What if?

Evan Thomas in the Newsweek Cover Story: "What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?"

I think the Obama/Geithner plan for finance is thoroughly wrong-headed, but I remain cautiously optimistic that what we are witnessing is the necessary and painful adjustment of the political process.

One task is preparing the ground for radical reform. The reactionary power must be reduced, or neutralized. And, the progressive power, which is still weak as a new-born babe, must be built up. The secular, rational, moderate Right is, mostly, new to the Democratic Coalition. The Democratic Left, chastened by the horror that was 8 years of Bush, has stifled itself, in the interests of achieving partisan power, power that is in the hands of the Centrists -- and some of the key Centrists in Congress are Republicans and Blue Dog Democrats complicit in the malfeasance of the last decade. Almost by definition of their political outlook, the Centrists can not conceived of radical or genuinely principled action -- they have no idea what to do; split the baby and the bath water is their notion.

Obama is going wrong on the bank bailout. But, the country may be going right, in its own way, and may well get there first. (Congress just voted for a 90% income tax rate!)

It will take some time, and political experience and manuvering, before progressives are ready to take leadership away from centrists. There's a generational change still underway in the Congress. Ted Kennedy and Robert Byrd aren't even dead, yet. The Media is still adjusting to the power shift. Conventional wisdom is out of breath, trying to keep up with all the policy changes flying out of the White House.

Evan Thomas doesn't outline the true, nightmare scenario, which is that Obama manages to patch things together for a brief respite and return to the status quo ante, before it all collapses again (in time for Obama to lose the 2012 election to Mitt Romney and Mike Huckebee!).

The revolution in our political affairs did not end with the 2008 election. It is still evolving rapidly. There is much bloody destruction ahead. Don't forget to duck!

Additional note: Felix Salmon reads the Newsweek article and notices that neither author, Evan Thomas nor editor, Jon Meacham, seemed able to find anyone to praise Krugman, and concludes:

". . . they're fearful that Krugman might be right, and have therefore come up with a list of reasons why it might be reasonable to ignore him.

And this, at heart, is why I think we haven't yet seen the worst of this crisis, neither in terms of the financial markets nor of the broader economy. There's still a sense of denial in the air -- a feeling that if you're going to devote an entire cover story to someone like Krugman, then the story should bend over backwards to showcase people saying that he's wrong, while it need make no such effort to quote anybody saying that he's right.

Or, to put it another way, the question posed by the article isn't whether Krugman is right or wrong -- it's whether he's worth listening to or not. And the answer posed by the article is 'we fear he might be, but we hope he isn't'. The problem -- which the article doesn't mention -- is that the history of this economic crisis to date is a history of fear being right and hope being wrong."

Hope may be audacious as all get out, but it still makes a lousy plan.

Another additional note:

Media Matters - Krugman and Newsweek:

"During the Bush years, Krugman, from his same perch on the pages of Times' opinion pages, waged about as vocal a campaign as humanly possible to warn readers and the country about what he considered to be the perilous policy decisions the Bush administration was embracing, and what the disastrous results for America would be.

Looking back on the Bush years, Krugman's track record was rather impeccable. But you'll note he didn't appear on the cover of Newsweek back then. (No 'Bush is Wrong' cover lines.) And for years Krugman only occasionally appeared on the pundit talk shows. He wasn't referenced much inside The Village, either. Meaning, the Beltway press pros didn't seem to care what Krugman wrote about Bush and didn't think his writing--his opposition--needed to be examined closer. He was just a liberal critic, so who cared what he wrote about Bush. (That's my take on how much of the press viewed Krugman.)

"But now a Democrat is in the Oval Office, Krugman is still hitting the president from the left, and suddenly the Beltway press thinks Krugman's work is fascinating and newsworthy. Trust us, it is. (For years he's been our pick as the country's premier columnist.) We just think everyone would have been better off if the press had paid this much attention to Krugman's work between, say, 2002 and 2006.

Frightful Kindle

Josh Marshall of Talking Points Memo has an epiphany about the possibility that paper books may be soon receding into oblivion.

I had the same epiphany a few months ago, after I saw video of the Plastic Logic ebook. A step-up in charm and usability from the Amazon Kindle, it might be just enough to trigger an avalanche.

A lot will depend on just how successful Plastic Logic -- or one of their rivals I don't know about -- are in producing the seductive charm of the iPhone. And, even more will depend on their success in organizing the world to support it. But, Amazon and Kindle are pioneering the path, and what a path!

