Thursday, September 25, 2008

I'm not that fond of heights

It is increasingly clear that we truly are poised at the brink of a monumental financial collapse.

The strength of the language being used by all parties tells us the truth is finally being revealed, that we are at the nexus of a perfect storm of negative economic forces:
  • The end of the era of easy, inexpensive petroleum due to massive oil field production collapses around the world, the impact of which on prices has been compounded by exploding growth in global demand and the uncertainty in the market generated by the Iraq war.
  • The collapse of the pyramid scheme of subprime mortgages that began in 2006.
  • The subsequent collapse of the home building industry with its tremendous demands for economy-fueling labor, raw materials and the vast collection of finished goods needed to fill them all up.
  • The wave of collapsing investment banks that ended this week with the dissolution of the "investment banking concept", which was a 75 year experiment in dodging the scrutiny, oversight and regulation that is delivered to regular deposit-accepting banks.
  • Most importantly of all, a trillion dollar debt that was raised to finance the Iraq war - the first time in history that an American war (let alone two) was not at least partially paid for with an increase in taxes. Now the value of the once mighty dollar has literally sunk to zero on the global market; today the value of a one month Treasury bond actually dipped below zero before returning to 0.5%.
And there is the crux of the thing. The country is officially bankrupt if that treasury rate finally settles on zero and stays there. Once that happens no other country will loan us the money that is currently allowing the nation to continue to function.

At the center of this storm is the $700 billion proposal from Treasury Secretary Hank Paulson, which was a naked attempt to hang the entire bill for this massive bailout on the American people, with no restrictions of any kind. I was STUNNED, absolutely STUNNED to learn that the first proposal delivered by Paulson includes this language:

“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

The incredible balls of the man to even put that forward! It sounds a lot like what Naomi Klein calls:
"the shock doctrine”: using the public’s disorientation following massive collective shocks – wars, terrorist attacks, or natural disasters -- to achieve control by imposing economic shock therapy.

Hank Paulson, of course, had a 22 year career at banking giant Goldman Sachs that ended with his nomination to the current position of Treasury Secretary in 2006*. Interestingly, Goldman Sachs is one of the two giant investment banks that was left standing after the wave of collapses over the last two weeks, a fact that would be rewarded by investing giant Warren Buffet with a $5 billion influx of cash this week, perhaps to help them celebrate their transition into the world of deposit-accepting banks along with a much tattered Merill Lynch.

The whole experience would be a win-win for Paulson and his many friends in the investment banking industry, having made all that money while constructing that giant pyramid of subprime mortgages, and then again through an unregulated, unscrutinized taxpayer bailout after the balloon finally popped.

Undoubtedly he got the idea to bleed the taxpayers from Vice President Cheney, whose previous employer - Halliburton - has enjoyed record growth in the course of implementing the war plans first written when Cheney was Sec. Defense for George H. W. Bush. Or perhaps he was inspired by W. himself, an oilman whose friends back home have realized all time record high profits since W. took office.

Three cheers for the big brass balls of Hank Paulson! Its good to know his first thought was on protecting his personal net worth of between $500 and $700 million. Perhaps he will agree to fund a few soup kitchens if the rest of us go down the drain.

Senator Obama is demanding that any bailout include these four features:

1. The plan must include protections to ensure that taxpayer dollars are not used to further reward the bad behavior of irresponsible CEOs on Wall Street. This plan cannot be a welfare program for Wall Street executives.

2. Second, the power to spend $700 billion of taxpayer money cannot be left to the discretion of one man, no matter who he is or which party he is from.

3. If taxpayers are being asked to underwrite hundreds of billions of dollars to solve this crisis, they must be treated like investors. The American people should share in the upside as Wall Street recovers. And after the economy recovers, we should institute a financial stability fee on the entire financial services industry to repay any losses to the American people and make sure we are never asked again to foot the bill for Wall Street's mistakes. We can ask taxpayers to make an investment in the stability of our economy, but we cannot ask them to hand their money over to Wall Street without some expectation of being made whole.

4. The final plan must provide help to families who are struggling to stay in their homes.

For his part, McCain is seeking to flee the scheduled debate, incomprehensibly throwing away his opportunity to stand up and tell the nation what he plans to do to lead us from this catastrophe. Either McCain or Obama is going to be running the country in roughly three months. We, the American People, have a right to know what McCain plans to do about all this.

It is possible that has caught whatever ailment is afflicting Sarah Palin, whose exposure to real questions from the press or the public has still been limited to practically none at all. We have had eight years of continuous stonewalling from the Bush Administration. Can we expect anything else from a McCain/Palin administration that had already raised their force fields 39 days from the election?

* A little known piece of trivia - immediately prior to joining Goldman Sachs in 1974, Paulson worked in the Nixon administration as John Ehrlichman's assistant. He lost this position when Ehrlichman was forced to resign by the Senate Watergate Committee, the first step toward a road that took Ehrlichman on to an 18 month stay at Safford Federal Correctional Institution for convictions in conspiracy, obstruction of justice and perjury.

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