Stop The Spirit of Zossen 2.0

Im waiting for my man
Got 26 dollars in my hand
Up to lexington 125
Feelin sick and dirty
Huh, Im waiting for my man

About two weeks ago, we got an email from a long time Republican friend. He successfully ran a Republican presidential campaign. In the email, he simply asked the Stiftung when we thought McCain would be unleashing Army Detachment Steiner. We laughed for all the multi-dimensional reasons.

He’s right, of course. And so is another VRWC Wall Street friend emailing from a late nite Dial Town Car today. He wonders when Palin will send McCain the telex asking if she should take over under the rites of succession given McCain’s untenable position. (Kristol’s betrayal an essential mis en scene backdrop).

Which brings us to Jesse Jackson’s infelicitous predictions about Israel and the Israeli lobby in a Boy King regime.

The most important change would occur in the Middle East, where “decades of putting Israel’s interests first” would end. Jackson believes that, although “Zionists who have controlled American policy for decades” remain strong, they’ll lose a great deal of their clout when Barack Obama enters the White House.

Those sentiments, observations and hopes are broadly shared by large percentages of the ‘Foreign Policy ‘Establishment’ [sic] ‘, what’s left of the non-radicalized Republican foreign policy apparat, and the Usual Worthies. The prospect of snapping the Neocons’ spine and banishing them to think tank intensive care rallies people of otherwise divergent philosophies - libertarians, Left, traditional conservatives and the vacant trendies.

The Boy King is wise and also correct to emphasize that support for Israel is unwavering. Implicitly he makes that case that Neocon radicalism is Something Else. Segregating those two political memes is essential for a post-Warlord recovery. Jackson because of ‘Hymie Town’ and other colorful incidents blurs everything. All Democrat duct tape is on Biden?

It’s not a snarky observation. Neocons, like ticks, abandon a used host for a more healthy ride. They abandoned Democrats for Reagan. Kristol et al. in 2004 threatened the same stunt on the Warlord. You may recall his petulent memo (it was printed over at STSOZ 1.0?). Kristol threatened to take the Neocon ‘base’ (no snickering, please) to the Democrats and become ‘Neo-Liberals’ because the Warlord showed insufficient ‘resolve’.

You might laugh thinking about 2009. Who would ever be so dumb as to allow their memes to infiltrate a Boy King regime? Sadly, the answer is longer than the phone book. In fact, most of the so-called ‘Oppositionist’ foreign policy liberals are actually more in agreement even now with Neocon fundamental memes and world views (and most, like Peter Beinart, are too dim to know).

Unfortunately, the Boy King is a blank slate and too inexperienced to be classified in an intellectual philosophy. Biden is an intellectual (and verbal) bloviator. The Democratic foreign policy sages in the Boy King’s orbit may be multilateralists, may be more comfortable with (what’s left of our) soft power, may be in the stale Nye-ism ‘owls’. Yet they are in the main definitely not Realists. They view and intend to deploy American power on emotional, abstract ‘values’ and ‘truths’ without the hard calculus of geopolitical realities.

The election by itself is only a small step in breaking the Neocon contagion. Like any good medical treatment, the antibiotics must be administered for the full course. Otherwise the infection can mutate and come back another way.

Just remember. We talked about it here. Give it till 2010. ‘Neo-Liberals’.

The IMF purports to be optimistic after the U.S. and U.K. acted to nationalize banks through direct capital injections. True, Paulson did not intend this even a week ago. But rather than excoriate him for improvising we applaud the flexibility. The question many might ask is why would a direct capitalization overcome fear of lending contra say Fed rate cuts and the open discount window.

Time outpaces ideology or statutes. We were skeptical Paulson could stand up and run auctions in ‘weeks’. We worked with the FCC and industry setting up and implementing the first ever spectrum auctions in the early 1990s and those that followed. Even skipping Reed Hundt and Blair Levin’s Gore-esque GOSPLAN regulatory mania for a down and dirty bare bones gig in 2008, those spectrum auctions each had a defined homogenous res (a specific band of frequencies) compared to current unknowable facility’s toxicity, etc. Even a reverse auction to function must have *some* kind of uniform or at least common baseline, however attenuated. That is simple auction theory 101.