It is a huge change, and, though its shape may still surprise, what may shock more than anything else, is just how rapidly it takes hold. The diffusion of ebooks will come with great suddenness, I think -- expanding from the niche penetration of a rare novelty to ubiquity in less time, even, than the cellphone.

In terms of finding a business model that will finance the development of a fantastic device, early adopters willing to pay a premium are the holy grail. College students are a ready market for even an expensive model, if any savings at all can be had in the cost of distributing books, and therefore the price of textbooks. Just the economy of not carrying a 30 lb. backpack is worth something! That's a huge, and price-tolerant early adopter market.

The other, potential obstacle would be the willingness or ability of publishers to make content available. But, mostly, that's taken care of. Every new book is published from electonic form and stored in electronic form. And, vast libraries of out-of-copyright and out-of-print books have already been scanned into electronic form. Thank you, pdf.

And, of course, the internet is already established as a distribution channel.

All the elements are in place for very rapid diffusion.

Crisis As An Opportunity

Moon of Alabma sights catastrophe capitalism: "The right wingers are using the crisis for an attack on the few basic social programs the U.S. has. They of course never admit that these programs were created in the first place to attenuate the effects of such crises. They also have nothing to offer to replace these programs but deep poverty and early death for all people more poor then themselves."

No Justice, No Peace

Steve Randy Waldman muses darkly:

"I am filled with despair, not because what we are doing cannot 'work', but because it is too unjust. This is not my country.

The news of today is the Geithner plan. I think this plan might work very well in terms of repairing bank balance sheets.

Of course the whole notion of repairing bank balance sheet is a lie and misdirection. The balance sheets we should want to see repaired are household balance sheets. Banks have failed us profoundly. We want them reorganized, not repaired. A world in which the banks are all fixed but households are still broken is worse than what we have right now. Too-big-to-fail banks restored to health are too-big-to-fail banks restored to power. The idea that fixing legacy banks is prerequisite to fixing the broad economy is a lie perpetrated by legacy bankers."

I agree with this analysis almost entirely.

It is wrong for policy to focus on the banks instead of households. We have long needed a policy, which would resolve the situations of individual households, through various kinds of restructuring, and expedited foreclosure. The way to clear away the "toxic assets" is not to hold them to maturity -- which is equivalent to keeping millions of Americans with over-sized mortgage debt hanging fire unable to accumulate saving for up to a decade -- it is to clear and rationalize that debt. And, if reducing that debt to match the actual, trend value of houses and the cash flow available to households, breaks the banks, then we should restructure banking as necessary.

If the Treasury wants to spend $700 billion, the right thing to do would be to pad out the pathetic stimulus, with new projects to restructure the economy. Ever heard of "global warming"? "Peak oil"? Our economy is structured wrongly, for a future that is barrelling down upon us. We face an emergency, and, if people would just recognize it, this economic crisis is an opportunity to respond to it.

But, instead, the Bourbon Democrats are in charge.

Change we can believe in?


CNBC quotes Joe Stiglitz on the Geithner plan: " 'Quite frankly, this amounts to robbery of the American people.' Even if the plan clears banks of massive toxic debt, worries about the economic outlook mean banks could still be unwilling to make fresh loans, while the prospect of a higher tax burden to pay for various government stimulus plans could further undermine U.S. consumers, he said."

One would have to be a criminal

commenter at Naked Capitalism:

"It's just a scheme to transfer losses from the bank to the taxpayer with an egregious payout to a middleman (SAC) to effectively money launder the transaction. . . .

How did fraud and money laundering become the national economic policy of the US?

One would have to be a criminal to participate in this."

We are so screwed

The overarching theme of this blog is:
1.) Bad policy has predictably bad consequences;
2.) Politics is about the drama, not about rational calculation and planning;
3.) Therefore, Bad Policy results in Political Storms, during which the People kinda sorta wake up to malfeasance as they experience the consequences and witness a moral fable acted out on the political stage.

The case of AIG and the bonuses illustrates the concepts quite well. The substance of the Bush-Paulson-Bernanke policy, which resulted in a no-fault takeover of AIG and the funnelling of $180 billion in government money to big banks, is not being called into question. The drama is about one-tenth of one percent of the big bucks, delivered to individuals in the form of bonuses.

