would some math whiz guess would be the tonnage of good steel we have tossed away these past 200 years? Why are we not able to replace the handles on todays tools rather then replacing them when they break? Because today, with nothing but soft wood available for a handle, they break more often. If million dollar baseball players can't get a decent bat, do you think there are any decent trees left?
April 7, 2009 1:56 PM | Reply | Permalink
Ours is an ancient pitchfork too. Given its provenance, it could well date back a century also. It's narrower and has longer "forks" than the more modern versions. And when you pick it up from its group of tools, the tines quiver and hum. It's an old and venerable pitchfork. It looks like it would so easily pitch hay.
April 7, 2009 2:13 PM | Reply | Permalink
"most of all admit to ourselves that we all partook in the loot"
A perfect tool for the wealthy and powerful. The historic role of the center.
April 6, 2009 6:20 PM | Reply | Permalink
To the inhabitants of some third world ghetto, all of us participating in this discussion are the rich and powerful, and they are right.
April 6, 2009 7:19 PM | Reply | Permalink
To the sick and dying in America, living in a third world ghetto would be a great improvement. Let us all pray. The world as God made it is perfect.
April 6, 2009 8:03 PM | Reply | Permalink
You are right to have fears for our sick and our poor. More than right.
But you don't know what you're talking about if yo think they'd be better off in a third world ghetto. Be careful what you wish for.
April 7, 2009 10:16 AM | Reply | Permalink
Spot on!
For those of you haven't traveled to some rather impoverished parts of the world, you'd be best served to climb down out of your ivory towers and go take a look before speaking. Seriously.
I've been POOR right here in the US. One Thanksgiving we had bologna sandwiches... Many times, the only food in the refrigerator was a half gallon of milk... I never had any NEW Clothes until I was in Junior High School (Up to then, EVERYTHING was hand-me-downs)... etc...
But compared to what I've seen in parts of Brazil (for instance), I was almost wealthy! I have never experienced any real poverty or hunger. My life is (and has always been) EASY compared to MANY MANY MANY people in other countries.
Sorry if I sound "preachy", but it irks me when somebody here in the US, with the time and resources available to post on Blogs in the middle of the day, act as if they've got it so bad! Phooey.
April 7, 2009 10:47 AM | Reply | Permalink
When you look through those ghettoes you wonder if those people have ever SEEN a bologna sandwich.
April 7, 2009 1:51 PM | Reply | Permalink
To the inhabitants of some third world ghetto, all of us participating in this discussion are the rich and powerful, and they are right.
Posted by AdAbsurdum
_____
Ain't that the truth! Right on, AA!
April 7, 2009 9:24 AM | Reply | Permalink
Exactly right.
Blame working people for what the investor class did in exporting their jobs.
This diary is pure tripe.
April 7, 2009 10:03 AM | Reply | Permalink
You need to go live in a Favela for a while.
April 7, 2009 9:51 PM | Reply | Permalink
Oooops.... Sorry... I sometimes don't follow the format of posts here very well. I now see you were commenting on something else. Please disregard my comment. :)
April 7, 2009 9:53 PM | Reply | Permalink
I'm with you. The "it's all our faults" meme is propaganda. Blaming individuals instead of the system is an old trick of the center right. Playing into the "class envy" schtick instead of "class struggle" is another trick.
The diarist should read Joel Bageant "We've Let Corporations and Media Rob our souls--It's Time to Do Something Meaningful. He lives in Belize and talks about our odd and misinformed ideas of what is "Third World". http://www.alternet.org/mediaculture/135162/bageant%3A_we've_let_corporations_and_media_rob_our_souls_--_it's_time_to_do_something_meaningful/
He goes on to point out that because the U.S. has no universal health care or affordable housing and other social programs, it is at best a Second World country.
So,yes, don't be a cog. Jump out of the pot simmering frogs. But realize at the same time that the corporatists are the ones that turned the heat on. And it's time to take them on and demand our part of the pie.
I feel a diary coming on.
April 7, 2009 12:20 PM | Reply | Permalink
I make my own pitch forks. As well as audio equipment and such.
C
April 6, 2009 7:23 PM | Reply | Permalink
Interesting and thought provoking thoughts AA. I wonder though if we add into this mix of conudrums the falsly proped up value of the yen and other trade barriers Japan and China both maintain to this day...perhaps they have some fault in all this as well...
Even though I am also blue eyed I certainly can't disagree with Brazil's President because from my prespective he almost certainly is correct.
