Wednesday, December 23, 2009

 A nice overview of where things stand. Be sure to look through the stories listed and the comments. There's often better stuff there than even in the main post or stories.

Ilargi: For once, I'm afraid, I have to agree with Paul Krugman, himself a highly dysfunctional man in my eyes: the US government is Dangerously Dysfunctional. Only, Krugman, ever eager to be my anti-thesis, -somewhat comfortingly for me- rolls off the rails right away again by claiming that this is a result of party politics, and the blame lies squarely with the party he happens not to like, the GOP. And while I have little sympathy for that particular party, I do know that Krugman's portrayal is false.

Eliot Spitzer and Wiilam K. Black, seemingly honest and (therefore?) marginalized voices, ask to see emails concerning the AIG bailout(s). Therein, they contend, we’ll be able to see what really went on when the world's -then- largest insurer received $180 billion of your money, much of which was transferred at an amazing speed to the likes of Goldman Sachs. Make the emails public and we’ll know, because then "a thousand journalistic flowers can bloom". They actually wrote that.....

Yves Smith at Naked Capitalism reacts, and wants more. She thinks we should know why no research was done into all the parties involved, why they could receive money without being scrutinized before, during and after the bail-out process. Yves provides a well-written overview of Goldman Sachs actions that involved parts of the AIG funds. Still, calling for investigations into the matter, with or without emails, and more than a year after the fact, largely misses the crucial points here. Which takes us back to my buddy Krugman.

The AIG decisions were made in Washington. There was another party on the throne, but what difference did that make? The decision-making problems don’t vanish when another party comes to power. That much, we can all agree by now, has been made exceedingly obvious by the Bush to Obama transfer. The reason behind this is that the real rulers stayed in place while the White House changed occupants. The US simply isn't governed by its elected politicians. Or at least not by their ideas and convictions, if, when and where these differ from those of their donors.

If a politician can be elected only when (s)he has enough money (i.e. millions of dollars, and for a president hundreds of millions) to run a campaign, then the resulting policies will be dictated by those who donate that money. And since one dollar equals one vote, the grandma who ate mac and cheese for a week to donate $10 to Obama has no say, while a financial institution that gave $10 million does.

Both parties partake of the exact same largesse, so claiming that one is to blame and the other is not is nonsense. The system itself is broken. And you can't fix it with a bit more openness here or a few published emails there. You can only fix it by separating politics and business, by taking a big old axe and cruelly cutting clear through the umbilical chords so carefully and profitably attended to on K Street. Anything else is mere make believe. Nobody in Washington seeks the truth behind all this. Everybody seeks a story that makes them look good for their voters.

Arnold Kling describes it like this in The Harvard-Goldman Filter:
As to libertarians, certainly in a world with no deposit insurance or government guarantees I could argue against government interference in the structure of private banks. But banks are not private in this country. They are quasi-public institutions [..].

There is a synergy between big banks and big government. Jefferson and Jackson were right. So breaking up big banks fits in with breaking up big government. Which is why we won't see the Progressive elite breaking up big banks.

The trouble in Denmark on Capitol Hill runs much deeper than a vote or an idea. The country is governed by a few hundred enlightened souls who are all for sale, or they wouldn't be where they are. And if a soul does get lost on the Hill and tries to follow his or her conscience, the rest of them will drown it out.

This is not a new issue, though it has rapidly grown more poignant in the past 3 decades. What is new today is that the dysfunctional system has to deal with a crisis that cannot be dealt with as previous crises were: with more growth.

And without growth, what wealth there is has to be redivided, or society as a whole becomes untenable. And yes, redivided it is, but not in a way that would warrant society's continued viability. On the contrary, those who always had much will have more, while those who had least will now have nothing. And I’ve said it before, it's not a political statement to say that if a society doesn't provide a minimum for its poorest, that society must of necessity fail.

Read all the emails you want, investigate all the crooked deals made in the bail-outs. It won’t matter one iota. Once growth is gone, you need to prevent the rich from lobbying themselves into ever and even more riches. because these will have to come from the mouths of the desolate.

Or you can choose not to, but then your society is over and done with. Now, I don’t really think people will think I’m right. When most read that the noughties were the worst decade for stocks ever, as in since the 1820's, almost 200 years, they’ll think: well, it should go up then, shouldn't it?

Who among them concludes that growth may be gone, even if they know it can’t last forever? It was inevitable that they'd still be expecting -nay, even seeing- growth when the world around them is shrinking.

PS: The Financial Times headline "Bank of Japan says it will not tolerate deflation" inspired a good friend to come up with this quote about King Canute, about a millenium or so old. It would be a valuable lesson for many, not in the least the economists and assorted financial types who overestimate governmental powers and good will of many sorts and stripes.
"Henry of Huntingdon, the 12th-century chronicler, tells how Cnut set his throne by the sea shore and commanded the tide to halt and not wet his feet and robes; but the tide failed to stop.

According to Henry, Cnut leapt backwards and said "Let all men know how empty and worthless is the power of kings, for there is none worthy of the name, but He whom heaven, earth, and sea obey by eternal laws." He then hung his gold crown on a crucifix, and never wore it again."

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