The drama is what really matters. It has a relationship to policy, but it is a tenuous, almost mystical relationship of "meaning", not a relation of function or substance. The drama is more about revealing attitudes and stewardship, among the powerful elite. The point of the fable is always the moral.

Now Mr. Geithner prepares to deliver his bank plan. The same basic stupidity and dishonesty is on display. And, the economists and liberal pundits -- who we trust to assess the functional substance of the plan -- are spewing dramatic summaries.

Neither the reviews nor the plot summary is pretty.

Paul Krugman - NYTimes.com:

"Treasury has decided that what we have is nothing but a confidence problem, which it proposes to cure by creating massive moral hazard.

This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work.

What an awful mess."

Dean Baker | The American Prospect:

"The failure of people like Ben Bernanke and Timothy Geithner to recognize the $8 trillion housing bubble led to this crisis. It appears as though they somehow still don't understand it. . . . their continued failure to understand the housing market could cost taxpayers trillions of dollars and further damage the economy."

Yves Smith:

"If this isn't Newspeak, I don't know what is. Since when is someone who puts 3% of total funds and gets 20% of the equity a 'partner'? . . .
"And notice the utter dishonesty: a competitive bidding process will protect taxpayers. Huh? A competitive bidding process will elicit a higher price which is BAD for taxpayers!

Dear God, the Administration really thinks the public is full of idiots. But there are so many components to the program, and a lot of moving parts in each, they no doubt expect everyone's eyes to glaze over."

Ezra Klein | The American Prospect:

"It's probably a bad sign that the administration leaked the details of their full banking plan in a Friday night newsdump. And reading it, you can see why. . . . Most expected that the harsh reaction to the skeletal structure Geithner originally unveiled would force substantial changes. That doesn't seem to have happened. . . . This public-private strategy is far more complicated than either the toxic assets strategy or full nationalization. If it goes forward, we're going to see a situation in which the taxpayer is the counterparty to an investment they don't understand and won't really have agreed to. If it goes bad -- and it really might go bad, and the details might prove galling in much the way that AIG's bonuses did -- the byzantine approach could well leave voters feeling tricked. That risk might make sense if this were the only viable path forward. But it's actually hard to imagine the set of questions you ask that ends in this particular answer."

John Cole of Balloon Juice sums up:

"If this were a medical emergency, it appears it would look something like this:

The Illness- reckless and irresponsible betting led to huge losses
The Diagnosis- Insufficient gambling.
The Cure- a Trillion dollar stack of chips provided by the house.
The Prognosis- We are so screwed.

If these guys are right, this will be the undoing of the Obama administration. Better enjoy this four years, libs."

Matt Taibbi : Rolling Stone: "It's over — we're officially, royally fucked."

Atrios of Eschaton with a shorter John Cole: "We are so screwed."

Causes Of A Great Inflation: Tunneling For Resurrection

Simon Johnson:

"[As Bernanke sees the world], there is only one course of action remaining: print money and hope for a moderate degree of inflation. The money part was, of course, the announcement yesterday from the Fed.

The inflation part is a leap of faith. If inflation is driven by the so-called “output gap,” i.e., how far the US economy is below potential output, then prices will not increase much, the yield curve steepens moderately, and banks make out like bandits (it’s just an expression).

But if the whole world is moving more into an emerging market-type situation then (a) inflation expectations become deanchored (central bank jargon for “really scary”), (b) potential output falls as we massively deleverage, and (b) people move increasingly into alternative assets - storable commodities spring to mind - and we get some serious inflation.

If oil prices jump, then we have an even bigger inflation problem. Oil is not storable, supposedly. But if you can explain to me exactly why oil prices rose as they did during the first part of 2008, despite the slowing global economy, I might be greatly reassured that we are not heading immediately into a runaway inflation spiral."

Keep Your Eye on the Ball: Interesting Times: Online Only: The New Yorker

Keep Your Eye on the Ball: Interesting Times: Online Only: The New Yorker: ". . . conservatives, whatever the merits of their arguments, understand how much is at stake in these early months: in a few words, the new President’s ability to use government to improve our collective lives. More generally—and here’s a phrase Obama will never use—the chance for a new liberal era. Whatever his current popularity, I’d say the odds for success are no better than even. Facts—the economy—could erode Obama’s support. The Democratic Congress could flyspeck the opportunity into a million pieces. The tide of populism, currently directed at banks and executives, could change direction and swamp the Administration. And the conservative reaction, while offering nothing resembling a viable alternative, could undermine the always-fragile will of the public to put their faith in government."

