Stop The Spirit of Zossen 2.0

To be a fly on the wall of this Saturday’s G20 meeting in Washington, D.C. on the global economic crisis. Germany declares an official recession. And between Thursday and Saturday morning, Hank Paulson may unveil three or four new course reversals.

WASHINGTON — The Treasury Department on Wednesday officially abandoned the original strategy behind its $700 billion effort to rescue the financial system, as administration officials acknowledged that banks and financial institutions were as unwilling as ever to lend to consumers.

But with a little more than two months left before President Bush leaves office, Treasury Secretary Henry M. Paulson Jr. is hoping to put in place a major new lending program that would be run by the Federal Reserve and aimed at unlocking the frozen consumer credit market.

The program, still in the planning stages, would for the first time use bailout funds specifically to help consumers instead of banks, savings and loans and Wall Street firms.

Treasury officials said they hoped to invest about $50 billion from the bailout fund into the new loan facility, with the aim of helping companies that issue credit cards, make student loans and finance car purchases.

On display for all is the continuing collective failure of the American governing classes (political and economic). The Treasury Department’s Inspector Generals’ verdict on the fundamental infrastructure to administer *any* portion of the troubled asset relief program (TARP)? “It’s a mess.”

Alas, the rest of the world is far ahead of the American people in recognizing the obvious truth. Americans are still besotted with self-generated mythos of competent State crisis stewardship. We know the short hand labels (’FDR’, ‘WWII’, ‘Moon Landing’). The Iraq fiasco tore the veil off the Republican partisan claim to national security competence. September 2008 clawed down past the veil into the fatty tissue of the decadent and corrupt face of the entire political class.

Much has changed since those times beyond ‘Acid, Abortion and Amnesty’, Fiddy Cent and OJ Simpson. The sheer complexity and paralytic opacity of the American political economy 2008 subverts managerial enthusiasm and accountability. We certainly believe the current generation as a whole is largely not up to the task before them particularly because they know nothing of sacrifice of the type and scale required. This is a Nation of consumers and arbitragers (lawyers, accountants, financiers, etc.). Even if they want to be like Big Russ or Brokaw’s Greatest Generation, they have no real life resources to draw upon. Instead, they must summon symbolic imagery and serialized fictions of reality from movies, tv shows and ‘historical book’ merchandizing efforts as yardsticks. And in this sense, while ‘The New Media’ surely offers unprecedented venues voices and silos to collect expertise or the like minded, the end result is more cacophony and less insight in the aggregate.

It would take a heart of stone not to be moved last night as the election results came in — regardless of preferred candidate. Real world spontaneous horn honking, the simple jump for joy on sidewalks, the beaming smiles in the Imperial City gave concrete manifestation to the synthetic, 1080P HiDef imagery that beamed out of Grant Park around the world.

Kyle Poole, 48, a financier, said he brought a flag because he felt “honored and proud.”

“I was once a Republican,” he said. “Then George Bush came to the White House and now I’m thrilled to be here with the flag.”

Inquire and Tblisi offer a realistic view of world post-celebration hang over. We share their caution. Domestically, Obama inherits almost incomprehensible wreckage, the financial catastrophe being merely the first among many examples. A tour de horizon overseas is perhaps even more sobering.

Obama would be wise to take a page from other self-made pop culture media constructs such as Bowie as Ziggy Stardust, Madonna (or even Nixon’s 1968 ‘the New Nixon’). He himself should ‘auto destruct’/deflate his saintly aura. His image served electoral politics well. As he transitions to granular government, we recommend he actively create himself a new post election ‘Obama’ personna and product. He himself rather than the media should rollout his own new guise. For we do believe an Obama Administration will, like the Warlords’, be one of Permanent Campaign.

As comments here noted in the earlier post, his speech at Grant Park did not soar in historical terms. Yet he did introduce elements of a new post larval being. Lingering euphoria through January 2009 aside, covertly pro-Obama Republicans and non-fringe Left/progressives would accept domestically competent management as palatable come down.

Pat Buchanan this morning offered his belief that the ‘Movement’ is in historic eclipse. He went so far as to claim the Nation is moving Center/Left. We are less sanguine for a long list of reasons (Father Meacham aside). The Movement now is no longer just an electoral entity — it suffuses the Executive and Judiciary from GS7s all the way up.

There are faint glimmers of hope that Obama is considering knife fighters who are capable of conducting critically necessary reviews and purges of the thoroughly infected government apparat. We’ve all discussed this together over the last year Dear Reader. Our sense remains, however, that Obama will in the end decline to pursue matters to their logical and political conclusion. Accommodation and ‘change’ may blur together sooner than many expect or hope.

October is the cruelest month of any election year, but by then the pain is so great that even the strong are like jelly and time has lost all meaning for anybody still involved in a political campaign. By that time, even candidates running unopposed have abandoned all of hope of victory and live only for the day when they will finally be free to seek vengeance on all those treacherous bastards who once passed themselves off as loyal friends and allies and swore they were only in it because they all shared the same hopes and dreams . . . .

