Archives for March 2009
Kickin’ The Tires
The spectacle of Wall Street fifth columnist paper pushers in the Administration and a lawyer who’s never even represented a commercial enterprise deciding the fate of American manufacturing speaks for itself, as they say. Along with class condescension and utopian, nebulous green fantasies.
Detroit never really had a chance in the end. The game was and is rigged. ‘America’ as a political construct is a puppet to the remnants of the viral and bloated still financial ‘industry’ with its ‘products.’ Detroit must play by different rules. Even if they knew better, the Administration would still have torecognize another political reality — ‘Americans’ (and especially their so-called political elites) are not only economic illiterates but as we’ve all talked about here before, largely unproductive arbitrageurs.
To paraphrase Trotsky to Obama, ‘You may have no interest in running GM [insert litany of future famous brands soon to carreen into imminent failure here] but GM (or its shards) has an interest in running you.’ 60 days won’t matter much either way. The government will be running things via clumsy macht or the semi-covert technocratese of a bankruptcy proceeding. Here’s a test – when you’re with friends, see which topic sends them into a coma faster, bankruptcy details or probate. On the other hand, one really can’t be sure this crew won’t make things even more ruinous. Many of them were on the case and blew it re Bear Stearns, Lehman, AIG, Merrill, BofA, Citi, yada, yada, yada.
We happen to think the GM issue will be soon a Bear Stearns memory. Larger pot holes loom ahead. As usual, Naked Capitalism sums it up well — Wolfgang Munchau from the Financial Times is particularly gloomy about the global economy, even for him.
While I agree with his concern, that a contraction can slip into a vicious circle, focusing on recapitalization as the primary policy response is wrongheaded. The Swedish in their salvage operation not only took over dud banks and hived off the bad assets, but they restuctured those loans and sin [sic] some cases even extended more credit to borrowers. And bailouts to banks without banking reform is a bad idea (and I see the Geithner talk of new measures as window dressing to appease the public in the hopes of eliciting support for the inevitable next round of rescues).
G-20 will be a yawner. Obama is determined to try and re-inflate the American balloon to its artificial bubble consumption levels and the Germans don’t want to play. We can’t afford the game anyway and the Germans know it. We’re trying to think of when an American president had such a weak hand to play before. We might get some of those fridge magnets to guess the vapidity of the statement of principles. We can only pray some B roll footage of Obama and Michelle cruising through what used to be Londonistan will at least be visually diverting.
In the interim, we continue to muse on a much more pressing matter, something that came up in a conversation with a pundit and convulses the Germans to er, boot: poor Jennifer Anniston forced to break up with John Mayer because of his Twitter addiction. Or the lastest Steele-ism. It’s a toss up.
A Covert Wet Kiss For Wall Street
The Administration’s much ballyhooed ‘financial overhaul plan’ is remarkably timid. And internally self-contradictory.
As noted, for all the posturing, Geithner ran from SEC reform, executive compensation and insurance regulation. Sure, the ‘systemic risk’ approach touches large ‘too big to fail’ entities and requires registration by venture capital firms, private equity and hedge funds — although none of the latter are involved in our crisis. The hedge fund inclusion is a memory spasm from Long Term Capital. VCs and LBO firms are just camouflage to cover the inclusion of hedge funds.
A new regulatory regime is a political necessity, of course, if nothing more. Truth be told, many of the existing regulations and regulators and congressional oversight mandarins failed or were bought off. A new system will rise or fall on the same human failings.
What makes the Stiftung wonder if Geithner isn’t just throwing a deliberate air ball is credit default instruments almost routinely include a change of control clause as boilerplate. The credit default swap market is about $86 trillion. Is Geithner suggesting that federal seizure is a viability with cascading automatic defaults? We’ve yet to study the whole document in depth but so far call us underwhelmed.
Starting out with luke warm oat meal before negotiations is a sign of things to come. No wonder Wall Street is happy.
Oh, Newt, Newt.
GINGRICH: We are seeing the biggest power grab by politicians in American history. The idea that they would propose that the treasury could intervene and take over non-bank, non-financial system assets gives them the potential to basically create the equivalent of a dictatorship. […] Look, it absolutely moves it towards a political dictatorship.
Was Montesquieu Right? Did The Founders Fail?
It’s an old manipulative first year con law question, much like when Donald Sutherland in Animal House thinks he’s being risque asking if Milton’s “Paradise Lost” asserted being evil is more fun while Sutherland munches an apple. We dwell on it here after reading Cass Susstein’s item “The Enlarged Republic – Then and Now.”