Some comparable statistics of other economic declines are sobering and possibly reassuring:

The average downturn after recent banking crises in rich countries lasted four years as banks retrenched and debt-laden households and firms were forced to save more. This time firms are in relatively good shape, but households, particularly in Britain and America, have piled up unprecedented debts. And because the asset and credit bubbles formed in many countries simultaneously, the hangover this time may well be worse.

But history teaches an important lesson: that big banking crises are ultimately solved by throwing in large dollops of public money, and that early and decisive government action, whether to recapitalise banks or take on troubled debts, can minimise the cost to the taxpayer and the damage to the economy. For example, Sweden quickly took over its failed banks after a property bust in the early 1990s and recovered relatively fast. By contrast, Japan took a decade to recover from a financial bust that ultimately cost its taxpayers a sum equivalent to 24% of GDP.

All in all, America’s government has put some 7% of GDP on the line, a vast amount of money but well below the 16% of GDP that the average systemic banking crisis (if there is such a thing) ultimately costs the public purse. Just how America’s proposed Troubled Asset Relief Programme (TARP) will work is still unclear. The Treasury plans to buy huge amounts of distressed debt using a reverse auction process, where banks offer to sell at a price and the government buys from the lowest price upwards. The complexities of thousands of different mortgage-backed assets will make this hard. If direct bank recapitalisation is still needed, the Treasury can do that too. The main point is that America is prepared to act, and act decisively.

All of which leads to the real issue: What Comes After. As The Economist notes “If foreigners ever flee the dollar, America will face the twin nightmares that haunt emerging countries in a financial collapse: simultaneous banking and currency crises. America’s debts, unlike those in many emerging economies, are denominated in its own currency, but a collapse of the dollar would still be a catastrophe.”

The American ability to inflate our way out of our own stupidity is a short term Sword of Damocles over the IMF meeting this weekend in Washington and among the EU leadership. We agreed with Spengler before in an earlier post — Asian and European alternative capital architectures are not yet in place. It is, however, just a matter of time.

The Warlord destroyed the ‘American’ brand across the board. Centuries of brand equity squandered in front of a connected global audience. It will not be coming back by chanting ‘Yes we can’. Footsteps away with the whisper ‘Never again’ will dictate events.

In two debates both the Boy King and McCain avoided answering how this crisis constrained their options. Perhaps it is good politics to deny that the United States is a bankrupt hegemon. Even so, neither of them shows the necessary leadership to prepare the American people for the real hardship to come: life as a debtor nation in a post U.S. global financial system.

So the Fed now must take the unprecedented step and buy up commercial paper directly in an effort to unblock the credit market freeze. Why are people so on edge? Don’t they remember what Richard Perle said from atop Isengard, not that long ago?

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More to come apres l’accident de voiture . . . well, if Alessandra Stanley says it, it must be so. But Stanley is this once much more perceptive than the tiresome Joan Walsh. Walsh, Olbermann and the Maddows of the world don’t seem to realize that it is no longer 2003-4. Being an Oppositionist is no longer a furtive, brave thing. No one beyond the 30% dead enders doubts the essential critique. Especially today.

Perversely, the more shrill Olbermann, Walsh or in the tank Tweety, MSNBC et al. are for Obama, the more it actually galvanizes the (until St. Paul moribund) Republican base. And one does wonder what will become of all of the above under a Boy King reign. What will they really do? Their self identity the past eight years (understandably) is one of beleaguered outrage. (or in Tweety’s case, shamelessly tacking with the wind, so let’s drop him as an outlier). What new phantoms will they need to shadow box? To retain the cognitive focus and emotional engine that sustains them. Will they belatedly discover the Boy King campaigned as all things to all people?