October in the politics business is like drowning in scum or trying to hang on through the final hour of a bastinado punishment. . . . The flesh is dying and the heart is full of hate: the winners are subpoenaed by divorce lawyers and the losers hole up in cheap hotel rooms on the outskirts of town with a briefcase full of hypodermic needles and certain knowledge that the next time their names get in the newspapers will be when they are found dead and naked in a puddle of blood in the trunk of some stolen car in an abandoned parking lot.

Others are not so lucky and are doomed, like Harold Stassen, to wallow for the rest of their lives in the backwaters of local politics, cheap crooks, and relentless humiliating failures. By the time Halloween rolls around, most campaigns are bogged down in despair and paralyzed by a frantic mix of greed and desperation that comes with knowing that everything you have done or thought or worked for or believed in for the past two years was wrong and stupid.

There are never enough seats on the last train out of the station . . . .

Dr. Hunter S. Thompson, “Songs of the Doomed: More Notes On The Death Of The American Dream/Gonzo Papers Vol. 3″

I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said.

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.

“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well . . . This crisis, however, has turned out to be much broader than anything I could have imagined.

If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time,” Greenspan said. “Forecasting never gets to the point where it is 100 percent accurate.”

Meanwhile, while Mr. Andrea Mitchell ponders his navel, Alex Tabarrok, Tyler Cowen and the others over at Marginal Revolutions have a lively and interesting conversation about ‘The 4 Myths Of The Credit Crisis.’ Alex expressed skepticism about the stampede for a massive bailout from the beginning. Three economists from the research department of the Federal Reserve Bank of Minneapolis offered what they claim is empirical evidence that the ‘Wall Street Crisis’ never really threatened the ‘real economy.’ For a pithy take down of that report, here.

As far as the Stiftung knows, no one in the above exchanges has any ties to or experience with the plumbing industry.

Do you believe in omens? Back in the day, 1985 to be more precise, the Sovs were in political, social and economic crisis. A procession of decrepit old men tottered on the scene only to wheeze, cough and expire in rapid order, from Brezhnev, Andropov to the sublimely pathetic Chernenko.

So the scared old men gathered once again to select another Red Tsar. This time, Andrei Gromyko, Foreign Minister and like Mikhail Suslov, a connection to the ‘good old days’ of Stalinist ‘order and discipline’ nominated the objectively very young and inexperienced Mikhail Gorbachev. We know today much of what transpired at these Politburo sessions. Gromkyo told the gerontocracy ‘This man [Gorbachev] has teeth of steel !’. Six years later that man destroyed the Soviet Empire in a series of purposeful, accidental, random, intended and blind stumbling policies.

So today Joltin’ Joe promises us that of course the world sees what we do in the Boy King: a callow and inexperienced punk youth. But ala Gromyko, Joltin’ Joe tosses off blandishments — the Boy King has ‘a spine of steel’ doncha know.

Lord knows he showed it post Denver. It must take titanium vertebrae to be so passive in the face of unprecedented opportunity. Had the Fannie Mae/Freddie Mac/Lehman debacle waited until February 2009 frankly Sarah Palin’s odds of moving into the Old Naval Observatory would be pretty good. It’s actually astounding that it took a financial collapse psychologically akin to 1929 (if not objectively the same) to vault the Democrats into the lead.

As a thought experiment, let’s imagine the “Boy King With Backbone Of Steel” deigns to be carried by events into the Oval Office. Now let’s think about General Jello and the ‘Liberation of Paris’ euphoria over his endorsement within the so-called ‘Foreign Policy Establishment.’

Jello and the Benchpresser lost 2001-2004 for one primary reason they still don’t understand. They have no philosophy of their own other than pragmatism and ‘crisis management’ — think Graham Allison’s almost pornographic worship of the Kennedy Administration’s process during the Cuban Missile Crisis stretched into a bureaucratic, cultural and world view routine. Ad hoc pragmatism always in the end will be vulnerable to a coherent ideology or philosophy simply because one side has a clearly defined agenda, end game and the ability to tack to get there.

Zbig was on Morning Joe with his daughter discussing General Jello and an Obama Administration. (We’ve talked with him about his daughter before — his genuine love and pride at first seem to erupt incongruously from his otherwise carefully cultivated stoicism. So to honor the moment, let’s skip the usual and justified snark about *that* show).

We must with regret disagree with him on the Boy King. There is zero evidence to us that he is in fact ‘made of steel’. Nor is there any evidence that we can see of a coherent, overarching world view and philosophy. No one disputes the Boy King is bright. (So is Sarah Palin. Laurence O’Donnell was thunderstruck this morning after standing with Palin on the SNL stage. He said the entire show was stunned by how sharp she is (and how much more charismatic she is in person)).

