When you Find yourself in a Hole, Keep Digging until you Pop your Head through the Floor of the People's Bank of Beijing

Full disclosure: Dwight, this was too good to leave on your comments page.

In discussing the Iraq war with Dwight from Logic and Politics, I agreed with his assertion that if we're not wanted in Iraq, we should leave them to their mess. Frankly, I said, it never made any sense, other than the cronyistic nature of the no-bid contracts that were going to Blackwater, Halliburton and the like; it was Bush and Cheney's own little Keynesian economics project, which kept the economy from collapsing until . . . well, until it collapsed in spite all the government investment in the private sector.

I don't suppose it had anything to do with the fact that many of the corporations that have profited from the war in Iraq have been outsourcing a sizable portion of their production overseas--a strategy which takes government dollars from our economy and filters it through corporate coffers into reduced payrolls in developing nations, so payroll turnover is spent there, instead of here. Frankly, the the only way they could keep it going here was to convince the Wal-Mart employee that s/he could afford (and deserved) a split-level, five bedroom/three bath house with a Hummer, an Escalade and a pair of snowmobiles/motorcycles in their three car garage.

This is a market correction: in what universe is a cramped, two bedroom, one bath in East LA worth $600,000? A simple rule of macroeconomics is that where supply curves meet demand curves is called "equilibrium." When a market is out of eqilibrium, as it was during every boom we've experienced from George Washington forward, an "invisible hand" (AKA "market forces") has a way of pushing things back into equilibrium. It's not magic, it's just common sense: who's going to spend $600,000, plus interest, for the privelege of fixing their own pipes and paying dues to a home owner's organization, when it costs less to rent, with none of the headaches? So yes, those who appear to be downplaying the economic crises, are correct, this is unequivocally a market correction. The problem with the kind of market correction that we're going through is, how do you stimulate lending when the prime rate is already hovering around zero and most of the potential borrowers are leveraged to the point that they couldn't borrow their best friend's lawnmower? The Keynesian solution, employed during the Great Depression, if used to escape the current economic crisis, will require a level of spending that will make budget deficits under Presidents Reagan, Bush and Bush look like what they never even tried to deliver on: fiscal conservatism.

And capital? What capital? It's all borrowed money--every dime. Remember the good old days when savings accounts would yield 4.1% per annum? It was 3-7 per cent less than inflation, but at least capital was something other than a promissory note. People had savings accounts because they could earn money on them and banks had capital because they didn't expect savings account holders to give their money away.

The solution isn't hard to grasp, but it'll be painful for years to come, because inflation--as bad as it's been--will skyrocket. In order to attract savers, the fed will have to raise the prime rate so that interest rates will pay a reasonable return on savings. All of this will take time and it will cost more just to live than ever before. But when you're in a hole, you have to, at some point, stop digging, even when you're halfway to China and you forgot to bring your trusty ladder. The one thing we have going for us is how many of us wound up in the hole together. It is that "hole unity" shared by all Chrysler employees that made it possible for the company to survive: according to the Los Angles Times, the Union is buying controlling interest of the automaker--not something GM employees could ever dream of doing, even if 21,000 of them weren't losing their jobs.

There appear to be some advantages in being small enough to fail, after all.

Update: so much for an employee-owned Chrysler. According to the Guardian (UK), some hedge fund speculators, such as Oppenheimer Funds, Perella Weinberger Partners and Stairway Capital, whose greed helped to sink the global economy, were holding out for a taxpayer bailout, claiming that taxpayers and unions "were getting preferential treatment." Among banks willing to write off up to 2/3 of the automaker's debts were JP Morgan, Citigroup and, my favorite punching bag of the financial bailout, Goldman Sachs. While Chrysler may survive bankruptcy, their can be no doubt that the hold-outs once again gambled with other people's money and lost--again: by forcing Chrysler into bankruptcy, the holdouts may well be forced to take a smaller settlement than the one they turned down.

Meet the New Boss (Same as the Old Boss)

Yes, the title of this thread is aimed at President Obama.

Everyone believed he could do it. Even Pete Townshend, after performing "Won't Get Fooled Again" (Who's Next)said that, given Obama's victory over the conservative political machine, he needed to rethink the meaning of the song. One of the most dynamic and revolutionary songs (literally) in all of rock music, "Won't Get Fooled Again" is the quintessential anthem of the skeptic, pointing out that once the revolution ends and the oppressors are overthrown, the new regime changes little or nothing for the better. I agree with Townshend to some degree: Obama has brought about some much needed changes.