In Japan, they defined Imperial Rule under different ages for a given Emperor since the Meiji Restoration. Hirohito’s tumultous reign is the Showa period. The new Heisei era began in 1989 when his son Akihito took the throne. We seemingly are on the edge of our own new era: nobika na funari (serene inexperience).

One good sign. The Godzilla and Gamera movies improved noticeably in the Heisei era. So there’s always some hope here.

Open thread . . .

Thoreau over at Unqualified Offerings muses that Glenn Greenwald (to use Jon Stewart voice) . . . “Nailed It !” Yorkshire Ranter sets forth a pithy analysis of the British nationalization of Bradford & Bingley — and why U.S. analogies do not hold.

All in all, we come out where Jim Hanley does at Positive Liberty. As he says, we’re kind of glad this happened — for all the reasons he lays out. (And thanks also to the folks there for the kind words about Speed Racer - isms). We also share the skepticism voiced in the comments about House Republicans. They indeed are incapable of anything but short term tactical political ploys, saying ‘no’ or regurgitating Rightist fantasies with ideological kool aid recipes. (As a VRWC veteran, believe it, we know the cant all by heart).

Spengler over at Asia Times argues persuasively that new measures that fail to address how important leverage is to the average American household, let alone industry, will be a misfire. He ends on a somewhat sanguine note:

Sadly, the Asian public and private sector will continue to pour money into the United States because their home markets are not deep or secure enough to provide an alternative. America will have an extended grace period to put its house in order before the rest of the world finds alternatives to its capital markets.

(Emphasis, er, emphatically ours).

Administration punt returned about 9 yards. Objectively marginal results with optics designed to mask the meager effort. The essential field position is unchanged. Plutocratic subsidy, massive nationalization with a roll of the dice. In the dark.

From a tactical point of view, one might take comfort that the Democrats for once didn’t flinch, cave and roll over completely. Talk about reduced expectations.

It’s an outrage really that they expect frappuccino applause for this constitutional posturing. CEO pay? Some ‘oversight? All small upticks in Rachel Maddow demographics. They discover separation of powers only now. And tonight we hear them assert with smug bravado “We really are members of phylum cordata. ” Amidst a prostrate nation in financial ruins.

The Warlord’s incompetence is a fact of life. Like a morning traffic jam. (Long time readers here understand and likely share the Stiftung’s assertion that the incompetence is inextricably linked to the underlying radical ideology). So Americans just tuning in now justifiably could ask “Which really is worse? Weakness or incompetence? Are they the same thing?” What happened to November 2006?

Incompetence destroyed the nation. Will weakness save it? That’s the question for many this new November. It’s not just the Boy King’s doings. How else to explain McCain’s even remotely viable chances? (Although did anyone else find it bizarre beyond usual that today — of all days — Biden spends 40 minutes droning on about Iraq? Does he really think anyone cares he is the cue card girl for the foreign policy debate? Can’t he just be quiet?).

The Thursday joint appearance with McCain and the Boy King should provide everyone at the White House with cover *and* plausible deniability. The Boy King will try and pin McCain like a butterfly. It’s going to be hard in a giant political jello bowl. Try nailing that to a wall. Everybody gets credit and no responsibility. Hundreds of declared individual ’signing statements’. Bloviation beyond comprehension ‘coulda, woulda shoulda’, ‘market forces’, ‘accountability’ and ‘helping the middle class (what’s left of its skeletal remains).’

Too bad Howie Mandel can’t show up with his models and briefcases for the international audience. Let Bernanke and Paulson pick while Howie calls in the banker. That’s the true face of America the world sees and we don’t recognize.

Still, it’s been less than a week since Chuck Schumer told us things were ’somber.’ Pretty decent response time for a palsied political system hobbled with both a failed Administraton and Congress. Some Japanese and German financial officials didn’t think it would happen. Too bad no one knows what ‘it’ will turn out to be.

It could be that Star Trek episode, you know the one. Evil Spock with the goatee. “Mirror, Mirror” (Season 2, Episode 33 for the geeks).

