Saturday, September 20, 2008

Juggling kleptocrats: the Bush years continue

I had lunch with a friend, yesterday, and I came up with a pretty good metaphor to describe the current financial crisis while talking about it with her. It is the dish stacking metaphor. At the root of this crisis is a shortfall in the amount of money that the average household can afford to pay on a house. That’s real simple. Stacked on top of that is the larger shortfalls of nested securities that depended on those bottom mortgages. The shape of the financial system is, from the plate stacking perspective, all wrong. Instead of smaller amounts of money depending on the larger amount at the bottom, the plates above the bottom plate get larger and larger, until you reach the great world of the derivatives plate.

The government has so far been trying to fix the problem from the top. But when a stack of plates starts to wobble, you can’t fix the problem from the top. The more you add to the top, the more the instability increases.

Which takes us to the latest and greatest news from our criminal oligarchy. In a coup d’etat move not unlike the patriot act, the Bush administration, prime architects of the disaster, are now proposing a bail out plan for the wealthy that, in its scope and audaciousness, dwarfs the tax cuts of 2001-2002.

I commented on this over at the Economist’s View. I’ll quote myself. Sorry.
When people say it is a solvency problem, what they really mean is that the effect of amplifying income inequality over the past thirty years and using all the resources of the government to stamp out "wage inflation", ie the just distribution of productivity gains to the producers, is that households are not increasing their incomes as they did in the pre-70s days. But policy makers are pretending like they are. The bailout plan still pretends that the bottom 80 percent of the population will buy and sell houses at prices that are greater than they can afford. Are the politicians still that stupid? The government can buy a 300 thousand dollar house in Phoenix and hold it all it wants to, the number of buyers who can really afford a 300 thousand dollar house simply aren't enough to make up a healthy market. It is that simple. If the government spent its 700 billion dollars giving every household in America a 20,000 a year raise, well, then they could afford those houses. Otherwise, no.

The housing bubble, the easy credit bubble, and stagnant wages form the Bermuda triangle of this economy, into which a trillion dollars is going to disappear. The United States of Denial strikes again.

ps - read Joe Nocera's column in the NYT. So funny, it will make the blood come out of your mouth. Now, onto a scintillating critique of the reactionary elements in Batman 4. Onward the Revolution!

Is a private ritual like a private language?

“And when you pray, you shall not be as the hypocrites are: for they love to pray standing in the synagogues and in the corners of the streets, that they may be seen of men. Truly I say to you, They have their reward.

But thou, when thou prayest, enter into thy closet, and when thou hast shut thy door, pray to thy Father which is in secret; and thy Father which seeth in secret shall reward thee openly.

But when you pray, use not vain repetitions, as the heathen do: for they think that they shall be heard for their much speaking.

Be not ye therefore like unto them: for your Father knoweth what things ye have need of, before ye ask him.” – Matthew 6:5-7

I went into a bicycle shop the other day. I’d been delaying having my bike fixed, but I knew, from the hairraising sound that the brakes emitted every time I pressed them, that the pads were shot. I also knew that, ever penny wise and pound foolish, I’d waited too long to fix them. The clerk told me, at first, that they could change the pads without changing the cable, and then, when the guy in the back started fixing it, that it would require a cable change too. On top of that, it turned out I had a hole in the back tire, caused by the back brake pad.

The man who fixed the bike came out with it and put it up on a little rack. He talked to me while he fixed it. I watched him not watch his hands, which went here and there, testing the sprungness of the brake, adjusting the screws and the position. He looked at me or straight ahead. His hands were like marvelous, separate creatures, below the sea level of his apparent attention, although in fact his mind was really concentrated on the feelings in his fingertips, his sense of the pressure exerted by the screwdriver, the pull and resistance of the brake assembly. It was obvious that he not only did not need to see what he was doing, but that seeing would get in the way. I had ineffectually tried, myself, to adjust the brakes, peering through my reading glasses to see the whole assemblage, and of course I was awkward and put everything on wrong. I’ve seen my Dad and my brothers repair things in this hands first way too. It is an enviably elegant thing to do.

It is, supremely, a routine.

