Manufactured Crisis

Honestly, I tried to follow the debate between The Precious and My Cranky Friend, but it was turn it off or throw up. Tom Brokaw presents the interests of the Very Serious People and wants to know what the candidates are going to do to cut spending, "entitlement reform," now that we have to give all of the money to Wall Street. Social Security, Medicare and Medicade are mentioned by name as prime candidates to cut.

The completely predicatable and ignored until warp-core meltdown manufactured crisis on Wall Street is used to bolster the perennial manufactured crisis of how are we going to kill off that pesky New Deal and Great Society stuff that only helps the little people. Pull up the ladder, Bo'sun, I'm aboard.

In lieu of actual presidential discussion, I present Hillary's cheeky and deliciously insulting letter to The Chimperor and his Hanky Panky today. She knows who created the problem and isn't afraid to rub Bush's nose in it, with a delivery all the more effective because of its politeness:

The ongoing credit crisis has severely restricted bank lending. The dramatic decline in the Dow Jones Industrial Average Index underscores the lack of liquidity in virtually all markets except U.S. Treasuries. At the same time, global market turmoil is creating more uncertainty and anxiety here at home, when what is needed at this time is confidence to bolster the credit markets.

Our economy runs on credit and credit is in too short supply. As a result, many small businesses cannot receive the loans and lines of credit they need to make payroll, stock inventory, or expand. This is having a dramatic impact on jobs with 159,000 lost this past month alone, the ninth straight month of job losses and the greatest single month loss in five years. Banks’ restrictive lending terms will make securing college loans more difficult, while also increasing the pressure on colleges and universities who lost access to funds maintained by distressed financial institutions to raise tuition.

The municipal bond market has taken a huge hit as investors flee and financing costs skyrocket. Several states and municipalities are at risk of failing to maintain important government functions.

Shorter Hillary - Look at the mess you made, you bozo, so bad even your base is in deep doo-doo (as Poppy would say). Nine straight months of job losses, Chimp, way to go!

I love the patient lecture to these two - See, kids, this is how the economy actually works. This is how it affects ordinary people, the kind invisible to you. You are not going to be allowed to sit around and dither, running down the clock while your uber-rich golf-buddies manipulate the markets to extort maximum benefit from the bailout. Unlike the guy the DNC handed the nomination to, she's not afraid to talk about social justice:

The Treasury has already become a lender of last resort for large financial firms and banks. We must extend that same help to small businesses, students, colleges, local governments and all those who are bearing the brunt of the same widespread credit crisis. It is a matter of necessity and a matter of fairness: we are helping to keep large Wall Street firms stay afloat with lines of credit. We should do the same for small Main Street businesses as well.

It matters how you frame arguments. If you accept the terms that there are no choices except to "fix" social programs by gutting them in hard times, the times when they are most needed, then that is probably what you will end up doing. Sympathy for them, even belief in them, is toothless if not backed by the willingness to fight for them exactly when it is least popular among the Very Important People. The argument to make is not one about morality (good people do this, we are a better people than that), but an appeal to justice (What we do for the powerful must also be done for the ordinary.). You don't need an appeal to innate goodness or the charity of someone's heart if you are willing to write something into law and put the full force of the government behind it. This applies just as much to healthcare and equal pay as to financial protection in times of crisis.

Social justice does not happen because we are good. It happens because we are willing to legislate and mobilize power on behalf of those too far from the levers of power to dictate what they want. Paulson has tried to dictate what will be done for the sake of his personal friends but even more for his socio-economic class and their world-view - a world-view Brokaw is repeating as Conventional Wisdom as he moderates the debate. What Hillary does with this letter is interrupt the world view with an alternative argument of how social goods and resources must be allocated. Justice is not just about voting the black guy into office. It's also about defending the ability of small businesses, the kinds most likely to be owned by people who are not part of the ruling class, to get venture capital and use debt constructively, businesses more likely to keep money in localities and regions, helping shore up the economy. It's about ensuring that access to higher education is not quietly shut off by denying credit to the many, many applicants who are not independently wealthy and to the schools that may not make money themselves, but which are the engines of wealth creation.

I propose that we set aside $150 billion of the $700 billion rescue plan for an “Emergency Stabilization Fund” to make emergency loans and establish temporary lines of credit for small businesses; to allow colleges and universities to have short-term access to funding to reduce the pressure on tuition; and to increase direct loans to students as private lending has dried up. The Small Business Administration and the Department of Education could be temporarily empowered to implement these loan programs until the market has stabilized.

