September 15, 2008
Simplicity and directness would appear to be advisable, as we are all buried in a torrent of irrelevancies, self-justifications, explanations which explain nothing and serve only to confuse everyone (which is precisely their aim), and an unending stream of lies and half-truths. Perhaps it would be easier to think of it in the following terms, for vampire stories are very popular. The economy of the United States is disintegrating in the same way a vampire does when exposed to sunlight, and for the same reason. Having sucked the blood out of all the living creatures unfortunate enough to be nearby, the vampire becomes intoxicated with what he perceives as his own power. Heedless of the warnings screamed at him from the few sane voices that remain, the vampire frolics and gambols long past the appointed time for his return to the soil of reality, so drunk is he on the glory of his being. The sun has been slowly rising for quite a while. Anyone who is looking can see it. Anyone who knows the relevant facts is fully aware of what will happen when the sun's rays strike the vampire. But almost no one is looking at the sun, and anyone who states the relevant facts is ignored.
Finally and now inevitably, the sun strikes the vampire. Within minutes, the vampire no longer exists. This is not a surprise. This is what happens -- this is the only thing that happens -- in these circumstances, given the nature and characteristics of the sun and the vampire.
Here are a few simple principles to keep in mind. Given the propaganda spewed by the ruling class, all of which is eagerly gulped down by most Americans, I should rephrase that: here are a few simple principles to understand, perhaps for the first time.
One: You can't get something from nothing.
Didn't your parents teach you this when you were four or five? Did you forget it? Or perhaps you never actually believed it. After all, most people want to believe they will win the big lottery. Fools, that's what they are. If the description applies to you, put that shoe on, sister or brother.
The funny thing about capitalism is that you need capital to play. When the bank-vault is full of nothing but worthless mortgage-backed securities (MBS) and overvalued junk bonds; the whole thing goes belly-up fast. That appears to be the case with Lehman Bros, the century-old Wall Street warhorse that has joined the long procession of underwater banking establishments now hurtling towards the cliff. Lehman had a great go of it during the boom times when all it took to make oodles of money was a predictable flood of low interest credit from the Fed and a compliant ratings agency that would stamp every crappy securitized pool of mortgages with a big Triple A before hawking it to some gullible investor in Shanghai or Heidelberg.A major part (perhaps the major part) of the U.S. economy has treated debts as assets for a long time. The best and brightest made it appear sophisticated and smart: they took debts and securitized them, chopped them up, repackaged them, recombined them, splintered them some more, repackaged and sold those, and on and on it went. This process doesn't turn nothing into something: it spreads the nothing among more and more institutions and makes the entire system increasingly vulnerable. Everyone pretends that the nothing is backed by something, but it isn't. To be more precise, as in the case of Fannie and Freddie, for example, there is $1 of something for every $80 of nothing. In fact, there's much more nothing, when you add in the repackaging, recombining, splintering, selling and reselling. That's a lot of nothing, and almost no something.
Lehman travails are not much different from anyone else in the banking fraternity. The problem is that the entire system is under-capitalized and over-leveraged. When Bear Stearns went down last year, it was levered at a ratio of 26 to 1. When Hedgie Carlyle Capital blew up, it was levered at 32 to 1. And when Fannie and Freddie were finally taken over by the US Treasury; the two behemoths were levered at 80 to 1, which is to say that they had a one dollar capital cushion for every $80 they had loaned out.
This is how con games work. Your parents probably explained this to you, many years ago. You forgot, or you didn't believe it. Believe it now.
Two: You, the "ordinary" American, are the one who finally pays for all of this. You are the ultimate sucker.
My only criticism of Whitney's latest article is that he buries the most critical sentence in the middle of a longer explanation:
Keep in mind, the biggest source of American power is its access to cheap capital via the US taxpayer.Read that sentence again. Once more. Again. One more time.
You pay for all the depredations of empire: for the endless criminal wars of aggression abroad, and for the feast of the vampires here at home. It's your blood that kept them going all this time -- and it's your blood that will still keep them going. The ruling class rigged the game a century ago. Short of leaving the country or dropping out of the system altogether, you can't go somewhere else. There isn't anywhere else to go. The system is designed by and for the benefit of the ruling class, and for no one else.
Now look at that sentence in the context of the longer passage:
When the net foreign purchases of US financial assets begin to slow; the game is over. The Fed will be forced to raise interest rates to attract foreign capital which will put downward pressure on the economy and accelerate the housing crash. Paulson's decision to provide unlimited capital to Fannie and Freddie, will stack more and more debt atop the faltering dollar and US Treasuries. It is the equivalent of lashing the greenback to an anvil and tossing it overboard. Paulson's attempts to stave off a systemic banking crisis ensures that the federal government will undergo an unprecedented funding crisis sometime in the near future. There will be higher taxes for the battered middle class and higher interest rates for businesses and consumers. This will trigger a protracted economic slowdown and weaker growth. Credit will get tighter, banks will default, unemployment will soar and GDP will shrivel. A negative feedback loop will develop from the faltering financial system to the real economy; a vicious circle ending in massive layoffs, weakening demand, falling stock prices, and withering consumer confidence. Welcome to Soup kitchen USA.You've been conned, and the con is killing you and everyone you know. Whatcha gonna do about it? Not a damned thing, that's what.