In fact, let’s delve into Zbig’s own moment in the sun to see what lessons there might be for today. The Peanut Farmer was bright. He also was untutored on foreign affairs. Many thought they could be the consigliere behind the throne. The Peanut Farmer resisted a dauphin presidency and played the factions off each other. The policy and geopolitical ramifications were disastrous.

Within 4 short years the U.S. lurched from one policy to another. First the Peanut Farmer embraced Warnke and Vance’s attempted (and failed) appeasement of the Soviets. Anyone remember Warnke’s ‘Apes on a Treadmill’? Vance’s disarmament mission to Moscow in 1977 remains an epic flameout in diplomatic annals. The Sovs did not appreciate the ad hoc, the unpredictable and above all disdained weakness.

So as the Sovs moved into Ethiopia, etc. Zbig got to drop his Top 40 Hit, ‘detente was buried in the sands of Ogaden’ The Peanut Farmer waivered and tacked back towards Zbig’s more hard line views. The U.S. hosted the ‘chain smoking Communist dwarf’ (ala Pat Buchanan) Deng Tsaio Ping in 1978. We started other collaboration with China that is still not in the public record. The next year? The Peanut Farmer waivered again, watches Samoza fall and only later the U.S. frantically crawls to its own puppet entity, the Organization of American States, to try and belatedly contain the Sandanistas. Sophomoric confusion and ineptitude.

Should we go on? How about the Shah calling the Peanut Farmer asking Carter what he should do. When the Peanut Farmer hems and haws, the Shah blurts out “It’s your world Mr. President !” You know the rest. There’s no point in even rehashing the whole “I learned more in 3 days than in 3 years” when the Sovs went into Kabul.

So that’s what can happen when a very bright, in control but untutored president *presides* over competing agendas and philosophies. Pragmatism/ad hoc crisis management is in a way its own null philosophy. You didn’t have to be a wing nut in 1980 to have been convinced that another 4 years of the ‘bright’, ‘change-bringing’ Peanut Farmer would have left America on her knees.

Joltin’ Joe’s spinal diagnosis of the Boy King aside, we won’t be holding our breath. Among the many Imperial City truisms to keep in mind? ‘Personnel *is* policy’.

Stone’s new flick is surprisingly balanced, even sympathetic. Think an over long contemporary SNL skit, albeit with sharper writing. W here has pathos. He is often a passive reactor to events, especially those he himself sets in motion.

We’ll let you decide whether Stone made a ‘good’ movie. As a rule, we don’t care for most Stone movies. ‘Wall Street’ is perhaps the notable exception. The inevitable comparison to ‘W’ will be with Stone’s earlier ‘Nixon’. As Stone himself says and we agree, there really are no comparisons — he clearly did not feel constrained by boundaries of form when making ‘W’.

One reason? So much leaked in the last 2 years from this most secretive of regimes. The Warlord’s actions are accepted consensus truth. Impeachment now is a formalism. Global judgment already is both fact and truth. Second, in Stone’s telling, W’s tragic flaws are more forgivable. The man himself is so genially banal. Nixon by contrast possessed infinitely greater skills and correspondingly more dangerous *capacity* for darkness.

Stone’s movie provides enough characterization and factual detail for strong partisans of all viewpoints. We could imagine almost all emerging from a theater amused, ready to argue points over a beer or three. Why? Because in a strange and possibly unintended way, Stone exonerates W from culpabilities.

This shifts the key debate to who is the most venal in the Warlord’s retinue. The script sticks to actual quotes and facts even if composited from different meetings or places to maintain dramatic flow. Each historical character by necessity is a moving sketch. Stone continues the Left’s bizarre infatuation with General Jello Powell. Here, General Jello is given a wholly undeserved ‘presence’ and personal backbone. The Left’s school yard crush is beyond tiresome, it’s stale. Cher Condi is depicted with pitch perfect detail and historical accuracy. Even her amen chorus in the Imperial City will be deflated knowing that her efforts to airbrush away 2001-2005 will be for naught. Richard Dreyfuss as Cheney gives his most wickedly funny role in our opinion since ‘Moon Over Parador’. Finally we laughed out loud when our old acquaintance Steve Cambone gets a shout out.

The movie’s climax is understandably Iraq and the immediate fall out. Stone choreographs missing WMDs, David Kay’s resignation and bitter recriminations swirling around a puzzled and frustrated W. Inter-staff quips, snide comments and ducking of responsibilities are shown in historically accurate and entertaining detail. The Stiftung could not help but feel that with a few slight changes the same would portray Cheney’s machinations hiding DoJ’s opposition to surveillance and other Cheney/Addington initiatives.

The movie ends abruptly. When the lights came on, Rachel Maddow’s demographic clapped and hollered. We shared the general sense of thumbs up but left in a different place than the Maddow types. Our reaction on the fade out of Stone’s W the man surprised us. For him, we felt pity.

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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