For those of you who’ve followed Sunstein’s writings since the 1980s it’s familiar stuff. He delves into the history and context of the Federalist Papers as a means of arguing their relevance for our nation today. He starts off summarizing the project thusly:
Publius’s project was to reconceive republicanism—a body of thought with ancient origins in Aristotle and Cicero whose modern forms had been elaborated in different ways by Machiavelli, Rousseau, and Montesquieu. Emphasizing self-rule by the people, republicans insisted on the importance of civic virtue and generally believed that self-government works best in small, homogeneous republics. According to the argument of the Federalist Papers, however, such small republics tend to destroy themselves. The reason lay in the power of factions—well-organized private groups with passions or interests inconsistent with the good of the public as a whole. Publius believed that in a large republic, a heterogeneous public could counteract factional power and serve as a creative force, promoting circumspection and introducing safeguards against bias, error, confusion, and even oppression.
Sunstein gives us thumb nail sketches of the large republic/constitutional Federalist argument and the small republics/civic virtue notions of the antifederalist. And like Donald Sutherland, he cops out just by asking the question — always the safe career choice.
We all talked here together about demotic societies, their characteristics and consequences. Watching recent events this last month does little to change our diagnosis. Although in broad constitutional terms, the system’s infrastructure performed as designed — the House is deliberately the outlet for the passions of ‘the people’ (including ill-advised ones). The Senate is the cooling saucer and the President has veto.
If Obama intends to restore liberal democracy after the Warlord’s imperial criminality he must do more than repeal this or that or close some base, etc He must figure out a way for accountable deliberative government to function once more. Just item 206 on this GTD list.
Obama As One Who Comes Before, Just The Herald, The Mere Emissary Of A Revolutionary Moment?
‘A week’s a lifetime in . . . ‘ and all that. But since January 2009 Obama’s rhetorical excess, stolid, workmanlike management and an objective external environment fracturing in fractal splendor presage a pre-revolutionary moment. How fitting that with all the ambient moral depravity AIG is the potential catalyst.
Dear Reader you know our AIG schtick. We worked with the president of a major AIG component company (it is organized on the Chinese trading house model) and his General Counsel. We’d take the Shuttle up to LaGuardia with their lawyer (he represented the President and First Lady across cable TV a decade ago every day) after meeting with Cheney’s son-in-law (in turn, General Counsel at OMB (and a nice guy, actually)). In the City we’d all discuss how the House would do X, AIG would deliver the Chamber on Y, OVP would get Z, Greenberg would pocket billions and if pleased beyond that invite people to join him on his private golf course. That was Zeus deigning to take villagers to his Mons Olympus private spa with ‘happy finish.’
Blah, blah, blah. We’ve also written erratically here and at STSOZ 1.0 that Microsoft might be the most mendacious corporate culture we’ve dealt with at CXO/VP level. Or AIG. Or a certain defense contractor. It’s always among those three, though. Even after Grassley’s cri de coeur beseeching AIG executive seppuku we still think it’s a close call. Startling upon reflection to reach that conclusion to be candid.
So AIG and all that. But the tectonic movements that generate political explosions ripping apart the Old Order are actually understood in the traditional framework of American political science (i.e., not the current Borders/B. Daltons manifestation). There are clinically observable, distinct tectonic shifts that appear across modern revolutions up through 1917 and even 1989-1991: (a) dashed generational expectations; (b) shattered social contracts; (c) social, cultural and intellectual leadership malfeasance; (d) fiscal calamity; (e) manifestly incompetent government; and (f) a public bungling of state coercive power (military, judicial, etc.).
The WaPo tells us that L’Affaire AIG – gasp- ‘saps Obama’s (note still not demoted yet to Boy King) political capital. The horror! We also pay the WaPo to tell us that the anger in America is ‘populist’ (and thus down market).
Based on our thumbnail tectonic outline above stolen liberally from the more nuanced classic J. Davies When Men Revolt and Why (Free Press, 1971) the Stiftung discerns tectonic shifts, plates moving off inertia. Three are obvious – fiscal calamity, shattered social contract (Wall Street/consumerist American self image) and complete elite failure to articulate the moment — the real significance of Jon Stewart taking down CNBC et al. What remain in play are dashed expectations, government incompetence, and the penultimate step, a failed demonstration of State coercive power in any particular arena, judicial, paramilitary, etc.
Obama is what keeps these three in check for the moment. He will eventually lose on dashed expectations no matter what. Boomers, Millennials and the rest have not internalized the gap between their vacant life expectations and reality. Obama teeters on the incompetence issue. Geithner is merely a poster child for the meme, the stalking horse. Still could go either way but the Administration needs to act and be seen acting fast. Failed State coercive power is almost always the last domino so we can pick events on the horizon to watch.
Obama appeared on the scene in a way too early to allow revolutionary zeitgeist to form. We were on the cusp of it under the Warlord but Obama’s promise of competence and Change tamped it back. How tragic if he were to end up being the transitional figure, the Herald for the Next Act.
Readers here know our love for and commitment to liberal democracy. And also our long standing concern that its veneer is not as deep or durable as we may wish it to be. But just know this is the template or prism by which we watch the various meme wars of such and such day. And we are rooting definitely for the President and all of us to succeed.