Tuesday, March 24, 2009

As a Dog Returns to Its Vomit

On second thought, I decided that the above gag wasn't fair. The big bankers aren't laughing at Congress and the American people -- that would imply that they're aware of us at all. They know we exist, but only theoretically. But on third thought I realized I was wrong, even drawing a false antithesis. There is no reason why people can't both regard the mass of humanity as mere ants, to be casually squashed because they don't bother to notice we're there, and laugh derisively at our vain squirming under their heels. Logically it may be inconsistent, but psychologically it's all too easy.

Several bloggers have quoted this "conversation" at the Council on Foreign Relations with Secretary of the Treasury Timothy Geithner. Jon Schwarz at A Tiny Revolution focused on this exchange:
GEITHNER: Of course, we are all fiscal hawks now because of Pete Peterson. (Laughter.) There are no doves left on the fiscal side. (Laughter.)

ALTMAN: And he deserves credit for that.
Jon explains: "For those without a decoder ring, 'everyone' being a fiscal hawk means that due to the current financial disaster, they'll soon be coming after Social Security and Medicare". Not that that's exactly news; Obama and his people have been dropping hints in that direction since the campaign.

There are other choice bits in the transcript of Geithner's performance that deserve attention. I noticed this one, for example:
QUESTIONER: Benjamin Barber from Demos here in New York.

I'm a political theorist, not an economist. And when I teach the theory of capitalism, it suggests that profit is the reward for risk.

Whenever government --

ALTMAN: That sounds like an economist, sounds like an economist.

QUESTIONER: Well, that starts there. You'll see it doesn't end there however.

And where -- what seems to have happened recently is that whenever anyone talks about nationalizing the banks, people scream socialism. But the current administration seems to be wanting to socialize risk but keep profits private.

And that seems to be the new capitalism in the United States, where the taxpayers take a lot of the risk, but the market continues to enjoy profit, should there be any.

And the real question, I think, is whether there are mechanisms that would allow, if taxpayers are going to take the risk, for them to enjoy all, not some, of the profits, rather than a system in which you're trying to revive the markets on the taxpayers' back.

GEITHNER: Understand your concern, but let me just be clear about this. To solve financial crises, governments have to be willing to take risk, because the definition of "financial crises" is the markets are not willing to take risks that looks -- otherwise would be economic.

The central fact is that governments have to be prepared to take risks the markets can't take, for a temporary period of time, in order to get a firmer foundation for repair.

Of course you want to do that in ways -- doesn't have the government assuming all the losses in the system. And what makes these things hard to solve is because the world ultimately will want us to take more risk than we think is prudent for the taxpayer. And the programs we're designed -- we're designing or pursuing are very cognizant of the risks you said.

And again, just think about the alternatives that most people advocate in this kind of context. The mode -- the dominant alternatives that we're proposing would have the government come in and purchase these assets on their own, hold them on the government's balance sheet, take all the risk in that choice. And you know, the -- this is a system that's much, much more complicated than what we went through in the '90s and what other major economies went through over the last couple decades. And because of the basic complexity of these products, scale of these institutions, that, in our judgment, would pose much, much greater risk to the government; that taxpayers are assuming greater share of losses than is necessary or prudent, and taking risks they cannot effectively manage.

It takes a while to wade through Geithner's obfuscatory verbiage (which I've quoted in its entirety), but if you do, you'll see that he dodges Barber's question by changing the subject. This may or may not have been deliberate -- I've often noticed speakers miss the point of a question in all sincerity -- but Barber wasn't allowed a followup on it either, like some of the other questioners. It should be remembered that the original bailout plans promised just what Barber was asking about: that the bailout, like the US invasion of Iraq, and now Obama's stimulus plan, would pay for itself, that the American people would even make money from the troubled assets the government was taking on from the banks. However, "The notion that we will make a profit from the bailouts--which the financial sector tried to convince us were 'investments'--seems to have dropped from public discourse," Joseph Stiglitz wrote at the Nation in an interesting article. On rereading Geithner's remarks, I think it's safe to presume that his answer to the question, "Should the taxpayers enjoy any profits, as well as the risks, from this bailout?" is either "What profits? [Laughter]" or "Awww, hell no!"