Think about that. 21% of the bailout to be reserved for something else. $150 billion to stabilize the economic food chain where it will have immediate effect. Talking about the needs of small businesses and education as equally important as the golden parachutes of the Merry Banksters. This broad is talking as if these people are entitled to some support from the government! The nerve! Doesn't she know that there's no credit, no loans for people who can't repay? If they were creditworthy, they'd have other ways to finance their lives than sucking off the government teat, heaven without end, Amen! Don't they know we need that $150 billion to fund our retirement villas in the south of France? Socialists, all of 'em...

Hillary's bit about municipal bonds is important as more and more municipalities have had to rely on them to cover the loss of Federal money for things like infrastructure and support services. The entire thing reads like tutorial in government finance - and now you do this, and then you do that, are you following me, boyz? It lacks the grand rhetorical flourishes and deep econo-geekitude of Roubini's recent writings, but it gets to the same place - the credit crisis will not be solved on Wall Street, though it must be addressed there. It can only be solved by intervention in the localities where wealth is generated and capital replenished.

She concludes with two items. First, her signature statement about the power relationship inherent in the financial meltdown:

By failing to tackle a mortgage crisis, we ended up with a credit crisis. If we fail to take on this credit crisis, we risk deepening a looming economic crisis.

As Gulliver discovered, ignore the little people and you are toast. Her final line is a challenge to more people than Bush:

But if necessary, Congress should be called to return to consider additional authority to implement this plan.

This is directed at more than the White House. Where is the Democratic leadership on this issue? Why are they not waging this battle on behalf of Main Street?

The crises we are facing are things of our own creation - manufactured right here at home. While there are a number of way to solve these problems, it matters what path is chosen and whose interests are defended.

Anglachel

Sigh. Move to the Right

From the AP (several versions of this articles are available throughout the Internet):

WASHINGTON (AP) — Senate leaders have scheduled a vote for Wednesday on the 700 bllion Wall Street rescue plan rejected by the House.

Majority Leader Harry Reid and GOP Leader Mitch McConnell say, however, that they're going to add a tax cut package already rejected by the House on Monday.

The bipartisan move caps a day of behind-the-scenes maneuvering on Capitol Hill over what sweeteners to add to the bill to attract votes from House Republicans.

Reid and McConnell's move may prove popular with Republicans, but it risks a showdown with House leaders insisting that a popular measure extending certain business tax breaks be financed by tax increases elsewhere in the code.

The Senate plan would also raise federal deposit insurance limits to $250,000 from $100,000.

So, the deal that Reid has cut means making the plan more palatable to Republicans rather than to Democrats? How nice. Can we stop moving to the right? These guys LOST. Their leader is a lame duck. They are hated throughout the country. Act like a god damned majority party, would you?

Raising the FDIC insurance limit would help people who already have a lot of money, but it would not benefit the vast majority of the country. How many households have a cool quarter million in cash just sitting around?

What else are they thinking of?

Other ideas include extending unemployment insurance benefits, typically a Democratic goal, but one that appeals to some Rust Belt Republicans. Another Democratic-backed idea would double the property tax deduction taken by people who do not itemize their taxes. And another calls for more spending on transportation infrastructure projects, which would create more jobs. Budget hawks in both parties might object, however.

Extending unemployment insurance when unemployment is on the rise. There's an idea - helping the little guy and gal not starve or freeze this winter. Property tax deductions are nice if you own property and it is worth enough and you make enough to be able to take a deduction. Hmm, that might help me, but not as much as a solid economy all the way around. Spend money on infrastructure. Does this mean things like high speed rail and fixing delapidated bridges?

I myself like the Red Queen's suggestions:

1) We implement Galbraith's plan to eliminate caps on FDIC insurance and we fund the hell out of it. We also fund the hell out of FBI investigations into Bankster crimes. No one trusts a corrupt financial system and when there is no trust there is no credit. We need to implement measures to instill trust.

2) We put in Hillary's HOLC program. But the mortgages that are most at risk. Keep people in their homes and paying something on them. This keeps property values level because the market isn't flooded with foreclosures while we work all the madness out of the standing loans.

3)Universal healthcare NOW. If we can come up with 85 billion for AIG, we can certainly come up with 85 billion for something that has a much more immediate and comprehensive effect on the health and household budgets of every single person in the country.

