Werewolves and zombies

The AIG fiasco leads to a few unavoidable conclusions:

1) Tim Geithner and Larry Summers need to join the growing ranks of the unemployed, who already number 10.8% of the workforce here in Oregon. Joblessness would only be temporary for them, no doubt. They're old-school crony capitalists who fundamentally don't get it because they're too embedded in the culture of Wall Street. They should be replaced by advisors who aren't totally clueless — people like Robert Reich and Paul Krugman, for example.

2) The behavior of the werewolves who occupy the AIG corporate leadership may be politically tone-deaf, but it was absolutely predictable. The rage is more suitably directed at politicians: the very people who either saw this coming and accepted it, or should've seen it coming and acted to prevent it. The feigned naïveté of politicians who are "shocked" by the AIG bonuses is a nauseating sight to behold.

3) If U.S. taxpayers own AIG (nearly 80%) and the zombie banks, they should exercise a proportionate amount of control over their management.

4) Legal platitudes about the sanctity of contracts were notably absent when the Big Three abrogated agreements with the United Auto Workers and other unions. Worst case: unilaterally rescind the contracts and let the executives make their arguments to a jury.

5) Scary as it sounds, bankruptcy is a better alternative for AIG and the zombie banks than endless bailouts with no transparency. For one thing, Chapter 11 filings would allow these corporations to avoid pre-existing contractual obligations to provide bonuses and golden parachutes. It would also allow them to dump their most toxic assets.

6) Barack Obama's adaptive skills are impressive enough that he can quickly clean house, learn the necessary lessons and move on to a more populist model for economic recovery (with a little help from Reich and Krugman, among many others).

And not least:

7) The whole cultural obsession with short-term gain needs to be examined at the deepest levels, from politics (with its focus on "short-term outcomes dictated by the electoral cycle") to the economy. Short-term gain often produces long-term pain, as the AIG fiasco again demonstrates. [To start, here's a minor suggestion: amend the Constitution to allow for 4-year terms in the House of Representatives to promote long-term thinking and reduce nonstop campaigning and fundraising.]

GRAPHIC: The werewolves at AIG (Wikimedia).

[Note: versions of this entry were cross-posted at Obsidian Wings and Lawyers, Guns and Money.]

Searching for acorns

Stock intended to eventually earn taxpayers a profit as part of the Bush administration's massive bank bailout has lost a third of its value — about $9 billion — in barely one month, according to an Associated Press analysis. Shares in virtually every bank that received federal money have remained below the prices the government negotiated.

—Associated Press, December 5

This unsurprising report arrived, coincidentally, with similar news (on a somewhat smaller scale) from our latest 401K statement. The reality seems clear enough: markets for exotic financial instruments — especially bundled derivatives traded with minimal disclosure and even less regulation — have become so complex that they're beyond the understanding of those who are trying to set policy and salvage the economy.

The Bush administration is reduced to throwing hundreds of billions of dollars into a black hole in the hope that something will miraculously stimulate a positive response. When the meltdown of mortgage-backed securities began in September, you could easily detect the fear on the faces of congressional leaders, as much as they struggled to project calm to avoid provoking a panic.

Two months later, no one yet seems to have a minimal grasp of what's happening, much less a glimpse of the steps needed to avoid further collapse. The hope seems to be, as an old friend from Nebraska might say: Even a blind hog finds an acorn once in awhile. So far, the hogs are coming up empty.

The Bush/Cheney Endgame - Part II

There's a widespread perception that, for the last seven years, the Bush/Cheney administration has been reeling from one crisis to another — improvising rather than pursuing any grand strategy. While it's hard to disagree with this conclusion, there are a couple common threads that bind the administration's domestic and foreign policies to the point of obsession. These are rarely articulated in any coherent way, but they provide common denominators.

The Bush/Cheney legal endgame on torture, including the veto of the congressional prohibition on waterboarding, fits neatly into a larger scheme for the final ten months of the regime. As Bush continues to seem unconcerned about his legacy, it seems clear that he values just two outcomes for his eight years in office:

1. No additional attacks on the homeland: Bush and Cheney will deem their regime a great success if they can declare that their national-security decisions were necessary to keep the U.S. safe since September 11th. That result, they'll claim, justifies everything they did: the invasions of Afghanistan and Iraq, the use of torture, the illegal detentions and renditions, the degradation of civil liberties at home.