As an American I am still quite aware that, as scary as it may sound, even the poorest of us is better off than over half the peoples of the globe and that is a sad sad state of affairs
April 6, 2009 7:37 PM | Reply | Permalink
Hey, if them furriners were dumb enough to loan us the "money" they're dumb enough to have it taken away. Stiff 'em!
And we don't need to borrow from them to pay for our wild leftist dreams. We've got a printing press and that's all we need.
April 6, 2009 8:20 PM | Reply | Permalink
You know Ellen, you always say things so eloquently.
Stiff 'em!
April 6, 2009 10:28 PM | Reply | Permalink
Our safety net? What safety net? It's far less than Europe's. Conservatives have fought it for decades, and have been wildly successful, especially from Reagan on. They have successfully pushed their moronic, failed policies, which too many Dems have embraced, for decades. As a result, America pays the most for healthcare of any Western, industrialized nation, is the only one in that block of countries without universal healthcare, and we pay twice as much for the privilege of letting the private sector screw us over.
As for borrowing to pay for single-payer. There would be no need if the Grover Norquist brigade hadn't taken over. If we actually stopped cutting taxes again and again and again for the rich, we never would have run up the debt we did run up, and we could pay for universal coverage without borrowing from other nations.
Carter left office with one trillion dollars in national debt. Reagan cut taxes and tripled the debt. Bush Sr. added a ton more. And Dubya doubled what he inherited from Clinton. All told, supply-side, trickle-down, conservative voodoo economics created 90% of our national debt. Tax cuts created 90% of our national debt.
The answer is to raise taxes on the rich, make Hedge fund managers pay the top rate, instead of 15%, stop letting corporations skate on their taxes (the GAO found that 2/3rds of American corporations paid NO taxes in the last decade), and we can stop borrowing from other countries.
Stop starting totally unnecessary wars -- the kind the right screams for -- and we can stop borrowing from other countries.
Stop spending more on defense -- when anyone tries to cut defense spending, the right goes ballistic -- and we can stop borrowing from overseas.
Stop privatizing everything in sight, and let government workers do their jobs, instead of outsourcing it to private firms who charge the taxpayer 10 times what a government worker would make, and we can stop borrowing from overseas.
Raise the FICA ceiling from 100K to encompass all earnings, and we extend Medicare to every American and NOT borrow from overseas.
The answers are there. If conservatives would get out of the way, we could stop borrowing from other countries. But they have to have their precious, moronic tax cuts, and their precious, moronic wars, and their precious moronic military-industrial complex orgies, and their precious, moronic outsourcing.
Get out of the way, conservatives, and we'll be just fine.
April 7, 2009 12:09 AM | Reply | Permalink
There are monetary considerations all around that argue for how this is managed.
However, when you examine the interview of William K. Black conducted by Bill Moyers, Black states there was an actual law in place which established how this is supposed to have been resolved. He also states it was simply ignored. I've no idea of how all this works but is there or is there not a law and does it or does it not have to be followed?
I guess I have no understanding at all of what a law is. I had the same problem when Bush was hanging around in the WH. He didn't much care for laws either.
In a few days when April 15th rolls around I think I'll choose to ignore the fact I owe uncle some bucks and see what happens. I just won't file my income tax. Near as I can tell we have the right to choose which laws we follow.
April 7, 2009 1:15 AM | Reply | Permalink
Sorry, I didn't read your post and ordinarily wouldn't comment without reading. It's probably an interesting take and maybe I can get back to it, but I couldn't get past your title- Angry lefties with pitchforks.
First, it's a favorite ploy of the media, right wing politicians and blowhard pundits to cast criticism on the shrill radical angry left.
Second, there is an amazing variety of people righteously mad about this new Depression (start with the 600,000 "angry lefties" losing their jobs every month). This economic crash was brought on by wholesale fraud from the financial sector and is now being "corrected" by leaders or their understudies from that very same group.
Most people that I know are average working stiffs: hard hats, low-level governement workers, school teachers, carpenters, printers and the like. If labels must be used, they represent almost every political stripes (more than a few from the right).
I read many left-of-center posters here and elsewhere but would peg very few as ideologically radical (or unreasonably irate). Anyway, the "angry left" is often used to divert honest criticism. I dislike hearing it from the right-wing gasbags or the corporate media, but it seems out of place at a sight like this.
April 7, 2009 1:20 AM | Reply | Permalink
Interesting take on the issue. In the end we can't afford to bail out the whole world. And the world can't afford to let us go down under a heap of debt. Some balance will be struck, (I think).
