Bailout opacity

November 11, 2008

This ain’t good:

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

The Bloomberg story goes on to quote Barney Frank spouting a bunch of nonsense about it not being so bad if “the fed gets a haircut” on these loans, but that logic misses the forest for the trees.

Bad information about the state of the Fed’s credit offerings will only breed mistrust and doubts among the rest of the market’s participants. The Treasury is correct to assume that making this knowledge public will destabilize some firms. However, if the Treasury actually wants to improve things in the long run they will seek more transparent procedures since a market with grossly distorted information does not benefit anyone.

campaign as soap opera

November 7, 2008

I’m slogging my way through Newsweek’s lengthy seven-part series on the presidential campaigns.

Lots of little tidbits and illustrative quotes make these pieces an entertaining read, but the most striking thing is the editors’ attempt to cast the candidates into made-for-TV character molds.

Nader confirms that he’s a racist dinosaur with nothing but empty rhetoric and a whole lot of misguided egotism:

Shame on everyone who voted for this clown.

The experience of Barack Obama’s victory last night was emotionally overwhelming and I still haven’t quite sorted out what to write about it yet.

In the meantime, something caught my attention as I got out of a taxi to walk through Harvard Square on my way home at about 1am last night:

Mass Ave and JFK St., Cambridge, MA, Election Day, 2008 (cc-by, alexandralee)

Mass Ave and JFK St., Cambridge, MA, Election Day, 2008 (cc-by, alexandralee)

The honking and shouting could be heard for several miles. Now, I know perfectly well that Cambridge and Harvard are not proxies for anything (approximately 90% of the city voted for Obama), but it was still exceptional to see people literally dancing in the streets over the outcome of the presidential election.

The scene was repeated elsewhere in Boston as well as in other cities: in Washington, D.C. in front of the White House; in New York in Times Square; in Philadelphia, Tulsa, Los Angeles, San Francisco, and Detroit; and even in Sydney, Australia. Everywhere, jubilant crowds took to the streets to express their excitement.

Such repossessions of urban public space provide a fitting metaphor for Obama’s win. Citizenship has its etymological roots in the Ancient Roman notion of “a right to the city.”  For many of us who have longed for new leadership in this country, casting a vote for a victorious Obama was an affirmative form of political self-expression that had been inaccessible for over a decade. For a single day, many millions of people engaged in an immense public ritual of electoral democracy through which we momentarily gained access to a renewed sensation of ownership over the collective fate of the nation.

In this sense, the occupation of urban streets is as a literal manifestation of the President-elect’s symbolic appeal and his ability to embody the aspirations of his supporters. This appeal is not unique to Obama, but the extent to which he has elicited passionate commitment on the part of so many American citizens is something I have not seen in my lifetime. When consistent with your personal views, such collective passion is awe inspiring. In contrast, the fervent beliefs of your oponents cannot help but ring hollow.

It is inherently difficult to pinpoint the source or cause of the emotional connection some many people feel to Obama the public figure. I suspect that it has a little bit to do with his biography, a little bit to do with his public persona, and a lot to do with the radical form of hope he has come to represent in the wake of the Bush administration.

No matter where it comes from, I am grateful to have experienced a small piece of it last night.


November 4, 2008

Looking beyond the e-day buzz, the NYT examines the rise of a new technocracy within the U.S. Treasury Department as that office struggles to cope with the overwhelming demands on the bailout funds.

Administration officials offer reassurances that the small team of individuals charged with disbursing over $300 billion will not allow the office to become politicized. However, the lack of transparency or detailed criteria as to how the group makes decisions to save or abandon dozens of large firms in the financial sector ensures that they quietly implementing a covert policy agenda that we will only understand as patterns and evidence of their choices emerge.

Thus, as a direct result of Congress’ willingness to hand Henry Paulson a blank check, the U.S. will now silently embark on a new financial industry policy at a moment when the country’s position in the global economy is most vulnerable.

Don’t get me wrong, I doubt that it would have been better to create mechanisms of congressional oversight (that would merely have guaranteed a politicized process) or a more open set of bailout criteria (the markets would have gone even more haywire). Nevertheless, I have to wonder if there was not some “third way” whereby the people in charge of the bailout disbursements could have been selected to represent a variety of political/economic/industrial perspectives. Instead, we have once again closed our eyes and passed our collective economic fate into the hands of an unelected cluster of investment bankers.

Following up on my earlier post in response to this Guardian story that offered an un-attributed claim that Brazil was appealing to the IMF for loans, it now looks like the Guardian wasn’t so much wrong as just a little inaccurate fuzzy on the details. Whereas the original Guardian story had spun the situation as though the wealthy nations of the Global South had come to D.C. with hat in hand, it looks like a totally different situation is in fact unfolding. The new liquidity fund is meant to offer stable “A-list” economies of the South the chance to strengthen their currency reserves in the event that foreign investment flows continue to run dry. According to the WSJ:

The IMF’s new program, called the Short Term Liquidity Facility, would be used largely to pad a country’s reserves, which could help the recipient defend its currency. But the funds could also be used to help recapitalize banks or cover import bills.

The IMF plan is its clearest recognition that its insistence on tough conditions is driving away potential borrowers that might need its help. But the new plan also puts the IMF in the position of deciding who can have money with few strings attached, and who can’t.

The attempt to draw a bright clear line between “responsible” and “irresponsible” borrowers is certainly new. It will be interesting to see where it leads.

Back to Brazil, though.

Reuters (via the Economic Times of India) actually found someone in Brasilia to do some reporting and added the following:

Brazil welcomes a new liquidity fund proposed by the International Monetary Fund to help emerging markets but does not see a need to draw on the funds for now, a source close to President Luiz Inacio Lula da Silva said on Wednesday.

