Bird that Sings

Yes the time has come to talk of final things, and no I don’t mean the end of the Mayan Calendar. I’m talking about Nationalizing Chrysler.

According to Nouriel Roubini’s Global Economic Monitor, the Democratic Congressional plan to save the Big 3 would  “ Allow automakers to tap $25billion under the $700 billion TARP program as a 7-10 year loan at 5-9% interest rate. Loans will be conditional upon placing restrictions on bonuses, executive-compensation, golden parachutes, improving fuel efficiency with rigorous independent oversight and changes in the management. Gov’t would get stock warrants and no stock dividends would be paid during the loan period.”

While one hopes the Democratic Congressional Auto rescue plan gets passed soon, the truth, as we all know, is that it will solve neither the obvious nor underlying economic problems of the auto industry. For that, we’re going to need a more fundamental approach.

The Democratic Congressional proposal should be broadened to allow a government bailout of both GM and Ford that sees the US Treasury permanently assuming the health care and “Legacy” costs of the two companies. In exchange, we the people will receive a minority equity—and voting— stake in the companies, as well as significant public and union representation on their Boards.

Chrysler meanwhile, would be bought from Cerberus Capital Management—like immediately. As it happens, Cerberus is, at this writing, desperately trying to unload Chrysler, which they bought for almost nothing from the German Auto Company, Daimler in the summer of 2007. For Daimler, the key part of the deal was getting someone to take on Chrysler’s legacy costs. The US Treasury can now return the favor and save Chrysler from being completely run into the ground by Cerberus, which was woefully miscast as an auto holding company in the first place.

The new company could be renamed “US/Chrysler,” and in the course of a year or two transformed into a dedicated green car company whose chief line would be a new, stripped down, low cost  (ie., compact, GPS less, no Satellite radio) hybrid. The car would go for approximately seven to eight thousand dollars and low cost auto loans to make the car affordable for every American family could be financed through a new US/Chrysler Bank.

The point of the car would be first, to make cheap hybrids that got 100 miles to the gallon ubiquitous in America. Second, the existence of such a vehicle should scare GM and Ford into coming up with something that could compete. Third, the transformation of the US auto industry would either rout the Japanese, German and Korean Car companies or force them to come up with something even greener.

What we’re talking about is no longer a race to the bottom, but a race to the top.
Of course that’s not going to please everybody.

There has been a laissez fairest argument advanced on the Right over the past several weeks about the power of  “creative destruction” in Capitalism. Through this prism, the free market is seen as an elemental force of nature that cannot, nor should not, be dammed up.

Briefly, this argument is a steaming pile of shit. Creative Destruction may work in the early phases of Capitalism, as part of the bloody business of primitive (Capital) accumulation, but in Late Capitalism, “creative destruction” is a euphemism for “race to the bottom.”

What the “creative destruction” argument really means to the neo-liberals and neo-cons who advance it, is that Detroit must be allowed to fail because it’s no longer viable. But have no fear they tell us. Through bankruptcy GM for one, can dump its outdated labor contracts; restructure its labor costs, close unprofitable plants, and drop their onerous pensions and health care plans.

These economies will then supposedly make post-bankruptcy Detroit competitive again in world markets against leaner, meaner Japanese, and Korean companies that don’t have Detroit’s legacy or union labor costs hanging like a millstone around their necks.

This argument conveniently forgets that it was not the “free market” that created what we call the American Way of life. What created the post War economic boom that characterized “the American Century” was an Industrial working class that was paid well enough, for the first time in history, to actually consume the products they were producing.

The creative destruction argument also conveniently skirts the ethical and moral issues raised by cutting people’s pensions, retirement benefits and health care after they have spent their lives working, in good faith, to accrue them. If this is the kind of good faith that “free market capitalism” now represents, then nobody should get too upset if and when a dispossessed working class decides that maybe potential future capitalists should be thrown into the river at birth.

Finally, it was the abandonment of American manufacturing in the 70’s that led directly to the rise of the Financial Service economy in the 80’s. The finance economy of the last twenty-five years created enormous new pools of wealth for the US and the world, but was based on consumer and leveraged corporate debt rather than actually making things. Surprising nearly everyone, this enormous slagheap of debt— rising up by the side of the glittering new pools of financial wealth— turned out to be more than just an aesthetic problem. Now the man made mountain of toxic debt has collapsed and it’s going take us a long time to dig out from under it.