I mention this because Mauss, in his book on the ethnography of prayer, makes a valiant effort to distinguish rituals from routines. His ultimate purpose is to use prayer as a kind of discursive object in which the ritual and the belief converge. He is what he says about rituals (rites)

“It isn’t after the nature of acts and their real effects that it is possible to distinguish the two orders of fact. From this point of view, all that it is possible to say about rituals is that they cannot produce the results one attributes to them. According to this way of judging, one can’t distinguish rituals from erroneous practices. One knows, however, that an erroneous practice is not a ritual. Thus, it is not in considering the efficacity in itself, but the manner in which the efficacity is conceived that we can discover the specific difference. Thus, in the case of technique, the effect produced is supposed to arise entirely from the effective mechanical labor. And this besides has right on its side (a bon droit), for the effort of civilization has precisely consisted in reserving to industrial techniques and the science on which they repose that useful value that one attributed in the past to rituals and religious notions. On the contrary, in the case of a ritual practice, other causes completely are supposed to intervene, to which is wholly imputed the expected result. Between the movements that constitute the sacrifece of the construction dn the solidity of the house that it is supposed to insure, there is not even from the point of view of the sacrificer any mechanical link. The efficacity lent to the ritual has nothing in common with the efficacity proper to the acts which are materially accomplished. It is represented mentally as completely sui generis, for one consideres that it comes entirely from special forces that the ritual has the property of putting in play. Thus even if the effect actually produced would result in fact in executed movements, there would be a ritual if the believer attributed it to other causes. Thus the absorption of toxic substances produces physiologically a state of ecstacy, and yet it is a ritual for those who imput this state not to its true causes, but to special influences.”

If Mauss is right about this, and if he is right that prayer is a ritual, then there is something extremely puzzling about the famous saying in Matthew. Which I will get to in a further post.

Thursday, September 18, 2008


Over the last eight years, LI has developed a pretty fierce hatred for the Left. We break out in hives whenever we hear some grave person intone about the Left should do this or the Left should do that. As if the Left were anything but a miserable con game, one hundred fifty years of murder and disaster under its belt, led by young romantic young men who turn into old horrors as soon as they get a chance to mismanage an organization. The convergence of Mao and Milton Friedman in China has been a beautiful symbol of what the “left” is all about. That former Leftists loved the invasion of Iraq is not only not a surprise, but the secret face of the Left all along.

But as the “Left” exploded, I was hoping, romantic to the end, that something would take its place. In 2000, I even stupidly thought that thing would be the anti-corporation movement, which crystallized at the time around Ralph Nader. Nader, of course, had a more than honorable career in the seventies. Unfortunately, the only thing politician-like about Nader is his blind, gargantuan ego. The anti-corporation movement seemed to dissolve when it was needed most – after 9/11 – and now consists of a painfully unfunny clown act that comes out every four years and runs for president.

The run up to the current disaster was predictable since last summer. The “Left” of course saw, heard and said nothing – which is par for the course. We are now entering perhaps the most revolutionary period in my lifetime. It is rather hilarious that the “Left” will hop, skip and jump through this period without even the slightest flicker of recognition. Naturally, however, they will be like white on rice over the next superhero movie. The subtexts of Iron Man2! Does that Batman movie have a subversive countertext underneath its reactionary overtext? I’m just on the edge of my seat...

In the UK, where the “left” became the third way, the destruction of the latest and the greatest scheme to enrich the upper class – our thirty year old system of financial fictions – is probably going to wash away the Labour party. Is this good or bad? After all, the Labour party labored, mostly, to convince people that it was a behemoth Maggie Thatcher with a human face. My theory has long been that the takeover of old blue chip corporations by LBOs was the model for what happened to the “left” parties – they were cheap, they were exhausted, and they were beautifully positioned to fulfill a corporationist agenda by providing faux opposition and real support for the system of massive inequality, the hollowing out of democracy, and the use of pr warmongering as a sort of bread and circuses, that the fat cats love.

The U.S. has no left. Perhaps this will be an advantage. So far, there hasn’t been a peep about the insane policy being announced in headline after headline, as the Fed systematically destroys the ability of the government to help the producers – the bottom 85 percent. But I – romantically – believe that the doggies aren’t going to eat this dogfood much longer. The doggies will bite.

the topdown solution to the crisis is AN UTTER CATASTROPHE

I hear the roar of big machines
Two worlds and in between
Love lost, fire at will
Dum-dum bullets and shoot to kill, I hear
Dive, bombers, and
Empire down
Empire down

The economists, pundits and our elite have patted themselves on the back for the past year about “handling” the “credit” crisis. They have handled it by pouring money into the pockets of the top earners, who are, not coincidentally, the people who run the financial sector. Manufacturers in this country – GE, GM – have, for a long time, gotten in on the racket by manufacturing financial centers themselves.

Was there a better way?
How about: bottom up financing?

A clever commentator over at Mark Thoma’s Economist’s view named James Kroeger has been pounding on this idea for a while. He put it very succinctly before, once again, the Fed took another step into the quagmire. I have to quote him:

Let's go through this a step at a time... How would the Average American be hurt by a complete collapse of the financial sector of the economy? The answer is that he/she would be hurting only if aggregate demand were drop as a consequence of banks lending less money and businesses spending less money. Without intervention by Congress, businesses that are too heavily leveraged would go out of business and many people would lose their jobs. But if the federal government were to increase its spending enough (by taxing the rich and spending that money on infrastructure & human capital) aggregate demand could not only be maintained, we could also easily increase AD if that is what we wanted to do.