Instead here it is early 1921. A Politburo meeting. The topic? How to prevent a systemic collapse after excesses of dogmatically ideological government and economic policies. Ad hoc ‘interventions’ fail to stabilize the situation. Let’s listen in . . .

Nikolai Bukharin: Bernanke: You’ve seen the news. The interventions we implemented earlier such as Tukhachevsky’s smashing of the Tambov uprising such as Bear Stearns and the GSEs are not working to restore order. The sailor revolt in Kronstadt AIG situation is more systemic than we realize. Brutal suppression Our $85 billion bridge loan failed to stabilize the Party’s revolutionary control markets. The economy and our entire system is headed for a free fall if we don’t act now. We must do so and be seen to do so in a major way.

Aleksei Rykov: Paulson: We must act now. This is not how I would like us to operate in theory. Marx taught us that class revolution . . . We all here today remain in favor of unrelenting ideological struggle against class enemies deregulation and market forces. These are cards we are dealt. We must intervene now and seize the ‘commanding heights’ of the economy. We will stimulate regulatory and other incentives to allow market clearing forces to function at the krai local and soyuz Union levels.

We are calling this our New Economic Policy (NEP).

It’s a temporary measure, to signal stabilization to the peasants and workers financial markets. From the excesses of the recent years. We will nationalize those assets that are too big to fail allow others to control and allow primitive capitalization to occur people to feel safe in their mutual funds.

Evgeny Preobrazhensky Eric Cantor: No. We must continue to pursue the policies of market forces War Communism even more so now. Those polices if we don’t panic will work. Only market forces the State can effectively allocate seize control and end the liquidity crisis scissors crisis.

Lev Kamenev:Mitch McConnell: Exactly so. You are asking us to give you a blank check bourgeois freedom to the masses and force the burden onto the backs of the American people revolutionary consciousness. I tell you nationalization private markets are a betrayal in principle and in practice to superior State planning we already had in place under Alan Greespan War Communism.

We are in a crisis, no doubt. And we should act. But nationalization unfettered class retreat is not what is called for.

Grigory Zinoviev: Jim Bunning: When I picked up the morning paper, I thought for a minute we were living in America, not Moscow. I see that socialism capitalism is thriving here in the heart of the free market world revolution. The whole point of capitalism a dictatorship of the proletariat is to allow markets to function. Force individuals take responsibilities for their own actions. Especially if other people they don’t know (who are our friends) screw them crush all opposition to building socialism.

Lev Kamenev: Mitch McConnell: In the end, we are all Americans Party Members and we adhere to the rule of putting the American people first Party solidarity and ending factionalism. My friends Comrades, we must join together and act.

Chuck Schumer: Chuck Schumer: This is a somber moment.

Fine, who’s going to pay for it? We’re still skeptical the U.S. can sucker punch them yet again for a cash infusion. Particularly now since the Warlord’s tenure puts an exclamation point on “The Unipolar Power Has No Clothes” across all measures of influence, perceptions of power and status (even Scalia is not entertaining abroad).

International observers from Frankfurt to Tokyo observe that the U.S. on its own no longer can afford to pay for projects of this scale. Not anymore. Not without outside help.

Curmudgeon in the comments here noted a good point — T-bills paradoxically are more attractive now with the collapse of commercial paper. And at least verbiage from the Bank of Japan today confirms that they are holding so much in U.S. assets that they too are *in the short term* compelled to intervene and lend actual dollars. If Tokyo is in this position, one can only imagine the conversations in Beijing. Where the skepticism comes is after the short term measures are taken.

Whatever entity the Paulson Posse ™ creates (New Thing) will have to dispose of staggeringly huge, assumed toxic instruments or eat them. We remain in agreement with sentiments in Frankfurt and elsewhere that at this point, the U.S. simply no longer is in a position to do so on its own. Optimistic structural concepts for New Thing are thinking about tapping ‘only’ $250 billion in private money (which is unlikely if it couldn’t or wouldn’t save AIG or Lehman) or foreign sovereign funds. If only it were ‘only’.

