Tuesday, October 14, 2008

On the partial nationalization of the American financial system, the rebounding of the DOW, and the return of the nebbish word "bolster"


WWW--The media's take on the past two-day rallying of stocks on Wall Street is presumptuous and smacking of an underlying desperation: high capital and finance still want to achieve a further scaling-back of wages and bargaining power (what's left of it) for the American worker and to keep playing the deregulation and unaccountability game in commerce and finance.

In other words, the big players are starting to act as though they might be able to continue "business as usual," though the message from Washington D.C. and from notable economists is the reverse. Events have a way of forcing the hand of fate and the marketplace, but most importantly, of the big players who have erroneously convinced themselves of their own invincibility. You aren't God. The choices are now fewer, and going down the same path as before will ensure an almost total economic collapse that could conceivably dwarf that other global crash, the Great Depression.

This has the potential of taking-down most of Western civilization with it, including the Persian Gulf States and their current authoritarian regimes. Change and reform will come no matter who gets elected on November 4th in the American presidential race. As in most times of rapid change, up-is-down, and down-is-up.

Who would have ever expected that one of the most laissez-faire administrations in American history could find itself forced into rescuing the banking and financial system through even a "partial nationalization"? Call it "Socialism," call it what you want, but regulation and a government (meaning we, the people) share in these institutions is going to be vital towards preventing such a widespread collapse.
After the purchase of preferred stock in nine large banks, the new program is expected to be expanded to many others. Among the initial banks participating will be all of the country's largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley, said one official, with each institution expected to receive billions of dollars in return for the sale to the government of preferred shares.

The advantage to the taxpayer is that if the rescue plan works, then the shares can be sold for more than the government initially paid, providing a profit on the transaction. ("Government moves again to unclog credit lines, AP, 10.14.2008)

This goes much further than a simple "partial nationalization," considering that the stock being bought is "preferred," which offers greater advantages to holders--us--and is traditionally the first kind of share to receive payments of dividends, often higher than that of other shareholders.

Where's the missing-ingredient, accountability? With the Justice Department (hello Jeffrey A. Taylor) still under the control of the Bush II administration, and a bought Congress, we shouldn't expect much if we don't pressure them to mount massive investigations into Wall Street as former New York Governor and Attorney General Eliot Spitzer did several years ago.

Additionally, we should already be building third parties in the event that we get the usual response of inaction from the Democrats. We can bank on it.

As usual, the constructive contributions are coming from the public, and the most responsible citizens we have on-hand nowadays are people like Ralph Nader. The independent candidate was granted (since there's no other word for it) time on CNN just a few hours ago because there was no other choice. Major events have a way of bending a news giant like CNN into having the most viable third party candidate on to speak when it should be a matter of course.

Such are the vagaries of the Statist market economy--ratings and advertising dollars trump public responsibility when you the politicians of both major parties in your pockets. The "problem" now is that many of these very same pockets are emptying with the very economic decline they have caused. Sometimes one should be careful what one wishes for. The K Street lobbyists did their jobs too well.

There's no irony here since reality is outpacing satirical humor and the occasional literary and philosophical observation of the existential mess we've allowed to grow. Nader had some great observations of his own on the bailout, bouncing-off of viewer comments sent in to the cable news Shibboleth: at the very least, it's time to go after the culprits and widen criminal inquiries. If there are those who broke the law, they should be held-accountable. What average American could disagree with that? Nader also made a good point in his hand-delivered letter to Treasury Secretary Hank Paulson who made $200 million at Goldman Sachs when he was their CEO, suggesting he kick-in some change to help. It's doubtful that he will, but it makes a good point of putting your money where your money is--or was. At least his life is hell right now.

Nader's time on CNN was an interesting few minutes that should be commonplace, but it should be remembered that the official line wouldn't be able to withstand it, and therefore, these kind of viewpoints must be marginalized. Yet Americans are on the same page when it comes to social policy, ranging from foreign aid (we all really want to spend more when the right questions are posed), our healthcare system (we want a single payer system), progressive taxation, military spending, and so on.

The public's opinions are decidedly progressive and Populist, which is why the mainstream narrative is being pushed so hard, and why culpability in business/finance fraud and criminality aren't topics for discussion. We don't have faith in the economic system because we smell a rat, hence Federal Reserve Chairman Ben Bernanke's comments today:

As in all past crises, at the root of the problem is a loss of confidence by investors and the public in the strength of key financial institutions and markets, which has had cascading and unwelcome effects on the availability of credit and the value of savings. The actions today are aimed at restoring confidence in our institutions and markets and repairing their capacity to meet the credit needs of American households and businesses. The voluntary equity purchase program will strengthen financial institutions' capacity and willingness to lend. The guarantee of the senior debt of all FDIC-insured depository institutions and their holding companies will restore the confidence of these institutions' creditors and reinvigorate the crucial inter-bank lending markets. Additionally, the Federal Reserve is pressing forward with its facility to provide a broad backstop for the commercial paper market, so vital to the functioning of our businesses.
The general goal of various financial interests is to isolate and divide us and to make us believe that we're alone in our thinking, a patent falsehood. With the advent of the internet, this is becoming less-and-less tenable and stretches its credibility to the breaking-point. Remember that billions are spent keeping us in this dysfunctional state towards the maintenance of what is basically an unstable system model.

Make no mistake: the bailout is similar to the New Deal in one core respect, and that's to save American-style capitalism. It's not a worthwhile goal. We've already had a mixed-economy with elements of Socialism that stretch-back to FDR, though the examples of the subsidizing of the phone companies and the railroads in their development precede it by several decades. The EU is going significantly further with their nationalization plans, which will have a very real world effect on our own economy, possibly driving it closer to a continental European model by default. The time for a social dividend has come.

But don't hold your breath on Hank Paulson throwing-in to help with his own money. It doesn't matter--damned if they do, and damned if they don't. If the scions of commerce and finance get their way, they lose in the inevitable (and deeper) crash that will come sooner rather than later. The day of the giant firms and corporations is ending, just as the hunter-gather and feudal orders have before it. Time to finish the job.

The key is pushing for a better order and determining what comes next. The public holds this power more than elites do. Their hold on power is almost always weak-at-best. Once the average person realizes this fact and acts responsibly and accordingly, and understands that civic duty is a lifetime responsibility, things will stabilize and improve. Fine, the market's up...today. It won't last, because the underlying-causes (extralegal deregulation, white-collar crime, criminal speculation, etc.) are still going to be firmly in-place. This is because the current business and financial establishment aren't good at what they do.

When the rules and the "invisible-hand of the marketplace" attempt to correct them and their faulty-logic and criminal incompetence, they run to the government for help. That's Socialism for the few, and nothing new in America. Angry investors should take note of the fact that they've been ripped-off too and demand widespread accountability. That doesn't mean they should all be bailed-out, however. Like the Demiurge of the Gnostics, these fools have proclaimed themselves to be "God," but the universe answered back with bad news that this wasn't the reality of things. No simple or easy solutions here.

Postscript: Alright, so this is what George W. Bush meant by an "ownership society," gotcha. In retrospect, Aaron Burr's 1804 shooting of Alexander Hamilton in a duel seems to have been prudent but belated.

"Government moves again to unclog credit lines, AP, 10.14.2008: http://news.yahoo.com/s/ap/20081014/ap_on_bi_ge/financial_meltdown

"Financial Panics of the 19th century," Robert McNamara, About.com, "19th century": http://history1800s.about.com/od/thegildedage/a/financialpanics.htm

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