To maintain aggregate demand at the levels we desire, it might be desirable for Congress to create taxpayer-owned banks that would buy up the assests of failed private banks at fire-sale prices, fully capitalize them with public funds, and then provide whatever loanable funds might be desired by borrowers. If loan demand is inadequate to maintain aggregate spending at the desired level, then Congress can simply spend more money on public investment.

So what's the problem? What's the horror? The evil geniuses who created our private financial markets would suffer massive losses because they did not prepare themselves for excessive risk. They would lose Big Time, as they should. Within a month of two after such institutions fail, the government could be replacing them with publicly owned entities that have no reservations whatsoever about lending to would-be borrowers.

It would all be over within 6 months and very few people would be unemployed while competing firms buy up the assets of failed firms. As long as demand is strong, everyone would be working and pumping money into the economy at the same time that the few remaining players in the privately-owned financial sector are finding new ways to make a living while competing with The Taxpayer's Bank (one that is not interested in maximizing profits while taking on risks that everyone else must pay for, but only in serving the public interest) and which writes the rules that they must abide by.
(If a reminder is necessary: the Great Depression continued on as long as it did for only one reason: the Federal Government did not spend enough money to eliminate unemployment until World War II began and then unemployment dried up almost over night. Roosevelt's Congress did not authorize enough spending because too many members of the opposition and of the banking community warned that the consequences of 'inflating' the economy would be disastrous. Too bad they listened. Millions of people suffered terribly for no good reason.)

This is an awesome suggestion. It will be completely ignored by all parties and all people in power. But LI suggests that readers intrude this idea into forums where the economy is being discussed at present – q and a on the Washington Post or the NYT, comments on any popular political site, etc. At the moment, the top down, top benefits most model is the only model on display. It is late. That model is a failure. And it may well lead to the complete failure of a perfectly good economic system. The naughties have been an experiment in how-stupid-can-we-be. It looks like we will drain the betise to the dregs. But we don’t have to. We have a choice.

Wednesday, September 17, 2008

some will rob you with a six gun, some with a fountain pen

In the new Feudalism, we have to have a set of new euphemisms. So when a government agency simply abandons the law of the land – otherwise known as breaking the law – we have to find a gentle, doe eyed way of describing it. And who is better at the task than our faithful scribes and minions, the same people who transformed the Great Fly’s war of aggression in Iraq into a crusade for democracy? Who can put the human face on predator capitalism better than the NYT? Thus we get explanations like this one, about the use of taxpayer money to support private peculators:

“Until this week, it would have been unthinkable for the Federal Reserve to bail out an insurance company, and A.I.G.’s request for help from the Fed of just a few days ago was rebuffed.

But with the prospect of a giant bankruptcy looming — one with unpredictable consequences for the world financial system — the Fed abandoned precedent and agreed to let the money flow.”

Abandoned precedent. Let the money flow. Such beautiful terms! It makes for a whole new way of describing things. For instance, on one could say that on November 9, 1932, Clyde Barrow abandoned precedent in Lagrange, Texas, and let the money flow from the Carmen State Bank. Doesn’t that sound nice? Clyde prompted the money with the use of a pistol. We are more civilized now. Bernanke used a pen. We don’t use vulgar words of language.

Which reminds me of this Woody Guthrie song.

Tuesday, September 16, 2008


Since last August, economic policy in the U.S. has advanced under the banner of orderliness. The Fed, the Treasury, and all of the Great Fly’s horses and all of the Great Fly’s men are making sure that the unwinding is orderly. What does this mean? Well, it means that the New Deal is inversed. The old New Deal was about spending money to employ the unemployed. The New New Deal is about transferring money to plutocrats. Now, yesterday we had one outcome – an easily foreseen outcome – of what an “orderly” unwinding means: bankruptcies of the banks, freezing up of credit for consumers, inflation on all fronts, a steady increase in unemployment (which is, as we all know, grossly undercounted) – and money, massive amounts of money, for the rich. As you can see, that outcome is much to be preferred to a disorderly unwinding. The latter would involve bankruptcies of banks, freezing up of credit for consumers, inflation on all fronts, a steady increase in unemployment – and no extra money for the rich! That would be terrible.