2. Increased corporate hegemony over the economy and national politics: Bush can accurately claim that he did everything possible to eliminate restraints on corporate profits and freedom of action in the post-industrial economy. For example, his administration has presided over the aggressive dismantling of the federal regulatory apparatus, with predictable effects on the mortgage industry, environment and elsewhere. To the extent that the administration had an economic strategy at all, that was it.

In a political system that struggles to look beyond the two-, four- and six-year terms of its leadership, this sort of short-term (or two-term) thinking has again yielded nothing but disaster. The difficulties are compounded when the lack of strategic vision is combined with Bush's a priori, ideological approach to problems. In the mental world of George Bush, all assumptions are immune from empirical testing and revision.

If no further terrorist attacks occur in the U.S., even on the scale of London or Madrid, it would be quite a leap to agree with the Bush/Cheney claim that their policies deserve all the credit. The harsh context for such a claim shouldn't be overlooked: 3,993 U.S. troops have lost their lives in Iraq, another 29,314 have been wounded and hundreds of thousands of Iraqis have been killed or injured in an illegal war of aggression [1].

Meanwhile, the long-term security of the U.S. has been deeply compromised as world opinion has turned dramatically against the Bush/Cheney regime. Any claims to U.S. moral authority are now laughable, as even our British allies seem to recognize. The next administration will have to act dramatically to repair the damage by distancing itself from Bush/Cheney and their policies (for which there's a modest 12-step program).

The economic cost of Bush's short-term thinking is a deepening recession that has already imposed hardships and may require years of recovery. While expanding federal power through the growing National Security State, Bush/Cheney have been aggressive proponents of the Reagan "revolution's" hostility towards domestic programs, even including disaster relief, and regulation. [2]

The administration is staggering towards the exit, deferring the resolution of these crises and doing everything imaginable to escape blame. The next occupant of the White House will be greeted by piles of steaming turds in every closet, under all the furniture, in every heating duct and in other places that we can't even imagine yet. The stench will be in the air for years, and no disinfectant is powerful enough to remove it.

NOTES

[1] Source: Iraq Coalition Casualties.

[2] On the other hand, they've been very selective in adopting the principles of Reaganism. In his famous "Star Wars" speech in 1983, Reagan declared: "The defense policy of the United States is based on a simple premise: The United States does not start fights. We will never be an aggressor." [Seven months later, he ordered the unprovoked invasion of Grenada.] And: "History teaches that wars begin when governments believe the price of aggression is cheap."

PHOTO: Bush/Cheney join the celebrations at the end of their terms (Wikimedia).

Geaghan: Department of No Comment

Sometimes the data just lend support to the obvious. Here's a recent example (with thanks to Scott Lemieux of Lawyers, Guns and Money for the tip on this article by Brad Plummer at The New Republic Online):

"The statistics on inequality are well known and... present a clear picture. Between 1979 and 2004, the richest 1 percent of Americans saw their after-tax incomes triple, while those of the middle fifth grew by only 21 percent and those of the poorest fifth barely budged, according to Congressional Budget Office data. By the late '90s, the richest 1 percent of American households held one-third of all wealth in the U.S. economy, and took in 14 percent of the national income--a greater share than at just about any point since the Great Depression.

"In politics, this all matters a great deal. Larry Bartels of Princeton has recently studied the voting record of the Senate between 1989 and 1994--a time, note, when Democrats controlled Congress. He found that senators were very responsive to the preferences of the upper third of the income spectrum, somewhat less attentive to the middle third, and completely dismissive of the policy preferences of the poorest third. In one striking example, Bartels discovered that senators were likely to vote for a minimum wage increase only when their wealthier constituents favored it--the views of those directly affected by the hike had 'no discernible impact.'"

With "wealthier constituents" refusing to support the minimum wage bill recently passed by the House, the Senate wouldn't approve an increase without an "$8 billion package of tax breaks and regulatory concessions for small business..." The Senate bill passed today by a vote of 87-10. An earlier bill, lacking these business-friendly "concessions," failed on January 24th.

GRAPHIC: "Minimum Wage History," Oregon State University (January 17, 2007)