We’re amused (in a sardonic way) to see how the campaigns flail about on this issue. McCain’s flip flops are already the stuff of immediate talking head legend. So too to see the Left rapturously pointing to the Boy King’s tete-a-tete avec Larry Summers, Bob Rubin and others who led the charge in the late 1990s to repeal the Depression Era’s Glass Steagall Act. As you know, dear reader, had the law remained intact, with its provision to separate banks, investment banks, etc. much of this cross-sector mutual pull down would not be happening. Observant commentators also note “Mr. Andrea Mitchell’s” finger prints, too. (Love that moniker).

Still, it’s nice to see that the Chairman of the Senate Banking Committee is taking notice:

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

‘Somber’. They used to say the most dangerous place in Washington, D.C. was between Chuck Schumer and a microphone. Thank goodness Dodd heeded Dan Rather’s old sign off and showed ‘courage’ to step into that very harrowing gap.

And for your amusement, herewith a pen given to the Stiftung by the General Counsel of a major AIG component company — after we signed a joint venture agreement. (Assisted by a famous lawyer known to everyone from his White House Monica Lewinsky days).

It’s actually much nicer than a Bic. Not sure how many $85 billion will save. Maybe we will see if we can make a piece of toast with the AIG logo. And add the pen, too, for eBay . . .

It’s a frightening thing to contemplate without illusion; the U.S. will indeed see change. Yet many cling to the pretense that we are still masters of the change.

Poll swings aside here or there, this is what we get:

Mr Obama released a two-minute advert - four times the length of most campaign commercials - in which he set out his plans to deal with the financial crisis. He pledged to “give a $1,000 tax break to the middle class… end the ‘anything goes’ culture on Wall Street with real regulation… free [America] from our dependence on Mid-East oil in 10 years… crack down on lobbyists… and… bring a responsible end to this war in Iraq so we stop spending billions each month rebuilding their country when we should be rebuilding ours”.

Mr McCain, in his campaign ad, vowed to “reform Wall Street and fix Washington”, stressing that he had “taken on tougher guys than this before”.

That’s it. Taking on tough guys. Wiring Bud Fox to trap Gordon Gecko. Or the Boy King’s ‘Come Home, America’ — except he and those around him such as Zbig et al. know that an Iraq wind down will still take years and financial commitments will remain regardless. Like the ephemeral and ultimately worthless derivatives and leveraged debt, so to our ‘leaders’.

Paulson and Bernanke at least understand the interlocking systemic dynamics while attempting even a controlled crash landing of an orderly market clearing solution. As we all know, essentially the Fed and Treasury are seizing direct control of the ‘commanding heights’ of the U.S. money economy. Still, one should not panic. Nancy Pelosi is sending Barney Frank on a ‘fact finding mission’.

What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen — paper losses measured in the trillions of dollars. Corporate wealth. Oil wealth. Real estate wealth. Bank wealth. Private equity wealth. Hedge fund wealth. Pension wealth. It’s a painful reminder that, when you strip away all the complexity and trappings from the magnificent new global infrastructure, finance is still a confidence game — and once the confidence goes, there’s no telling when the selling will stop.

But more than psychology is involved here. What is really going on, at the most fundamental level, is that the United States is in the process of being forced by its foreign creditors to begin living within its means.

That last sentence is the crux. The Warlord’s reign demonstrated the thin veneer of liberal democracy. We all know the Movement’s radicalism. What remains untapped is the radical energy and potential of the politically disinterested ‘consumer class’. Today fear and unease over poorly understood, complex and technical financial instruments impose a sense of shock and dismay. Empty bromides from both candidates in an odd way help maintain the quiescence. That likely will soon give way to deep, unfocused anger and resentment.

When does ‘change’ segue into something more? When does it cross the line into a more profound political morphology? This door we believe now is at least unlocked. Still shut. What it will take to open it and when is more unknown than the September market trajectory.

The American financial model is over. Moreover, we are no longer masters in our own house. When that brutal and unforgiving reality sinks in culturally, politically and personally, then what?