However, as is often the case in life, the way of out of this crisis is precisely the same as the way in. It’s time to put our collective national creativity to work, not by destroying the last vestige of our industrial base, but— by all means necessary— beginning to make American manufacturing viable again.

The success of California proposition 8, banning Gay marriage in the state should be a wake up call for a Democratic Party, fairly and righteously hung over after the Obama victory celebration.

While Paul Krugman is correct to hail the “end of the Monster Years” of Right wing dominance over the national discourse, the Right did not crash and burn in this election.

The Republicans are however, on the defensive, and if the National Democratic Party has any sense they will spend the next year keeping the Right on the run. The best way to do that is to “flip the script” and take away their issues.

With the failure of so called free market economics—or “Market fundamentalism”— along with the disasters in Iraq and Afghanistan, the Republicans have only the “social issues” left in their quiver. Of these, Gay marriage is perhaps the most potent arrow of all.

Clearly the Democrats don’t want to reenact Bill Clinton’s incredible political blunder in making “Gays in the military” the first thing he addressed as President. But sometime in the first year of the Obama Presidency, Democrats should introduce a National Domestic Partners Act, as well as strengthening and passing Barney Frank’s landmark “Employment non-Discrimination Act” (HR3685).

In point of fact Comrade Joe Lieberman (aka “the people’s man”) has already introduced comprehensive Domestic Partners legislation for Federal employees (S2521) and it shouldn’t be but so difficult to extend this same protection to everyone in the country, gay and straight.

While many Americans feel quite content in contesting the “Gay Agenda,” far fewer consider themselves out and out bigots willing to deny other people basic Human Rights. Domestic Partnership and Gay Civil Rights are, on balance, political winners that the Democrats should pass and sign into law in Obama’s first year in office.

The other political no brainer for Democrats in Congress—while President Obama stands above politics of course— are the creation of Financial Crimes and War Crimes tribunals.

The weakness of candidate Obama all through the primary season was that he didn’t connect with working class white or Hispanic voters. In the general election this problem was neutralized by the financial crisis, after which, all Obama had to do was talk like a Democrat to gain instant populist street credibility.

However already, the President elect is running into trouble on this front. The recent economic summit showed incredible—and uncharacteristic—political tone deafness on the part of the Obama people. The absence of Labor—or even Labor economists—at the summit, signaled the continued hegemony of the failed financial elites over economic decision making in the new administration.

While even these elite economists will, no doubt, propose a massive stimulus plan as an ameliorative for the coming economic “nuclear winter,” the negative symbolism of Labor’s absence at the summit is important.

The pain of the recession is likely to erode good feeling for Obama among the people who will be hit the hardest, and they are the Democratic political base.

It will therefore be important for the Democrats in Congress to establish who is responsible for the collapse of the financial system and to hold those parties accountable. If poor and working class Americans are going to suffer through this economic collapse, then the perpetrators of the disaster—and especially those who directly profited from it— should have to suffer more. And while the elite economists will no doubt mutter about politicians behaving as if this were a “banana republic,” establishing responsibility for crimes against society is the way politics is supposed to work in a democracy.

Similarly, when War Crimes have been committed by the previous administration, this is not a time to let bygones be bygones.

These were not, are not, victimless crimes. Hundreds of thousands have died, been maimed or had their lives destroyed as a result of the lies that got us into Iraq. It does not seem much to ask that the actual liars should have to bear, at the very least, the legal responsibility for their actions.

And then of course, there was the torture: not isolated instances of torture, but a systematic policy of torture set at the highest levels of our government. In order for America to regain at least a measure of her previous standing in the world, these crimes against humanity have to be addressed.

The Word from California is . . . to begin with, Justice.

“Everyday the bucket go to the well. One day the bottom will drop out”—Bob Marley

“What we have now is Capitalism on the way up and Socialism on the way down.”—Rep Jeb Hensarling, R-Tex

“ . . . there is a huge amount of important thinking in Marx as to what is wrong with Capitalism, but not very much on what to do about it.  As such, in figuring out where we go from here, we are really on our own.” —Robert Pollin

“We’re all Keynesians now”—Richard Nixon

By this time, two years from now, Joe the Plumber will be begging for Socialism. Just in time for Halloween, a specter is once again haunting Europe, not to mention the rest of us. No Virginia, not Communism, it is the specter of deflation.