The wilful determination of conservatives to recognize no responsibility of their own for destroying the country's economy and military and political standing in the world can be obnoxious and silly, or it can be a dangerous harbinger of what is to come.

Why Washington Worries | Print Article | Newsweek.com

Why Washington Worries | Print Article | Newsweek.com: "The problem with American foreign policy goes beyond George Bush. It includes a Washington establishment that has gotten comfortable with the exercise of American hegemony and treats compromise as treason and negotiations as appeasement. Other countries can have no legitimate interests of their own—Russian demands are by definition unacceptable. The only way to deal with countries is by issuing a series of maximalist demands. This is not foreign policy; it's imperial policy. And it isn't likely to work in today's world."

Asked and Answered

Online NewsHour | February 13, 2009 | PBS:

PAUL SOLMAN: Of all the cultures you've studied that have tried to deal with severe economic dislocations, what's the marker of resiliency?

JARED DIAMOND: It seems to me that one of the predictors of a happy versus an unhappy outcome has to do with the role of the elite or the decision-makers or the politicians or the rich people within the society.

If the society is structured so that the decision-makers themselves suffer from the consequences of their decisions, then they're motivated to make decisions that are good for the whole society, whereas if the decision-makers can make decisions that insulate themselves from the rest of society, then they're likely to make decisions that are bad for the rest of society.

Worse and Worse

Matthew Yglesias » Does Congress Want to Tackle America’s Problems?: ". . . they just want to keep letting our problems get worse and worse indefinitely, but they don’t have the guts to admit it."

Journalism: There isn't any.

Eschaton: "So we're at the point that a comedian has to take a break from fart sounds and funny faces to dish out some journalism. Because otherwise, there isn't any? Journalism, that is."

Stress Test Zombies: Not Too Big To Fail? Tough Tootsies Little Banks! | The Big Picture

Echo: "Nothing useful was produced, purchasing power was just taken from the middle class, and given to financial sector employees via a complicated monetization of leveraged gambling."

Pretty much. But, let's not forget globalization and global plutocracy.

Chris Whalen at The Big Picture: "The Bernanke/Geithner approach to not dealing with the financial crisis amounts to a hideous public subsidy of the global transactional class, a transfer of wealth from American taxpayers to the institutional investors who hold the bonds and derivative obligations tied to the zombie banks, AIG and the GSEs. All of these companies will require continuing cash subsidies if they are not resolved in bankruptcy."

Every time I see hedge fund manager, Larry Summers, I cannot help, but think he's fat. He's really fat.

The monster

The monster: "This is deflation."

The Long Way Round to narrative analysis

[this post is under construction, and subject to major revision -- I've posted what is a preliminary draft and will keep changing it]

SS, in a comment, asks, "Do you think that the wealthy classes have a conscious policy of trying to turn the U.S. into an oligarchy or . . . "

I am wondering what it would mean for a social class to have a "conscious policy".

An individual might have a conscious policy, because an individual can be presumed to have consciousness; and a large, bureaucratic organization can have a policy -- explicit, written, unwritten, formal, informal and many other things, but not "conscious", because bureaucracies don't have consciousness, but they do have committees, to deliberately make rules, and managers to make sure the rules are followed.

I used to worry a lot about making a distinction between "policy" and "strategy". The two terms are often used as synonyms, especially in social science theory. A policy, generally, refers to a conditional rule, or set of rules, governing behavior, that is, a rule that says in case A, do X; in case B, do Y, and in case C, do Z. Game theorists define a "strategy" such a set of such conditional rules, which creates the confusion, I guess. A "strategy", though, is not a set of rules, per se, but, rather, a purposeful rationale for choosing rules of behavior, based on an awareness of, and anticipation of, how others will behave in rivalrous and competitive circumstances, and how the behavior of others will combine with one's own behavior to generate outcomes. In business, "We will meet any advertised price!" is a policy; it is adopted as a strategy for dealing with cut-price rivals, on the presumption that it will make advertising low prices less effective as a competitive strategy for rivals.