The boos from our troops in Iraq as they were told they will be ceding control of Iraq back to the Iraqis isn't something that would have happened under a McCain Administration (I can understand why they booed him: from a soldier's perspective the place is a mess, and none of the machinery is currently in place to keep Iraq from tearing itself to pieces with civil war; but, I digress). It was a good and necessary step, at least for ability of the United States to move forward. Contrary to what the anti-war "progressives" claim, I agree with the President's decision to stay in Afghanistan--not to take it over or to "stabilize" the region--but to finish what Bush II started in 2001: GET BIN LADEN. Just him, and anyone who protects him. It isn't rocket science: if Bush I can bitch slap Manuel Noriega in his own house and drag him back to the States to try him as a drug runner, I think that these high-tech morons in the CIA ought to be able to sort through the latest stack of Quickbird images from the Af-Pak border and find bin Laden. How will they know it's him? Here's a hint: HE'S THE GUY STANDING OUTSIDE A CAVE TALKING TO A VIDEO CAMERA!

There is, of course that patient side to Obama: the one that doesn't bother swatting at Dick Cheney when he flies by on the news. By all signs, the President wants to move forward. And this is where I have to start calling bullshit. Cheney admitted on television that he knew about and approved the use of torture, defined as a war crime under Geneva. I'm no lawyer, but I'm pretty sure that a spontaneous admission of guilt--one that was in nowise coaxed (say, by waterboarding, for example)--is generally accepted as being admissable in court. And given that President Obama once held the prestigious position of president of the Harvard Law Review, it would seem a no brainer that this is a fact not lost on him.

It's been clear for some time that Washington, while willing to pay lip service to the general outrage with the auld populist sound bite, has had Wall Street's back from the beginning, and has no intention of throwing them under the bus. When the sheriff robs you, it’s bad enough: you have to convince a judge and a prosecutor to get off their lazy asses and do their jobs; then you have to find someone willing to take on a paramilitary force, known as "The Sheriff's Department," to have him arrested. That normally requires a larger paramilitary force, such as the State Police or the FBI. But at least they exist.

So this time, our cattle are being rustled by Wall Street bankers. You know, those "genteel" folk that everyone used to be so deferential to? And now, from all appearances, the gate is being held open by one of the Commander-in-Chief’s top deputies, Tim Geithner. It’s hard to imagine that someone sharp as President Obama is blind to how Geithner appears to be operating as primary gate-holder for that infamous gang of financial rustlers, chasing borrowed revenues through AIG’s hidden range of complicated credit-default swaps, out to the financial pastures where the dandies and the gamblers (still disguised as bankers) cash out the missing pot of a poker game, which from all accounts, they lost.

As much as I want the efforts by the Obama Administration to work, I can’t see how paying an insurance company to pay off the architects of this recession will lead to improving our economy. Perhaps I can’t see the forest for the trees. But perhaps I was right to begin with, when I suggested, some time ago, that right and left, Democrat and Republican, liberal and conservative, were a false dichotomy with a purpose. I know a lot of “blue dog” Democrats; most of the self-proclaimed “leftists” that I know don’t favor any kind of gun control. A surprising number of the women I know that identify themselves as “feminists” are ambivalent toward Roe v. Wade and wouldn’t consider abortion for themselves or for their daughters; on the other side of the abortion issue, there seems no shortage of self-proclaimed conservatives that wish everyone would just shut up about it. These are but a few minor examples pointing to the paradox in American political identity: how we align ourselves politically doesn’t so much reflect beliefs, but how appealing we tend to find someone else’s. Hence, left/right and liberal/conservative, but most importantly, Democrat/Republican, are not so much dichotomies as two sides of the same coin. And they have us well trained: when one side can’t fix the problem, we flip the coin over and hope that the other side can. But no matter how many times we turn over that nickel, it’s still just a nickel. Don’t get me wrong: a nickel still has its uses, but you only get so much mileage out of it—particularly when it’s minted the same on either side.

And so we come to it: the two-party system is out of gas. Both sides have given the bankers a free hand to shape financial and economic policy. I’ve given my support, not only in money but in hope to the idea that this time, it could be different. But it can’t, because this time, like last time and the time before that, the moneyed and the well-connected did what they do best: they used our hopes and desperation to steal what little we had left.I didn’t come to this conclusion via the endless right-wing or left-wing demagoguery that fouls the airwaves. I just looked outside after hearing there was a new sheriff in town, and saw for myself that America was still a kleptocracy. It was founded by rich men who couldn’t stomach the thought of paying taxes to cover the cost of a war that their greed and speculation started, and the same people who have sunk us, time and again, remain firmly entrenched.

So Townshend got it right the first time: revolution, election, regime change. The same banners flew in the last war and the new boss is the same as the old.

I love my country, but our so-called leaders all suck. And until we get another Jefferson in the office, who's willing to stand up for the rights of the common man, we're still flipping that two-headed coin from right-to-left and back again.