“I don’t know if we will draw (on the fund) in the future. But we don’t need the money now,” the source said on condition of anonymity. The IMF board is considering a proposal for the Fund on Wednesday and an announcement is expected later in the day.

The Folha de São Paulo added even more critical details in its coverage, also noting that the IMF actions came in conjunction with an announcement that the US Federal Reserve will begin offering Brazil currency swaps at no cost in an effort to help the Lula government pump liquidity into the national economy:

The Central Bank [of Brazil] noted that, “these central banks of emerging economies with responsible fiscal policies and systemic importance,” will now be included in the global network of currency swaps.

The central banks of Australia, Canada, the Euro Zone, Denmark, the U.K., Norway, New Zealand, Sweden, Switzerland, and the U.S. Federal Reserve are currently part of that network. (my translation).

The Folha’s account was reiterated by Bloomberg as well, although the New York-based financial news agency did see fit to print at least one offensive, infantilizing quote that portrayed the poor countries of the world as naughty elementary school students:

“The Fed is there to support large emerging markets that have done their homework over the past several years like South Korea, Brazil, Singapore and Mexico,” said Alonso Cervera, a Latin America economist with Credit Suisse Group in New York.

If the central bankers of the world just needed to do their homework in order to build stable economic systems, I’d like to think that Alan Greenspan wouldn’t have had such a hard time.

Anyhow, if I understand this correctly, the actions taken by the IMF and the Fed signal an effort to treat these four middle income countries with an unprecedented level of parity in response to a crisis that has far exceeded anyone’s expectations. The implications for the post-election day Global Financial Summit are intriguing: will the members of the G22 now have a more substantive place at the bargaining table with an embattled Europe and U.S.? If so, will the Southern super-powers use their authority to defend the interests of their less well-off neighbors or will they merely seek a bigger slice of the pie?

My discussion with Jon Henke and Patrick Ruffini at The Next Right made it into kos’s Sunday reading and he responded with a lengthy reflection on Howard Dean, the Goldwater Republicans, and the netroots (past, present and future).

Mulling over Henke’s and Ruffini’s respective suggestions that Romney or Palin take the lead of the RNC, kos pulls out an intriguing alternative:

While I’m not keen to offer the GOP advice, here’s who I think (in a genuine, non-concern-troll way) would be their best candidate: Mike Huckabee. He is exactly the GOP’s version of Howard Dean — a popular governor of a small state, with a huge, energized following who briefly led his party’s nomination contest before being kneecapped by his party’s establishment. Like Dean, Huckabee isn’t an insider, isn’t one of them, and as such, isn’t bound by their outdated and obsolete conventions. Like Dean, Huckabee offers a different direction from his party. Dean wanted muscular, unapologetic progressivism. Huckabee wants a more compassionate version of conservatism — not fake “compassion” like Bush’s, but the real stuff. “Big government conservatism”, as his fiercest detractors charge.

kos then goes on to argue that while Huckabee has the support of the theocratic base, the internal divisions between theocons (e.g. Huckabee and Palin) and corporate-cons (e.g. Giuliani and Romney) are likely to sabotage efforts to achieve party unity for quite some time. He also lays out an important obstacle that Huckabee never quite overcame:

But if Huckabee has the ground troops, what is he missing? The money. He got far in his primary race without any, winning Iowa with something like $27. But he won’t be able to rebuild his party on shoe leather alone.

Us Demcoratic rebels bypassed the Terry McAuliffe wing of our party by building our own alternate small-dollar fundraising mechanism. Without that cash, Dean would’ve never existed, and the establishment’s favorite candidate, Hillary Clinton, would’ve been (for better or for worse) our nominee and future president. Her hundred million dollars wasn’t enough because Obama was able to match her dollar for dollar in 2007, and ultimately blow by her in early 2008.

Huckabee, for all his talents, has been unable to motivate his ardent supporters to pony up. That’s the challenge for the GOP’s Huckabees — to create their own independent funding mechanism distinct from the corporate con spigot. Once they have that figured out (perhaps Sarah Palin’s role in the process?), their civil war will be fully engaged.

Conservatives laughed when Dean took the DNC’s helm and look how that turned out. But our differences with the DLC types was a matter of degree and strategy — a little more populist, a lot more aggressive. The fundamentals that united us as a party were not ideologically mutually exclusive.

kos’ assessment takes it for granted that we’re witnessing the collapse of the Goldwater/Reagan alliance of cultural and fiscal conservatism that has been the bread-and-butter of the Republican party for the better part of 50 years. If that is the case, the resulting shake-up may do more than merely re-structure the composition of the Right; it may provide the basis for a much broader realignment of the electorate.

Before I get to that, however, I should point out that the parallel between Dean and Goldwater is illustrative for several reasons, all of which support the view that the Right today faces a totally different sort of challenge. In both cases, the candidate represented a vocal and growing faction within his party. It also helped that these respective factions could boast of robust organizational strategies that successfully scaled at the national level.

Can the same be said of the Palin/Huckabee supporters within the Republican party today? I don’t think so, although I’d welcome evidence to the contrary.

Now, to the question of re-alignment. If the subsequent struggle for power is half as scornful as Peggy Noonan, the GOP will splinter even further than it already has. It’s still too difficult to predict the impact this might have on the national political scene, but the profound demographic and cultural changes that have taken place since Goldwater could facilitate the rise of a new conservative alliance to replace the old.

What would that new alliance look like? Clearly, there are potential constituencies among the Huckabee and Ron Paul acolytes. However, in order to rise to national power, any new conservative movement will need to take a substantial bite out of the groups currently supporting Democrats. I don’t have any insights into how that will happen, but the current jockeying for position within the Republican party will likely determine the available options.