In my usage, a "strategy" encompasses both an outcome goal, and awareness that the outcome is a joint-product of action with and against rivals and opponents. It speaks of an awareness that the behavior of others will be a calculated response and strategic gambit, as well. "Policy", in my usage, is just a rule governing behavior. You can follow a policy, without knowing what goal or goals are intended. Simple rules can give rise to surprisingly complex behaviors, and there are good reasons to believe that policies (rules of behavior) might be subject a kind of Darwinian evolution -- successful rules surviving. Ants, presumably, behave in accord with some fairly simple rules, and build, incorporating the arch; but, ants don't have architects to design their arches -- they don't have conscious strategies or plans -- they don't have big enough brains for that.

SS says, "policy", but asks about a particular goal, "oligarchy". But, SS has an alternative: ". . . or perhaps they are unconsciously acting out of class interests while justifying their actions to themselves as being something else?"

Ah, a conscious goal ("oligarchy") or unconscious pursuit cum rationalization. Hmmm.

The problem, here, isn't just figuring out what conservatism is about, it is finding a comprehensive way, in general, of talking about the composition, programs and achievements of broad social movements. If I talk as if conservatives are relentlessly pursuing a particular, albeit abstract goal(s) or "class interest", it is not my assertion that will be criticized, but its compact as-if form. I will be accused of saying there is, say, "a Vast Right-wing Conspiracy" to do X or Y. It is not that I don't think there is "a conspiracy" per se, but I agree with my putative critic that there is a whole lot less, and more, going on.

The primitives of politics include elements of individual and group psychology, which are a lot like the instincts that drive ants to certain patterns of behavior and collective achievement. Worldview, attitudes, social group identity (economic class, race, religion, subculture, etc), as well as perceived (conscious) self-interest and shared-interest, are in play. And, politics doesn't stay primitive; money circulates to create organizations and institutions -- some people specialize in politics, as politicians, pundits, political operatives, lobbyists, etc.

Broad, dichotomous terms -- conservative-progressive, liberal-authoritarian, moderate-radical -- suggest that politics starts as conflict along the spectrums of human ambivalence expressed as attitude and worldview, and many classifications just extend the basic Right-Left spectral distinction: reactionary, traditionalist, socialist, libertarian. But, politics is ultimately about power and policy, government and governing -- about organizing society, economy and the world, with rules and law, resource allocation, force and organized violence.



Philip Agre asks and answers:

Q: What is conservatism?
A: Conservatism is the domination of society by an aristocracy.
Q: What is wrong with conservatism?
A: Conservatism is incompatible with democracy, prosperity, and civilization in general. It is a destructive system of inequality and prejudice that is founded on deception and has no place in the modern world.

Greenspan and the Myth of the True Believer | Naomi Klein:

"the true purpose of the entire literature of trickle-down theory is to liberate entrepreneurs to pursue their narrowest advantage while claiming global altruistic motives--not so much an economic philosophy as an elaborate, retroactive rationale.

What Greenspan teaches us is that trickle-down isn't really an ideology after all. It's more like the friend we call after some embarrassing excess so that they will tell us, 'Don't beat yourself up: You deserve it.'"

Populist Monarchs and Subjects | OurFuture.org: "Modern conservatism's most successful strategy was to merge public relations and politics into a seamless operation in which it could use modern marketing methods to convince people to vote against their own interests."

To be revisited.

Exhausted by the Deathhead Squad . . . I hope

roger, a commenter on Economist's View expresses one, hopeful hypothesis about the current crisis of inaction by Obama:

"McCain, Obama or X would all begin with the assumption that the task is, as Duy has said about Bernanke, to sorta nurse the market until we get back to 2007 or 6 or 5. This is the delusion of the entire elite. What I like about Obama is that he does listen, and will eventually, I think, understand that the elite are simply wrong, self-dealers who desperately want not to lose their power and money, and are losing it anyway.

Who knows? Perhaps that is too scary a prospect for Obama. But I am really not scared of the right, at the moment. They offer nothing except a faster slide downhill. Eventually, they will offer an easy foreign enemy. At that point, maybe they will cause some brief psycho surge of support, but I think the country is exhausted with the deathhead squad."

Politics, they say, is the art of the possible, and, of course, every journey proceeds step-by-step.

In my hopeful moments, I'd like to think that Obama is the sort of person, who learns from experience. He's certainly advertising that sort of adaptability. And, roger may be right that the "elite" share a common delusion motivated by self-interest, which delusion I do not share, partly because I am an intelligent realist, and even more, because I am poor already.