Then there's this one:
QUESTIONER: I'm -- (name inaudible) -- from Columbia Presbyterian. You told us that you're looking forward to appearing before Congress tomorrow morning. (Laughter.)

GEITHNER: And I really meant it.

ALTMAN: Term of art, sir. (Laughter.)

GEITHNER: And I just want to -- this is important -- I'll answer your question -- but this is an important thing. You know, the debate that happens in those rooms is very important. We have to have that debate, and I actually enjoy it, because it's a necessary thing to go through.

It's not -- it's not -- well, I'll just leave it there. (Laughter.)

QUESTIONER: But as they say, seriously -- (laughter) -- specifically what do you see the role of Congress to help you execute and implement the framework?

GEITHNER: Oh, well, you know, under the structure of our government, Congress is necessary to everything. And, you know, as I said in response to one of the questions, you know, you don't -- you can't solve these crises without governments being willing to carefully deploy taxpayers' resources on conditions that protect the taxpayer but still do what's necessary to get through this kind of thing. And that's something that Congress is ultimately the arbiter of.

And they need to be part of this. And they will be, of course, because, you know, we're a great nation and when confronted by crisis, this country comes together and it does what is necessary. ...

And that's why I think the work of institutions like this and so many public policy institutions around the world is so important now, because we need to have a much higher level of public understanding about what it's going to take in terms of economic policy than exists today. And it's not something that can be just simply on the -- on the shoulders of the executive branch.

We wouldn't want the Executive Branch to shrug, no indeed. I trust I don't need to highlight the contempt shown here for even nominally democratic oversight of the process, a contempt that Geithner hardly bothers to hide. Given his audience, there's no need anyhow. So perhaps you can see why, after reading this material, I looked at the captioned photo above with a new perspective.

Last weekend Obama reaffirmed his faith in Geithner, amid calls for the latter's resignation or removal. Fine with me; it means that his man's intention to at most fine-tune our corrupt financial system is Obama's intention too. There's no need for fantasies that the Little Father has been misled by the Evil Boyar. It might be appropriate, or at least prudent, at this point, for me to clarify my position. I don't want Obama to fail, I want him to succeed; but by "succeed" I mean "repair the economy, and put it on a stronger footing for the future." Unfortunately, he seems to want to fail, and to take the country down with him.

Obama's "team of rivals" approach to building his cabinet was originally ballyhooed for his foreign policy appointees (for whom it was just as bogus), but it applies to the economy too. The president-elect claimed that "the 'strong personalities and strong opinions' that he had brought together would ensure vigorous debate, even disagreement, in the White House." Now, any group of alpha egos will be able to disagree and debate vigorously over tiny points -- running the gamut from A to B, as the cliche puts it. Over the Iraq War, for example, it is possible to debate vigorously this or that date for removal of US combat troops, and so on. But it's clear by now that basic disagreements are not allowed into the room. (We've seen this in the elite media apologists for the war who've complained that no one serious raised criticisms to the invasion of Iraq before it happened -- but reasons not to invade are explicitly excluded.)

If Obama had really wanted vigorous debate and even disagreement in his cabinet, there are people on the left with expertise he could have appointed. But they'd have raised questions he clearly doesn't want to deal with. No one, we're told now, paid any attention to the corporate bonuses until just recently -- but that's not true. People on the left (and overseas, which is almost the same thing) noticed them early, as in this post by Chris Floyd from last October, drawing on a story from the UK Guardian. It should tell Americans something that Obama only detected a problem when it blew up in his face, and then he (or his "team of rivals", which means him) still worked to protect the bonuses while throwing out quasi-populist rhetoric and blaming everyone else but himself. As you yourself said, Mr. Obama: the buck stops with you. And the midterm elections are only eighteen months away.