John Galt is a Fuckin' Idiot

Alan Greenspan ought to be in prison.

It's the end of the world as we know it, and I feel fine.

The title of this post was penned by Michael Stipe of REM and I have always wondered if it was in reference to the end of the Soviet Empire. Today we could be watching the dissolution of the American Empire and I find the possibility of it's demise raises my spirits.

This article by Aziz Huq at TomDispatch makes many good points about how the military disasters of Iraq & Afghanistan combined with the current financial melt down may spell if the end of the American Empire if the next President does not handle the situation correctly.

We must chose how we will retreat from our hegemonic military position around the globe. And the consequences of our choice will be drastic. Will we do it on our terms in a gradual orderly way and thereby retain some influence in the world, or will our international creditors pull the plug on our financial system thereby making our nation's debt servitude plain to all? Unless our economy, and it's manufacturing capability rebound soon, the choice of maintaining our current hegemony is not a possibility.

Aziz points to the Suez canal and it's effect on Britain's role as the leader of the free world.

As was true in the Britain of those years, so today, even as the U.S. position in the world undergoes a radical diminishment, the extent to which this is being grasped by a policy making establishment in Washington unused to dealing with uncertainty remains unclear.

In foreign policy terms, the overextended nature of British imperial power only struck home in 1956, nine years after the world war ended. That was the moment when British Prime Minister Anthony Eden fundamentally miscalculated British power in response to Egyptian President Abdul Nasser's nationalization of the Suez Canal Company. With the French and Israelis at his back, Eden reckoned that Nasser was overreaching and saw an opportunity to undermine the Egyptian regime in an area where British power had long been dominant.

Eden reckoned, however, without a newly dominant United States. American President Dwight D. Eisenhower, angry at being cut out of Middle Eastern affairs, threatened Eden. He would, he indicated, "pull the plug" on the British pound by withdrawing American fiscal support for the recovering British economy. The country's monetary weakness led directly to its military collapse in the crisis. The Suez fiasco not only destroyed Eden's prime ministership, it also marked the end of British imperial ambitions.

I believe we have reached the same position. Without the world's financial credit we cannot maintain our imperial military. As much as I would like to live out my days in material comfort. I have to say, the internationalist in me believes that for the sake of the world, the end of the American Empire cannot come soon enough.

Indeed it may be the end of the world as we know it, and I feel fine.

Bush Socialism

Krugman cheers the new Bush Socialism, and tips his hat to Chris Dodd and Gordon Brown.

I'm bettin' Krugman's got a "WTF" sequel comin' -- BushCo has never ever done anything right.

Moreover, I am pretty sure they are set on loading up all the silver and gold (that is left after 8 years) on their wagon train as they de-camp Washington.

Probably a little Italian influence...

Should our banks be nationalized?

This article by a conservative editor (Wolfgang Munchau) of a conservative European newspaper (Financial Times) is worth a quick read.

Some excepts from the article:

The US administration’s TARP proposal is a case in point. It has lambasted by almost every economist, including those who normally disagree with each other on most things. Buying up toxic securities at above market prices is simultaneously the most expensive and unfairest way to recapitalize the banking system. It is very difficult to believe that the US treasury secretary can possibly be driven by a motive other than a wish to benefit the investment banks he once chaired, and which stands gain handsomely from such a package, and which would never dream of accepting any government capital infusions. The only alternative explanation for his behavior is immense stupidity – and I know that he is not a stupid man.

We have learned from those mistakes, but are committing new and possibly bigger ones. Government is our one and only safety net. It could, if it wanted to, provide basic financial services, that could easily fulfill three economic functions that are attributed to finance: to provide liquidity, to share risk, and to allow agents in the economy to make inter-temporal choices. .... The way to go is to shrink the financial system and nationalize the systemically important financial institutions. I have heard there are about 45-50 in the euro area though this is not a precise guess, and subject to change over time. After the financial sector is stabilized, it is time to rebuilt the system, to allow the government later re-privatize its assets, ideally subject to different incentive structures than those that have led to this crisis. In theory, governments could even make money on it. I doubt it. But at the very least, governments can minimize losses.

But if you squander valuable resources on second-rate institutions such as Hypo Real Estate, for the wrong reasons, your freedom of maneuver will be constrained at the moment you need it the most, ...

These three quotes highlight what is wrong with our government's response to date and propose what a better solution would look like. The first points out the TARP program can only be pursued for personal greed and not to address the problem. The second states that nationalizing the financial system is possible and could address the problem. And the third points out that if we waste all our resources buying worthless paper, whether they are toxic assets from banks or unsecured commercial paper, we will lack the resources to effectively deal with a full scale collapse of our economy. For instance, the FDIC protects our deposits by assisting large banks in buying failing smaller banks. What do they do if our largest bank, Bank of America, begins to fail?

Nationalizing the banks while we still can may be our best option. But I have not heard any of our politicians talking about this. We need to make them aware that this is an option and they need to consider it.

Wall Street