In my less hopeful moments, I think the "elite" are not deluded at all, but simply looking for political leverage to "cram down" as much of the loss in wealth and income on the 90% as possible -- just continue the process, underway since Reagan, of dispossessing the middle class and oppressing the poor. Steal Social Security in a paroxysm of "fiscal responsibility" and generally reconstruct the financial system on a foundation of debt peonage, the better to squeeze as much as possible out of a passive and hopeless mass. The Republicans do seem to me to be determined to self-destruct -- but, they have also prepared the ground for fascism -- for governing as extreme authoritarians, unconstrained by law or decency. Any opening Obama gives them, by failing in re-constructing the economy, banking, foreign policy, the legal process -- just about everything, which has been corrupted and broken by 25 years of Republican malfeasance -- any opening is an opening for the fascism that Rush Limbaugh et alia proposes.

So, it is very scary to watch Obama flail around on the banking crisis. In one way, it does prepare the ground politically, for more radical solutions, because people, every day are educated to the full gravity of the situation, and the need for radical solutions. But, if Obama doesn't at some point, pretty soon, start proposing radical solutions -- and he doesn't appear to have the kind of economic advisers, who would have the sense to propose and execute radical solutions -- then the Republican's radical solution -- fascist authoritarianism -- will start to seem plausible to a lot of people, frustrated with the impotence of rationalism and realism.

Confusion helps the powerful

Simon Johnson forecasts the next storm:

Emerging market crises are marked by an increase in tunneling - i.e., borderline legal/illegal smuggling of value out of businesses. As time horizons become shorter, employees have less incentive to protect shareholder value and are more inclined to help out friends or prepare a soft exit for themselves.

Boris Fyodorov, the late Russian Minister of Finance who struggled for many years against corruption and the abuse of authority, could be blunt. Confusion helps the powerful, he argued. When there are complicated government bailout schemes, multiple exchange rates, or high inflation, it is very hard to keep track of market prices and to protect the value of firms. The result, if taken to an extreme, is looting: the collapse of banks, industrial firms, and other entities because the insiders take the money (or other valuables) and run.

This is the prospect now faced by the United States.

Treasury has made it clear that they will proceed with a “mix-and-match” strategy, as advertized. And people close to the Administration tell me things along the lines of ”it will be messy” and “there is no alternative.” The people involved are convinced - and hold this almost as an unshakeable ideology - that this is the only way to bring private capital into banks.

This attempt to protect shareholders and insiders in large banks is misguided. Not only have these shareholders already been almost completely wiped out by the actions and inactions of the executives and boards in these banks (why haven’t these boards resigned?), but the government’s policy is creating toxic financial institutions that no one wants to touch either with equity investments or - increasingly - further credit.

Policy confusion is rampant. Did the government effectively sort-of nationalize Citigroup last Thursday when it said Vikram Pandit will stay on as CEO? If that wasn’t a nationalization moment (i.e., an assertion that the government is now the dominant shareholder), what legal authority does the Treasury have to decide who is and is not running a private company?

Will debtholders be forced to take losses and, if so, how much and for whom? As part of last week’s Citigroup deal, preferred shareholders - whose claims had debt-like characteristics - were pressed into converting to common stock. You may or may not like forced debt-for-equity swaps, but be aware of what the prospect of these will do to the credit market. Junior subordinated Citigroup debt (securities underlying enhanced trust preferred shares) were yesterday yielding 26%.

Who can explain exactly how AIG has lost so much money? Drip-drip injections of government money are not a proper clean-up; there has been no complete recognition of losses and, almost six months later, that company still cannot move on. Time horizons presumably remain short or are getting shorter for all involved. This points to a bleak future more generally.

What do rapidly widening credit default spreads for nonbank financial entities (such as GE Capital and many insurance companies) signify? Is it something about expected behavior by the insiders or by government, or by some combination of both?

Confusion in policy breeds disorder in companies, and disorder leads to the loss of value. This is the reality of severe crises wherever they unfold; we have not yet reached the worst moment. And, of course, there are many more shocks heading our way - mostly from Europe, but also potentially from Asia.

The course of policy is set. For at least the next 18 months, we know what to expect on the banking front. Now Treasury is committed, the leadership in this area will not deviate from a pro-insider policy for large banks; they are not interested in alternative approaches (I’ve asked). The result will be further destruction of the private credit system and more recourse to relatively nontransparent actions by the Federal Reserve, with all the risks that entails.

