November 17, 2008
The debate concerning a possible bailout of the “big three” automakers (General Motors, Ford and Daimler Chrysler) has now reached the House of Representatives. House Minority Leader, John Boehner (Republican from Ohio) has voiced his opposition to this latest bailout, indicating that it will not receive much support from Congressional Republicans.
In the words of Yogi Berra, we are experiencing “déjà vu all over again”. This process started with the plan of Treasury Secretary Henry Paulson, to bail out banks and other financial intuitions holding mortgages of questionable value, at a price to the taxpayers in excess of $700 billion. Back on September 22, when that bailout bill (now known as TARP) was being considered, Jackie Kucinich and Alexander Bolton wrote an article for TheHill.com, discussing Republican opposition to this measure. Their article included a prophetic remark by Republican Congressman Cliff Stearns of Florida:
“Bailout after bailout is not a strategy,” said Stearns, who said that taxpayers could be left with a huge bill.
Yet, “bailout after bailout” is exactly where we are now. On November 15, T-Bone Pickings appeared on NBC’s Meet the Press. Tom Brokaw asked T-Bone Pickings for his opinion on the proposed “Big Three Bailout”. The response was:
I wonder what you’re going to do about the next industry. Is it going to be the airlines or what if Toyota and Honda want some help, too? I don’t know. I don’t know where it stops.
Once again, we are presented with the need to bail out yet another American industry considered “too big to fail”. However, this time, we are not being asked to save an entire industry, just a few players who fought like hell, resisting every change from rear-view mirrors, to fuel injection, seat belts, catalytic converters, air bags and most recently, hybrid technology. Later on Meet the Press, we heard the BBC’s Katty Kay quote a rhetorical question from unidentified “smart economists” that included the magic word:
Can it withstand the shock to the economy if GM were to go?
Later on the CBS program, Face The Nation, Massachusetts Congressman Barney Frank, Chairman of the House Financial Services Committee, used similar logic to that expressed by Katty Kay, when he stated:
When you talk about the negative shock that would result from bankruptcies of these companies, right now …
The magic word “shock” is once again playing an important role for the advocates of this newest rescue package. I was immediately compelled to re-read my posting from September 22, concerning the introduction of the Paulson bailout plan, entitled: “Here We Go Again”. At that time, I discussed Naomi Klein’s 2007 book, The Shock Doctrine: The Rise of Disaster Capitalism. Klein’s book explained how unpopular laws were enacted in a number of countries around the world, as a result of shock from disasters or upheavals. She went on to suggest that some of these events were deliberately orchestrated with the intent of passing repugnant laws in the wake of crisis. She made an analogy to shock therapy, wherein the patient’s mind is electrically reformatted to become a “blank slate”. Klein described how advocates of “the shock doctrine” seek a cataclysmic destruction of economic order to create their own “blank slate” upon which to create their vision of a “free market economy”. She described the 2003 Iraq war as the most thorough utilization of the shock doctrine in history. Remember that this book was released a year before the crises we are going through now.
Ms. Klein’s article, “In Praise of a Rocky Transition” appeared in the December 1, 2008 issue of The Nation. She discussed Washington’s handling of the Wall Street bailout, characterizing it as “borderline criminal”. Would the financial rescue legislation (TARP) have passed if Congress and the public had been advised that the Federal Reserve had already fed a number of unnamed financial institutions two trillion dollars in emergency loans? Naomi Klein expressed the need for the Obama Administration to stick with its mantra of “Change You Can Believe In” as opposed to any perceived need to soothe the financial markets:
There is no way to reconcile the public’s vote for change with the market’s foot-stomping for more of the same. Any and all moves to change course will be met with short-term market shocks. The good news is that once it is clear that the new rules will be applied across the board and with fairness, the market will stabilize and adjust. Furthermore, the timing for this turbulence has never been better. Over the past three months, we’ve been shocked so frequently that market stability would come as more of a surprise. That gives Obama a window to disregard the calls for a seamless transition and do the hard stuff first. Few will be able to blame him for a crisis that clearly predates him, or fault him for honoring the clearly expressed wishes of the electorate. The longer he waits, however, the more memories fade.
When transferring power from a functional, trustworthy regime, everyone favors a smooth transition. When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.
The Obama Administration would be wise to heed Ms. Klein’s suggestions. It would also help to seriously consider the concerns of Republicans such as John Boehner, who is apparently not anxious to feed America another “crap sandwich”.
The Pushback From Europe
March 16, 2009
There was plenty of action and plenty of inaction in Europe last week, toward addressing the world financial crisis. Our new Treasury Secretary, “Turbo” Tim Geithner, has been in Horsham, (West Sussex County) U.K., chatting it up with G-20 finance ministers in a run-up meeting to the big London Summit on April 2. (Meanwhile . . . Who was conducting the “stress tests” on the nineteen “stressed” banks while Turbo Tim was across the pond, eating the awful, British food? Worse yet: Treasury still has a few positions to fill.)
We got a taste of the European response to the financial crisis during Sunday’s broadcast of NBC’s Meet The Press. Near the end of the program, David Gregory asked the BBC’s Katty Kay about the “back story” to the G-20 finance ministers’ meeting in England:
Europe’s portrayal of the world financial crisis as “an American problem” became painfully apparent during the recent G-20 finance ministers’ meeting. As Damien Paletta and Stephen Fidler reported for The Wall Street Journal, the G-20 members exploited the opportunity to pressure Secretary Geithner on solving the problems in America’s banking sector before asking the G-20 to make any efforts toward increased economic stimulus spending. The G-20 members are well-aware of the Obama administration’s unwillingness to place insolvent banks under government receivership, particularly since this is widely perceived in the United States as being too “un-American”, or worse yet — European. As The Wall Street Journal article pointed out:
From the Obama administration’s perspective, there can only be one culprit responsible for this attitude about our government’s failure to address the unresolved problem of “troubled assets” (i.e. mortgage-backed securities and the multitude of ill-begotten “derivatives”) responsible for the questionable health of so many American banks. This culprit is Nobel Prize-winning Economist, Paul Krugman. Professor Krugman has written again and again about the urgent need for the Obama administration to face the ugly reality that the “zombie banks” must be placed under government receivership (which is not really “nationalization”).
Fortunately, Professor Krugman stepped up and pointed out (in The New York Times) that if the EU really believes that it doesn’t have any skin in this game, it is in for an unpleasant surprise:
What transpired in this trans-continental dialogue was a lot like a volleyball game between politicians and commentators from the European Union against politicians and commentators from the United States. After the EU team “spiked” the ball over the net — it hit Tim Geithner on the head. The ball then bounced away. Just as the ball passed above Paul Krugman — “Boom Goes the Dynamite!” Nice play, Paul!