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?
Over To You, Beijing, Riyadh, Kuwait And UAE (Updated)
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 . . .
Job No. 1 — Juxtapose
New York Crisis reveals real center of American power.
Interesting, no – even as juxtaposition. Although, like Shanghai, we too have always felt NYC was far more important to Amerikuh than the city built on a swamp. So when the City faces a full blown crisis, we take it seriously. U.S. strength despite the Military and History Channels’ (sometimes remarkably inaccurate) porn always has been our economic resources: today in tatters. What makes this case even more problematic than Bear Stearns is the government’s role in encouraging activities through the implicit non-guarantee guarantee.
We’re comforted tonight. The Man Child Who Will Bring Change agrees that “there is little doubt” the country is in a recession. How Clinton-esque, the parsing, so that the Crowned One can always fall back on the technical definitions of how many quarters of negative growth overall are required. Perhaps like re Iraq he can hold a second press conference. This time, big signs, a nice speech and a good grin won’t change “facts on the ground.” Or overcome mental whining.
No one can use the dreaded “b” word — bail out — yet, but it is exactly what is happening Monday, congressional approval a formality. After all, what are 435 members of a castrated Duma supposed to do when Reality drops its cloak and pulls its dagger? Midnight Rambler, indeed.
Don’t you feel like bystanders watching another slo mo accident? Is the American political system even capable anymore of strategic thought? Beyond lurching from crisis to crisis? Beyond tax cuts to this decimal place for this demographic. Beyond just energy. We can’t blame Neocons for our failure (and it is ours, collectively); Rumsfeld didn’t screw this up.
Easy for academics (including Bernanke) to criticize roundly the Japanese handling of their post 1989 bubble economy. Papers published, tenure locked in. Yet what exactly is learned? And its practical application?
Almost non-existent regulation of both Fannie Mae and Freddie Mac? Check. Almost non-existent regulation of derivatives and roll back of Wall Street ‘Chinese Walls’ between banking and investment banking? Check. Agit Prop from Movement types bleating to repeal the odious tedium of requiring exalted CEOs to sign declarations that they actually have read and understand company financials offered to the markets? Check. We even put eunuchs in at the SEC (Chris Cox) — and have no doubt, a Democrat Congress is as complicit now along with the Warlord’s feeble end.
The Prophet should not take all the skepticism. McCain is worse. We’ve only met Phil Gramm personally in his office a couple of times on the Hill. To us he is as out there as you guess. So we never did and never will take him personally seriously (in the Senate he was, however, a real “Force” by virtue of his mere presence and vote). We did find his wife intellectually interesting the few times we crossed paths. McCain’s problems go deeper. Did anyone else watch Carly Fiorina, Mcain’s other ‘economic advisor’ twitch on today’s moribund Press The Meat? How uncomfortable to watch someone alternate between stand up and pathos. (Someone needs to whisper in Carly’s ear that to express interest in the Veepship on national TV is a death knell). To all of them, we say “Well here is what you’re going to eat on Monday, Dearest Virginia”:
US taxpayers are about to find out what their long-standing and (strictly speaking) non-existent guarantee of Fannie Mae and Freddie Mac will cost them. One way to think of it is this: take the US national debt of roughly $9,000bn and add $5,000bn. Not bad for an obligation still officially denied.
In the end, that astounding prospect might be the outcome. Partial or outright nationalisation of the housing lenders – colossal pseudo-private entities that own and underwrite US housing loans – would add some or all of their $5,000bn (€3,144bn, £2,513bn) in liabilities to the government’s balance sheet. While it is true that the agencies (unlike the government) own housing-related assets that roughly match those liabilities, the still-collapsing housing market makes this a lot less reassuring than one could wish.
In some cosmic Jungian juxtapose, for 10 days next month we will see China proclaim her place on the global multimedia stage. Symbolism beyond mortal planning. True, Beijing is their Moscow to the Russian/Soviet Leningrad (see supra ). Also true that air there makes Los Angeles Aspen. But in the end, does it matter? What speaks louder today? LA smog or China’s staggering liquidity? The future is made real in their architecture, physical infrastructure and deft geopolitical expansion. Oh, and cash. By contrast, forget our crumbling infrastructure. We can’t even create a single building after 7 years (if you know what we mean).
What do the American crisis, Chinese Olympics and American analytical entrepreneurs have in common? Those still peddling Neocon conspiracies against Iran barely cling to an Israeli exercise and Photoshop. They should think about all of the above and take off their blinkers. A war with Iran? One must ask that famous question, paraphrased — “yeah you and whose finances [army]?” First, the U.S. military; it is no shape to wage war against Iran. Not going to happen. Absent a near term cataclysmic event. Beyond generational burnout of hardware in Iraq and personnel replenishment, the imminent procurement crisis still creeps up. Juggling those amazing costs, a new American president must then still manage an economy edging precariously close to a whirlpool. From that spring all national power flows. A tanking economy, two failing wars abroad *and* launch a third against Iran? Analytical shots of absinthe until the eyes bleed. But it makes good copy.
Imagine this scenario. The U.S. domestic situation somehow sua sponte “stabilizes”. We still won’t go to war against Iran. We can’t afford another unilateral expeditionary activity as they like to say. (We may not realize it yet, but it is true). Perhaps by 2015 — as the Marines wargamed — per earlier posts. Things may change human and real capital wise. But in the meantime? We are paper tigers to revive a Maoist slogan. At best we slink in as lowly mercenaries, fighting on another’s dime (Euro). The bottom of the barrel? Be like the Brits after 1940, fighting on charity. And who exactly has their wallets open?
We do concede one recent error. We thought human capital requirements would force major American troop drawdowns from Iraq around April-May. Recent announcements of larger returns to CONUS this Fall while late were inevitable. Even so, the idea that large portions of American troops simply will move to Afghanistan misses the point. Leaked studies estimating a drawdown to about 50,000 in Iraq makes sense for an initial — and only initial — bureaucratic ante. Iran? Puhlease.
Still, no reason for the Summertime Blues. Unlike some others we don’t have to take dog off the menu. Even our creditors are pre-occupied — building the future is not a stroll in the park, doncha know. How interesting in the background to watch breakthroughs as a EU Middle Eastern summit unfolds.
Strike a pose. There’s nothing to it. Juxtapose.