The road to economic hell is paved with good intentions and bad banks.

It burns!

Failing the test - Paul Krugman Blog - NYTimes.com: "The sickening feeling of drift — the sense that policymakers are refusing to face hard facts, and are dithering while the world economy burns — just keeps getting stronger."

Your Vast Right Wing Conspiracy at Work

One of the more annoying tropes of political argument is to deny an assertion, by asserting that it is predicated on a "conspiracy theory". The recognition that politics is driven by purposeful mass movements, with considerable organzation, is suppressed and denied by the charge that recognizing political and Media reality would involve us all in counting shots on the grassy knoll. It was a charge made famous in the right-wing and Media attacks on Hillary Clinton, for her reference to the role of the Vast Right Wing Conspiracy in promoting the so-called Whitewater scandal.

Barry Ritholtz at Big Picture passes on what Playboy magazine is charging about Rick Santelli and his "tea party" rant:

“How did a minor-league TV figure, whose contract with CNBC is due this summer, get so quickly launched into a nationwide rightwing blog sensation? Why were there so many sites and organizations online and live within minutes or hours after his rant, leading to a nationwide protest just a week after his rant?

What hasn’t been reported until now is evidence linking Santelli’s “tea party” rant with some very familiar names in the Republican rightwing machine, from PR operatives who specialize in imitation-grassroots PR campaigns (called “astroturfing”) to bigwig politicians and notorious billionaire funders. As veteran Russia reporters, both of us spent years watching the Kremlin use fake grassroots movements to influence and control the political landscape. To us, the uncanny speed and direction the movement took and the players involved in promoting it had a strangely forced quality to it. If it seemed scripted, that’s because it was.

What we discovered is that Santelli’s “rant” was not at all spontaneous as his alleged fans claim, but rather it was a carefully-planned trigger for the anti-Obama campaign. In PR terms, his February 19th call for a “Chicago Tea Party” was the launch event of a carefully organized and sophisticated PR campaign, one in which Santelli served as a frontman, using the CNBC airwaves for publicity, for the some of the craziest and sleaziest rightwing oligarch clans this country has ever produced. Namely, the Koch family, the multibilllionaire owners of the largest private corporation in America, and funders of scores of rightwing thinktanks and advocacy groups, from the Cato Institute and Reason Magazine to FreedomWorks. The scion of the Koch family, Fred Koch, was a co-founder of the notorious extremist-rightwing John Birch Society.” . . .

“Within hours of Santelli’s rant, a website called ChicagoTeaParty.com sprang to life. Essentially inactive until that day, it now featured a YouTube video of Santelli’s “tea party” rant and billed itself as the official home of the Chicago Tea Party. The domain was registered in August, 2008 by Zack Christenson, a dweeby Twitter Republican and producer for a popular Chicago rightwing radio host Milt Rosenberg—a familiar name to Obama campaign people. Last August, Rosenberg, who looks like Martin Short’s Irving Cohen character, caused an outcry when he interviewed Stanley Kurtz, the conservative writer who first “exposed” a personal link between Obama and former Weather Undergound leader Bill Ayers. As a result of Rosenberg’s radio interview, the Ayers story was given a major push through the Republican media echo chamber, culminating in Sarah Palin’s accusation that Obama was “palling around with terrorists.” That Rosenberg’s producer owns the “chicagoteaparty.com” site is already weird—but what’s even stranger is that he first bought the domain last August, right around the time of Rosenburg’s launch of the “Obama is a terrorist” campaign. It’s as if they held this “Chicago tea party” campaign in reserve, like a sleeper-site. Which is exactly what it was.

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This is pretty serious stuff, and like Ritholtz, I don't know if it is true in all its details. I do know that the news Media functions as the false front of a Hollywood set for a lot of Public Relations, that most of what we see on cable news and read in a newspaper or magazine was originally written or staged or "suggested" by PR professionals, on behalf of a corporate client. Even a fair amount of video footage is produced by PR pros, and not by the cable news and tv stations presenting it as their own product. This aspect of how our world works is completely neglected by the news Media, in the interest of preserving the illusion, which it has become their job to maintain.

Rather than being the exception, "conspiracy" in this sense, is the rule.

Update: Here's a link to the original source of the reportBackstabber: Is Rick Santelli High On Koch? - The Playboy Blog