Friday: Cassandras and Luddites

Cassandra harshes the Trojan's mellow

PUMAs are the latest incarnation of Cassandra.  We have been since May 31, 2008 when the way in which the Democratic party achieved “unity” was to not count more than half of their own party members who did not vote for their pre-chosen candidate.  It was done in such a blatantly obvious way that there was no other way to interpret it other than that a giant fraud had been perpetrated on the primary voters.  Only in America in 2008 was it possible for a voter in Idaho to completely invalidate the voter in NJ.

We said nothing good ever grows from a bad seed.  It hasn’t even been 100 days since  Obama took office that he has proven himself to be the most inexperienced, Republican asskissing, shmoozer who ever found something uniquely charming about the unitary executive theory.  And now he is taking the economy to the brink of disaster and gently pushing it over with the help of the well-heeled shoes of Tim Geithner and Larry Summers because, heaven forbid we impose any limits on the finance industry or cause their shareholders to lose sleep over their investments.

Indeed, it is possible that their actions are making matters worse.  I just have to say here that it’s one thing if you have never seen anything like the situation you face before.  You can perhaps be forgiven for initially trying stupid things and making iterative corrections.  That’s the nature of scientific inquiry and it’s perfectly acceptable to make mistakes in a lab as long as you wear your goggles against blinding shards of glass that result when your experiment blows up.  It’s quite another thing to have witnessed other people make similar mistakes and then decide that repeating their actions makes sense.  “Oooo, Robert Mugabe brought Zimbawbwe to its knees with rampant corruption and idiotic policies in just a decade.  Cool!  Let ME try it!  How does this oligarchy thingy work?”

Simon Johnson at Baseline Scenario tells us how propping up insolvent banks is making failure more likely and avoiding the glass spewing explosion more difficult:

The latest credit default spreads data for the largest banks show a speculative run underway.  As the system stabilizes, it becomes more plausible that a single big bank will fail or be rescued in a way that involves large losses for creditors.  This would like trigger further speculative attacks on other banks, much as the shorting of countries’ obligations spread from Thailand to Indonesia/Malaysia and then to Korea in fall 1997.

The government’s own policies are facilitating these attacks, because as the Fed and Treasury make progress towards easing credit conditions, this makes it easier and cheaper for large hedge funds and others to take large short positions.  And keep in mind the underlying loss of confidence is self-fulfilling: as you lose confidence, you want to go short, and selling the credit causes further loss of confidence – and banks are forced out of business.

The government’s entirely reasonable and long overdue request for a resolution authority will set up runs on that authority.  If the authority is not granted, the runs will be on the government’s low and failing ability to save banks – given that the trust of Congress has been lost and no more cash for bailouts is likely forthcoming (presumably until there are large further shock waves or until Goldman Sachs itself is on the line.)

The continuing pressure on banks has nothing to do with populism and everything to do with the internal contradictions of the house of cards they built.  Now they will scramble to limit short selling or find other emergency measures that will protect their credit.  Such partial fixes would do nothing to stop the underlying deterioration of their credit; think about how countries facing currency attacks throw up futile defenses, try to change the rules, and squander their reserves on the way down.

Sounds pretty bad, doesn’t it?  Not really surprising though when you think about who helped Obama get elected in the first place.  But if you object, if you predict catastrophe based on research and try to persuade people to avoid it, you are a Luddite, or merely a woman, like Brooksley Born, whose opinions are intrinsically less worthy than a man’s.   I swear there is a book to be written about women who were dismissed or ignored by the likes of Larry Summers, Tim Geithner, Robert Rubin and Alan Greenspan.  Sexism may have cost this country a decade or more in growth and millions of people their retirements.   Think about all the women who tried to prevent catastrophe in the past but were roundly ignored: “Ummm, I wouldn’t let that big wooden horse in the gates if I were you.”  “There’s a suspicious character hanging around a flight school in Minnesota.”  “If I were president, I might get out in front of the mortgage foreclosures so that the money keeps flowing to the banks.”  (God, what a loss)  “Unregulated derivatives and ‘swaps’ are a really bad idea that will allow out of control gambling with our nation’s finances.”

Ahhhh, what does *she* know?  But I digress.

The problem remains that the people who have the power to fix the problem are the ones who do not listen to the ones who see the future.  They stand in the way and guard the establishment’s old machinery that exists because they profit from it.

They have a lot of nerve calling us Luddites.

********************

Podcast of the Day: Wisconsin Public Radio has a new podcast called To The Best of Our Knowledge.  Very progressive.  The latest episode is on Depression Stories.  It’s not as grim as you think.  The first segment is a conversation with a Quaker author Parker Palmer, who has a unique take on depression.  He says it’s nature’s way of telling you that you’ve hit bottom and there’s nowhere to go but up.  The other segments feature, Depression stories, thrift and a brief biography Frances Perkins, who along with Harold Ickes Sr. was one of the visionaries of The New Deal.  They finish up with a Woodie Guthrie song called Madonna on the Curb.  Highly recommended.  You won’t feel alone in this Depression.

---

Digg and SHARE this!