While many people have heard of deflation, most of us have never experienced it. I think we’re about to. Typically a deflationary cycle is the ugly term that describes the most salient characteristic of an economic depression. Assets lose value, stocks lose value, commodities lose value: Kind of like now. So much value is lost that it becomes a vicious circle—a negative feedback loop as the economists like to say— that is extremely difficult for an economy to break out of.

During the Great Depression unemployment went to twenty five percent and GDP fell by half, so Depression is probably not a term to toss around lightly. Let’s just call the  current downturn, “The Great Recession.”

Before we ask, as Lenin so elegantly put it, “what is to be done,” a quick description of what brought us to this pass is in order.

As George Soros has recently said, the bursting of the US housing bubble had the effect of busting the larger bubble of leveraged debt that floated the world economy for the past generation. It is the busting of this Sixty trillion dollar debt bubble that is now washing over the world.

What we are witnessing is the collapse of Finance Capitalism, or what the late Marxist economist Ernest Mandel might have called “Late Capitalism.” However Capitalism has failed before. You could probably argue that the crash of 1929 brought down the “Free Market” phase of classical Capitalism. Similarly, you could argue that the Arab Oil Embargo of 1973 and the subsequent “stagflation” crisis of the ‘70’s ended the post-War period of Keynesian, “mixed market,” government supported, Capitalism.

To end “stagflation,” along with it’s ruinous inflation rate which peaked at 13.5% in 1981, then Fed Chairman Paul Volcker basically stopped printing money—or at least so much of it— and engineered a ruinous recession that drove unemployment to it’s highest point since the 30’s. However the Volcker recession also brought inflation down to 3.2 percent, and as such was judged a success of monetary policy.

The problem for Volcker’s Fed coming out of the ‘82-’83 recession was that the growth engine of the US economy since the end of WWII had been manufacturing, and in the US, manufacturing was in decline. The US was however, and indeed remains, the largest consumer economy the World had ever seen.

Volcker’s pragmatic solution to the problem of declining production was to free up the administrative, finance and service sectors of the economy: to “commoditize,” and take proper competitive advantage of, the vast consumer market itself. They called the regime, “Deregulation.”

In the early 80’s, manufacturing made up almost 24% of the US economy while the Finance economy—Banks, Wall Street, Insurance companies— made up about 7% of the economy. Twenty-five years later these numbers are pretty much reversed. The Finance Economy, particularly from the late 80’s on, produced an incalculable, staggering mountain of wealth for the US and the World. This wealth, of course, was then redistributed upward in staggeringly disproportionate measure to the already rich, at the expense of a shrinking middle class and an emiserated working class, many of who were forced deeply into debt just to keep up.

As it turned out, it was the accumulation of this massive amount of consumer debt that made the spectacular rise of the finance economy—and the concomitant rise of the superrich financiers— possible.

The neo-conservatives, led by former Republican Party Chairman Ken Mehlman, even tried to enshrine this upwards wealth redistribution principle as the ideological cornerstone of the second Bush administration. They called it “the ownership society.”
What this meant in practical terms was that anyone who was willing to go so deeply into debt that they would never be able to get out of it, would be able to buy what they wanted in George Bush’s America. You could even buy an overpriced house in an exploding, speculative market on credit with nothing down.  It was a kind of civic compact.

We can see how that turned out.  Now, as they say on the street, the Banks have played themselves out of position and some of the great names among them sit squarely on the brink of insolvency.

What is to be done?
Internationally, French President Sarkozy has called for new Bretton Woods agreement to govern the international financial system. Fed Chairman Ben Bernanke has already signaled that under the next, Obama Administration, there will have to be a massive monetary stimulus package. There is now a debate among economists how much this stimulus should be, and what it should consist of.

Nouriel Roubini, who predicted this disaster with amazing prescience, is talking about five hundred billion dollars to be used for infrastructure and support of financially stressed states. Others are talking about re fashioning a regime that can regulate and police the markets domestically.

The problem with the proposed solutions however is that it feels a little like putting Humpty Dumpty back together again.

These ideas assume that the collapse of the financial system was a mistake—letting Lehman Brothers fail, lax regulation and the like—and not the inevitable result of building an empire on debt, rather than utility.

Structural and moral concerns aside, these ideas also assume that the collapse of the financial system was a “one in a hundred years event” that won’t be repeated anytime soon. As economist Jeffery Sachs—himself a booster of the massive stimulus package—has said, there is a non-linear nature to busts and crashes that makes them unpredictable; that we should probably expect to be shocked again, possibly by nature itself, as catastrophic climate change really kicks in over the next decade or so.

