Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the bailout funds, told the Senate Banking Committee on Thursday that Treasury in 2008 paid $254 billion and received assets worth about $176 billion.This is bad, but what's worse is that the bad banks plan will probably repeat the mistake.
A lot of people hoped Obama would be a super-star coming right in, and there'd be quick, correct, decisive action that would produce real results. Unfortunately the reality is that there's a learning curve—a collective learning curve that involves shifting the political-economic paradigm in the United States step by step, out of necessity. You can think of it as a Bildungsroman with your retirement, livelihood, and, uhhh, food and water supply playing a supporting role.
The question right now is, how long until nationalization? Roubini, as quoted on Calculated Risk, says:
So, the current strategy – Plan A - may not work and the Plan B (or better Plan N for nationalization) may end up the way to go later this year. Wasting another 6-12 months to do the right thing may be a mistake but the political constrains facing the new administration – and the remaining small probability that the current strategy may by some miracle or luck work – suggest that Plan A should be first exhausted before there is a move to Plan N. Wasting another 6-12 months may risk turning a U-shaped recession into an L-shaped near depression but currently Plan N is not yet politically feasible.This basically fits with my understanding of what's going on right now. There are political barriers right now—barriers reinforced by the "culture" in America—but necessity is going to remove them. And very shortly.
ETA: Roubini and Taleb discuss the crisis:
I think what Roubini and Taleb are saying represents the next "stage" in the development of the mainstream's attitude toward the crisis. It's the logical continuation of the outrage at the mismanagement and greed, coupled with the inability of the current managers of finance capital to do their jobs. There's a general feeling that we need to move away from the debt-centered economy to something more "robust", and Taleb reflects that attitude here. Of course it's going to turn out that "robust" means moving toward a system the sole focus of which is not the valorization of value but rather the delivery of the means of subsistence to people in general. That may seem modest, but it will in fact require a massive overhaul—a revolution—of the current way we organize and carry out the production of our lives.
Great post, apparently we can’t do html mark ups in the comments section, or I just don’t know what I am doing—either is possible. So, I added some links at the end to articles referenced.
ReplyDeleteThe issue of bank nationalization, I think, should be thought through within the framework of augenblick's post on class struggle within the Obama administration. Nationalization would represent the defeat of financial capital's power in the U.S. (by some estimates the financial sector makes up 40% of US GDP). The financial sector has become a huge drain on the overall economy. This is a debt crisis in the financial sector that financial capital wants to share with all other social classes. Now that McCain has been defeated and the reactionary classes he represents are in disarray it is time to declare financial capital the main enemy for the next phase of struggle. Nationalization will be their defeat.
Since this is a debt crisis, what Marx calls fictitious capital . is at its heart. In short, there are too many claims on existing and future wealth. There are more claims on wealth than there is wealth. So some of these claims are fictitious and will never been realized. On Monday the Financial Times made this point in an editorial
“the new administration must change the game…it must offer a politically acceptable way of sharing the losses…” Odd, for the newspaper of international finance capital and undaunted champion of the free market to suddenly declare the state must intervene in the market to redistribute the poverty of the financial sector to the rest of us. But that is the plan. The resolution to this crisis requires the de-valorization of capital, or, in other words, the destruction of fake (paper) wealth. But whose wealth will be destroyed in this process is the political question. Geithner and the treasury department as augenblick pointed out yesterday, in the preceding post, are defending the wealth of his buddies, or at least their power by avoiding nationalization and maintaining a private financial sector – saving financial capital from the financial capitalists.
Geithner a few weeks ago accused China of currency manipulation. What he did in effect is demand that China stop saving dollars and start spending them. If China dumped dollars it would devalue the dollar which would also devalue debt—it would devalue the papers claims on wealth and redistribute the losses throughout the world (to everyone holding U.S. debt). Geithner’s plan seems to be to inflate his way out of the crisis. The Treasury department plans on issuing more debt which if it can’t sell the Federal reserve has already agreed to buy (in other words the Fed will print money—backed by nothing—to buy U.S. government bonds) – that will also cause inflation. Inflation one way (China dumps dollars which would revalue their cuurency in relation to the dollar), or another .—the fed prints money.
Gererally speaking, inflation hurts creditors and helps debtors by devaluing the debt. The dollars that the debt is paid back with are less valuable (because inflated) then the dollars in which the debt was originally issued. So this is not the worse scenario for working and middle classes but it is much less than we could achieve with struggle.
A debtors union accomplishes the same goals as inflation, except that it does not redistribute the losses of the financial sector – it would bury the financial sector under its losses and force bank nationalization (which will happen, as Roubini says, if inflating out the crisis fails). A debtors union would also call into question the basic property relations of the system… unfortunately we ar not yet organized enough to reject capital’s solutions. If inflation fails, in other words if the current plan fails, more opportunities will open up.
Fictitious Capital: http://en.wikipedia.org/wiki/Fictitious_capital
FT editorial http://www.ft.com/cms/s/0/048062cc-f612-11dd-a9ed-0000779fd2ac.html
Geithner on China:
http://www.ft.com/cms/s/0/32388bec-e8f0-11dd-a4d0-0000779fd2ac.html
How do you get to look at so many articles on FT? Do you have a pay subscription?
ReplyDeleteMy prediction is that what Obama sees right now as cultural resistance to nationalization is going to be overcome by necessity very shortly. Right now the spectrum kind of looks like this:
Nationalization (Krugman) - [More control over the banks (Axelrod) - Setting up bad banks, no close look at the actual assets (Geithner's plan)] - TARP
The content in brackets represent what's in the "center" right now, though the position put forward by Axelrod is still kind of marginal right now. I'm betting in less than twelve months, that bracket will shift one step over to the left to where there will be serious, above-board discussion (if not consideration) of nationalization of the worst banks.