Presently, Paulson and New York Fed chief Timothy Geithner are pressing Wall Street banking elites to pony-up enough money to buy up Lehman's devalued real estate assets. The Fed's proposal is similar to Greenspan's rescue of Long-Term Management LP (LTCM) which roiled financial markets in the late 1990s. Paulson has signaled that there be NO government bailout like Bear Stearns when the Fed bought up $29 billion in mortgage-related assets. The Fed is tapped out, having already committed half of its balance sheet -- nearly $500 billion -- in repos through its "auction facilities" which have recently skyrocketed to record highs of $19 billion per week for the last 3 weeks. The crisis is deepening by the day. Similarly, the Treasury has hitched its wagon to Fannie and Freddie which expands the National Debt by another $5.2 trillion and seriously undermines the "full faith and credit" of the US in the process. Keep in mind, the biggest source of American power is its access to cheap capital via the US taxpayer. Paulson has now put that source of revenue at risk by nationalizing the housing industry and burdening the taxpayer with (potentially) astronomical future obligations, even though he knows full-well that the market could drop another 15 to 20 per cent before the end of 2010. Paulson's recklessness has doomed the country to years of struggle
Three: As with every other crisis, the ruling class, which created the crisis in the first place, will tell us how to "solve" it.
As I wrote in, "Psst -- While You Were Gibbering, the Ruling Class Rigged the Game and Won Everything":
This election campaign will be especially awful for anyone still capable of the most minimal kind of rigorous thought, in significant part because we have the triple- or quadruple-twist of the Obama lies on top of all the lies that are regularly trotted out every four years (and on a lesser scale, every two). We are told about how "important" it is that we vote -- although for many of us (including me, since I live in California), our votes are altogether meaningless on the presidential level, to say nothing of newer voting methods, which make one wonder if all of this is nothing but a charade for idiots -- and we are told of the glories of "participatory democracy" and how splendiferous it is to hear "the people's voice."Those people who have followed the foreign policy catastrophes of recent years are repeatedly struck by this phenomenon: all the "experts" who are supposedly so knowledgeable in this area -- that is, all the "experts" who led us into the catastrophes and who were grievously, bloodily, murderously wrong about every significant matter -- remain entrenched in the foreign policy establishment. Moreover, they are precisely the people to whom everyone turns for the "solution" to the disasters that engulf us, both now and the disasters likely to come. This is what it means to have a ruling class. As I have said, the ruling class rules. The ruling class exercises a lethal monopoly on the terms of public debate, just as it exercises a lethal monopoly on the uses of state power.
These are the idiotically empty cliches and slogans of our civic religion, which serve to drug "the people" into apathy, into granting the ruling class still more power, into taking part in these vacuous exercises in "democracy," and into colluding in a massive coverup of the truth of what has transpired over more than a century and is now set in stone: this is government of the ruling class, by the ruling class, and for the ruling class. Barring severe economic collapse (more than possible), widespread global war (also more than possible), repeated natural catastrophes (similarly more than possible), it shall not perish from the earth -- until it implodes as the result of its own rot and corruption, as have all similar systems in the past. Assuming disasters on a massive scale don't occur, it's probably here for your lifetime at least.
This amalgamation of major business interests with state power, this system of oligopoly and governance of, by and for the ruling class, has metastasized beyond imagining since the Progressive era. It has expanded in every direction and subsumed virtually every industry and business in America, large and small. It is this system of "political capitalism" that dictates domestic and foreign policy, including a foreign policy of endless war, preparation for war, and various forms of "cleaning up" after war. You the ordinary citizen, you "the people," figure nowhere in this -- except to provide the necessary labor and, when required, your blood and your life.
[T]his "transformation of the American political narrative" was essentially completed during and immediately following the Progressive era, and then enshrined by the New Deal and World War II. We were fucked a very long time ago. What's tragic is that it is only now that a few more people are beginning to notice -- and even now, it is still only a very few additional people. These are truths that no politician will tell you, and that almost no commentators or bloggers will mention. Lies are what sustain you, lies are what you live on, lies are what you demand, and lies are what you'll get and all you'll get. If you keep this up, the lies without end will kill you, and a lot of other people as well.
What you have seen over the last six months and more, and what you will see in the coming months and years, is the same phenomenon in the realm of economic policy. All of the solons who led us into this abyss of mounting debt, worthless securities, failing financial institutions, economic contraction and collapse, rising taxation, and all the rest, will now instruct us as to how we should "solve" the crisis that they have created. The crisis may be ameliorated to a degree, and the worst of the consequences may be postponed for a while. But whatever "solutions" are implemented, whatever reorganization and reregulation is imposed, it will all be done in accordance with the ruling class's desires and goals. It will all be to protect their own wealth and power to whatever extent is possible, and to expand their wealth and power still more, if that remains at all feasible. And it probably will be feasible: your taxes can increase. They can increase a lot. You still have some blood that can be drained. And/or, if Obama is elected, you can look for his adoration of "voluntary" service to switch seamlessly to mandatory service very quickly, especially if the crisis deepens sufficiently. Almost no one will complain. Almost no one will remember the bloody history of those past regimes, of both left and right, that relied on mandatory national service.
The ruling class is the state. The state exists to serve the interests of the ruling class, and only the interests of the ruling class. They may promise you greater unemployment benefits, better health care, and a host of other government benefits -- all benefits also paid for by you, please note (the ruling class does have a sense of humor, after all; vampires are often crudely funny creatures) -- and those promises will cause most Americans to fall for the con still one more time.
Whatcha gonna do? Not a goddamned thing. Vote for McCain! Vote for Obama! It doesn't matter. The ruling class wins either way. The ruling class always wins. That's how the system was designed, and that's how it works. For the ruling class, it works very admirably.
Whatcha gonna do?
Laugh. Laugh a lot. Fuck the bastards.