Recently, former Secretary of Labor Robert Reich asked out loud, if, in allowing Banks like Chase and BOFA to buy up smaller failing banks, we weren’t just setting the table for more epic collapses of key systemic institutions that really were too big to fail.

Meanwhile Economist Jeff Faux proposed in the Huffington Post, October 10, that one of the Banks the Treasury Department is forced to Nationalize stay Nationalized. The “First National Bank” would then serve as a model doing, among other things, the kind of community lending smaller Banks used to do before they were knocked out of business by the logic of economies of scale.

I would propose that Faux’s model be applied across the economy. If the Government is forced to bail out—as seems increasingly likely—Ford, GM and Chrysler, why not just buy Chrysler (which is looking for a buyer anyway) and use it as a model for what a competitive American Car company could be?

The key problems that a new Bretton Woods agreement—as doubtful as that might be—or a stimulus package, do not address, are the key problems we face in rebuilding the economy. One, what to do with economies of scale, where there is a irresistible tendency toward capital concentration and monopoly and two, what to do about a system of trade that doesn’t factor the real cost of Carbon into pricing?

The answer would seem to be a system not rooted so much in Marx as in the US Constitution. We need an economic system of checks and balances where the public sector competes with, and keeps the private sector honest, and vice versa.

The big question is, would President Barack Obama even consider such an outlandish proposal?

The answer is, of course not: At least, not until everything else fails.

In the words of Bob Marley, “You think it’s the end, but it’s just the beginning.”

     All the so-called grown-ups in the room seem to agree. Wall Street greed and malfeasance ran the financial system into the ground, but now we can’t afford to let the financial system fail, even if that means bailing out the bankers and financiers who created this mess and made huge, obscene profits for themselves in the process.

Truthfully, I’ve never liked grown-ups anyway. There has to be some kind of bailout alright, but the terms of this one, even the “Democratic” terms proposed by Chris Dodd and Barney Frank, are not only unacceptable but politically tone deaf.

On this issue the unwashed masses of the Democratic Left and the Republican Right pretty much agree: as a first principle any bailout must be punitive. Taxpayers should not have to bail out the Banks unless Wall Street takes more of the pain than Main Street.

This means that first, any loans and/or straight capital injections made by the US Treasury have to be in exchange for an equity stake in the companies as with the Swedish bailout of their banks in the Nineties. Like in Sweden, the government must have the ability to liquidate insolvent banks and shareholders of rescued banks must invest more of their own capital before public money can be used.

Second, there has to be a lower than market rate limit set on executive compensation by the bi-partisan government review board that will police the “loans”. In other words, there’s no way any of these Wall Street miscreants should be making more than a cop, a schoolteacher or an IRS employee.

Third, there should be no bailout of homeowners who are underwater on their mortgages. It might seem harsh, but the immediate macro-economic reason for the current crisis is the asset bubble that was created by Alan Greenspan to pull the economy out of the dot com crash and post 9/11 panic in 2001.

The era of the asset bubble is over. Home prices have to find their true level even if it hurts. However here, economist Dean Bakers’s idea of some kind of public entity to buy back at least some of these homes—at current market rates—and rent them to the people already living there at current market rates makes sense.

As for the other liberal amelioratives that Pelosi and Frank want to put on Paulson’s bailout to make it more palatable, fugettaboutit. For one, this is a systemic problem, not a political one and their well-meaning efforts are just muddying the waters.

For another thing, in this matter we can no more trust the liberals than we can the conservatives. Chris Dodd, though long a reliable liberal, has also long been in bed with the insurance industry, and though one can be sure his current motivations are completely beyond reproach, money has a funny way of skewing people’s judgment. This goes for most everyone in the House and Senate, not just Dodd. The current system of lobbying and campaign finance is as untenable as this sham of a market system, but it has to be addressed as a whole, hopefully by the next administration.

Now of course there is a big problem with the Great Populist Compromise: Paulson and Bernanke say it won’t work. They say that under the onerous conditions proposed here, banks simply won’t accept the Government bailout. They will then refuse to lend each other money, freezing up credit for the entire system, bringing on a “Great Recession,” or worse.

The bankers are going to hold their breath and, clutching their worthless securities in their gummy little hands, bring down the entire system around them unless they get a bailout on their own terms.

And who are the grown ups now?