April 7, 2009 5:05 AM | Reply | Permalink
Good post. Makes me want to ask: Is the entire US economy really just a Ponzi scheme?
April 7, 2009 7:05 AM | Reply | Permalink
Hmmmmm.... Good question.
April 7, 2009 9:40 AM | Reply | Permalink
The whole global system is just a big ponzi scheme. That's why it's all so interconnected. There's no real money at the bottom. Hasn't been for years.
April 7, 2009 10:09 AM | Reply | Permalink
Screw you and your right wing talking points.
The investor class raped this nation and took from working people. Now you seek to blame workers.
Same olf bs. What is amazing is that it is here on a progressive site like TPM.
April 7, 2009 10:02 AM | Reply | Permalink
Isn't the idea of the Cafe to air different viewpoints? It's actually refreshing when this place isn't an echo chamber.
Save the insults, and make your point.
April 7, 2009 11:14 AM | Reply | Permalink
Nothing about Ad Absurdum's post is right wing.
And the investor class this time, in our current debacle, took from everyone, including the rich. I don't expect you to cry for them, you've got every right to cry only for yourself, but Ad Absurdum's point is no less valid for that.
There's more than one side to every issue.
April 7, 2009 11:23 AM | Reply | Permalink
"and most of all admit to ourselves that we all partook in the loot."
This kind of contradicts your column's title.
I guess I'm a happy lefty, so does your aggression apply to me also? And no, I didn't partake in the loot. I am a member of the working class (you know the people who actually do something so that they and the greedbarons who run our country can make money).
April 7, 2009 11:06 AM | Reply | Permalink
I think what he might mean is: We, the working class, took out loans that we shouldn't have. We got houses we couldn't really afford... we bought flat screens we couldn't afford... etc... Why? Because we were told that our Debt:Income and our Credit Scores were such that we could afford it... The creditors deemed us Low Risk (even though they shouldn't have!)
I would agree, to a point, that we partook of the good times... but only so much as we chose to believe the banks. Afterall, it is the Bank that's supposed to be the expert on such matters... most people I know aren't terribly savvy when it comes to money and debt... they mistakenly trust what the bank tells them... and they end up getting burned.
So... I can't blame the blue collar worker too much for any of this, afterall.
April 7, 2009 11:59 AM | Reply | Permalink
The reverse is also true. Now many of these same people are no longer able to get loans. Are having their CC credit limits dropped or their CCs canceled all together. They now feel poor and are behaving that way. Which causes them to stop spending and to hunker down. Which causes the overall economy to contract even more.
Even those who's financial situation has not really changed that much.
Rather like approaching the event horizonof the economic down turn.
C
April 7, 2009 1:16 PM | Reply | Permalink
The key here is this: If the financial sector had not leveraged itself off a cliff, and kicked the can down the road from one financial institution to the next, individual credit issues would never have sunk the world's economy.
No financial institution should ever place bets it can't cover. They did just that. They placed bets that no one could cover. They had billions in assets, and risked trillions. That's not on the average consumer. That's on the idiots who run the bloated, much-bigger-than-it-ever-should-have-been financial sector.
Where Bush and now Obama went wrong is doing anything that actually increases its size. They just make Frankenstein's monster bigger, meaner, nastier and more needy.
Again, that's not on us. It's a perfect storm of private sector greed and government incompetence. In some cases, government complicity in private sector fraud and malfeasance.
And, again, the masters of the universe got paid regardless. They got paid when things were good, terrible, horrifically bad and so so. They got paid. Like drug dealers, they didn't care if their deals were ultimately beneficial to anyone. They got paid if they went sour or if they soared.
That has to change. There should be concrete incentives built into the system to encourage good deals and discourage dangerous deals. Nothing like that exists at the moment. Brokers (drug dealers) make money regardless.
This never was on us.
April 7, 2009 2:28 PM | Reply | Permalink
Well said.
April 7, 2009 2:47 PM | Reply | Permalink
"we all partook in the loot."
Not true. I know many people who in no way partook in the loot, or even tried to partake in the loot, who are honest and hard-working and now suffering.
J.K Galbraith studied the crash of 1929 and made an educated estimate that fifteen per cent of Americans had partaken in activities that contributed to the crash.
I agree that practicality is now crucial, but I see no signs of practical behavior from Washington or Wall Street. It's up to us as individuals to live steadfast sensible lives and hope for better days.
April 7, 2009 2:44 PM | Reply | Permalink