4)We have to stop living on credit and start paying people what they are worth. We need a national living wage, not minimum wage. Any person working full time should be able to afford the basics of food, shelter, and transportation. Any business that cannot afford to pay a living wage should fail.

5) Restructure corporate write offs. Corporations can take deductions for two things- wages paid to American workers (not including the golden parachutes of executives) and supplies bought from American companies. There is no reason anyone should get a tax break for spending money outside the US.

6) Tax the fuck out of golden parachutes. There may not be a way to limit the top of the wage scale, but we can certainly make it less profitable to ruin a company and then quit running it.

7) Tax the hell out of profits from dirty energy sources to pay for investment in clean energy. Allow companies to bypass the profit taxation if they put the money into green energy R& D directly.

Hey, Harry, here's a plan Democrats can get behind. Oh, right, you're a bipartisan Obamacan, not a Democrat anymore. Any plan that makes the Republicans happy is just fine by you.

Anglachel

Interfluidity - Nutcase? Not So Much

Here's a post from one of my favorite econoblogs, Interfluidity.

Why did Friday come early this week?

Okay. So now I reveal myself for what I am. A conspiracy theorist, a nutcase, a crank.

But tell me, why did Friday come early this week?

Isn't it a tradition for bank reorganizations to be announced after market close on Friday nights? Isn't part of the reason for that to give markets time to chill out, think a bit, notice that the ATMs still work and the branches have not been demolished, to let the sun rise and shine for a whole two days, in order to diminish the possibility of people freaking out?

So, here is today's news cycle. Red State Republicans react to a unprecedented popular outrage among their constituents and refuse to get with the program. It is leaked that President Bush solemnly opined, “If money isn’t loosened up, this sucker could go down.”

Was he standing at the teller window with a note about a bomb when he said that?

And, for good measure, the government announces "by far the largest bank failure in American history" with less than 16 hours to market open.

That loud noise, was that the sound of a single gunshot? Have the robbers killed a hostage, to show that they mean business?

Yes, the irony is delicious that Paulson's plan has for the moment been scuttled by the ideologues that his party has cynically nurtured, by the base that the business wing of the party always thought they could play. And yes, the House Republicans' alternatives, as reported by Justin Fox, are laughable.

But that doesn't explain the sequence of events this evening. Nor does it excuse the fact, that if a legislative response to the crisis was so critical, a single deeply flawed proposal was thrown at the Congress a week before adjournment, under terms that basically said "pass this, or else". It is surely coincidental that the plan was the most generous and least disruptive policy possible to industry from which Secretary Paulson hails.

No, I am a nutcase. These are all public servants doing their very best for the American people in a difficult situation. We need to pull together, rise above politics. Our leaders would never manipulate markets to frighten and punish the public so that we fall into line. That could never happen in the United States of America.

I am dark. Secretary Paulson could have offered any number of proposals to help ensure that this collapsing house of cards is a controlled demolition. He and Dr. Bernanke had months to put together policy options, long months between the fall of Bear and the fall of Lehman to create orderly processes for disorderly events they knew could come. At the last moment, they offered one option, a particularly unpersuasive plan imperiously presented as a fait accompli. When Congress balked, they relented and offered a few crumbs so that the people we elected could nibble at the edges without altering the core. And today, when it looks like those crumbs might not have been enough, we have the largest bank failure in American history, announced, oddly, on a Thursday night.

The only difficulty I have with the claim that this is all orchestrated is the years of evidence that the Bush administration is simply incompetant to get anything done right, and only the accident that total disruption of functional regulatory systems is the goal of the Movement Conservatives makes their screw up of all plans appear like it was meant to be that way. WaMu has been going down for months, as anyone who paid attention to lending practices in California could have told you.

But that does not eliminate opportunism as a sufficient explanation for what has happened. Paulson et. al. has fiddled while the nation's financial markets smoldered, and when the flames shot up, saw an opportunity to extort more from the surrounding neighborhoods by threatening to let the fire spread unless they donated to the Firemans' [Big Brass] Balls fund. Not does it preclude a few fine folks in the banking sector from deciding to toss some gasoline on the fire to try to spook the Democratic firewagon horses into making a mad charge out into the taxpayer suburbs.

The deal is falling apart because the batshit crazy conservative Congress critters are foaming at the mouth over socialism and the Democrats are not willing to go down with the ship unless those same crazies are firmly strapped down to the gunwales. Paulson understands that he has only a few days in which to rob the nation blind and the longer it goes, the less likely it becomes that he can take the money and run.

Nah, not a nutcase at all.

Anglachel