What amazes LI is how inefficient the new feudalism is. I have a small but, I think, moneysaving suggestion to make to our masters in D.C.: we can cut the time and distance money has to travel between being collected by the IRS and landing in the pockets of bankers by setting up an office that directly assigns revenues to the wealthy. Thus, for instance, the Republican head of Merril Lynch, John A. Thain, who apparently earned a truly pitiable sum (25 million dollars) for presiding over the ruin of that bank for ten months, ould simply be assigned all the revenue collected from, say, Kentucky. Because we are a fiery Republic, Dedicated to Liberty and Opportunity, we should not knight him. No, we should scorn to ennoble him. Although our population is a spineless, servile, bullying, infantile, and media lobotomized bunch of hicks, still, we are too proud to allow our masters to assume titles like Earl of Hampton. But we can call them things like Super Entrepreneur of Hampton. This will warm our country hearts, and he could be interviewed on tv, or, as we like to say, reality land, dispensing wisdom that we can all sway to in our huts.

It looked, at one point, like the Dems – leaning towards their communistic roots – might have even suggested that instead of an orderly unwinding, we try the disorderly variety, in which you actually shove the Federal money at the masses. Imagine! The disorder of that would make our news storytellers on tv wring their toupees and bouffants. They would be so sad! It would be sheer demagogy! And against the free market and everything! Luckily, that moment has well passed, and we can all get behind the orderly unwinding. Of course, the Dems may be communists, but luckily they aren’t so communistic as to suggest that maybe, the government, instead of loaning banks 30 billion dollars here and 100 billion dollars there at 2 percent interest so that they can loan the money back to the U.S. at 2.5 percent interest, should just loan to the population at large at 2 percent interest, because, as we can easily see, that would be disorderly. We must be orderly. And at the end of this happy, happy time, there might be some money to, well, I don’t know, build another war or something. We do so love a war!

through the implosion, tv set by tv set

LI is back. We come back minus one tooth (about which, more on another post) from a trip that consisted mostly of following my friend M. around Mexico City and playing circus with her daughter and protect the castle with her son – although protect the castle is a complicated game of which the rules change to the extent that it isn’t clear what the castle is, as J. decides which miniature bowling pin stands for the king or the queen, which pile of books, toys, and odds and ends makes up the battlements, and how to deal with the collateral damage that ensues when he dances around the room, jumps on the bed, yells yippee, and generally makes a ruckus when the silver ball I toss at the castle misses the king, the queen, and all nine knights. Let it not be said that we lacked for intellectual content, down there in DEF. Plus we read a lot of Proust and took notes, all for The Human Limit, which we so hope our few remaining readers have not totally forgotten. Oh, and in our own little person, we proved that the global war on terrorism is a hoax. Maybe that will be in another post too. Suffice it to say, we spent some time at the U.S. embassy to Mexico, being gaped at by various embassy employees.

And David Foster Wallace hung himself.

We came back through the implosion. We knew, even in D.E.F, that the implosion was coming last week, when we read in the NYT about Lehman’s flood of red ink. Although of course – and this is the beauty of a blog! – we have been writing off and on since the Fed first fatally sought to shore up, of all things, the equity markets back in August, that the implosion was coming closer, with tremendous strides, like some personified sin in Pigrim’s Progress. In the Mexico City airport, we picked up the Financial Times to get the score, so to speak, for the day’s gladiatorial contest. In Dallas, we watched CNN. CNN is like a video i.v. of pure gibberish. It is like mindmelding with an overflowing garbage can. The lies and factoids pouring out of the tv were rather astonishing. We especially liked it that – of all people – Alan Greenspan was reverently quoted for his opinion of the implosion. For in the CNN universe, the characters of the celebrities are unchanging archetypes, and Alan Greenspan is still the maestro, instead of the Ayn Rand's revenge on American capitalism.

There were also clips of Obama and McCain, and not one word about what this is. It isn’t a credit crisis. It isn’t a liquidity crisis. This is an inequality crisis. The massive increase in the inequality between the wealth of the working and middle class and the upper class is the sole perpetrator of today’s implosion, and of tomorrow’s implosion too. You can’t run a consumer economy on extended credit and frozen wages. You can’t trade the residual. You can’t make the financial sector, of all sectors, the engine of the economy – unless your economy is as small as Holland’s. As the government transfers appalling hundreds of billions to the plutocrats and assures the CNN viewing audience that it is for the good of all, the spectator must wonder if the servility of the general population, its inertia, its ignorance, its general incapacity to chew gum and walk, will allow this, too, to pass. So far, it does look like the hugest robbery in history will proceed without a hitch, and with no suspense, even. Why dress all in black and map out the sensors that guard the vault of Fort Knox when the treasury secretary gives you a key and your own gilded wheelbarrow?

The ethics of integrity or the Baker at Dachau

    Throughout the 19th and 20th century, one stumbles upon the lefthand heirs of Burke – Red Tories, as Orwell called them. Orwell’s inst...