Wednesday, September 24, 2008

The real US enemy now is Wall Street, not terrorism

Business Times - 25 Sep 2008

AMERICAN television stations protect themselves against possible action by the US Federal Communications Commission, which has the right to regulate 'indecent' broadcasts. They do that through self-censorship of 'inappropriate' content to make them suitable for 'family' or daytime viewing, including through 'bleeping'. That usually happens when comedians on a television show use the 'F' word or other coarse language.

This week, US television viewers experienced quite a lot of bleeping on live TV programmes when this or that man or woman 'on the street' was asked to comment on the proposed US Treasury's US$700 billion financial rescue plan for Wall Street.

'You tell that (BLEEP) Paulson to shove his (BLEEP) plan to help those (BLEEP) in (BLEEP) Wall Street into his (BLEEP) (BLEEP),' was the response from one of the more polite interviewees.

It is a typical expression of the rage of the American people as they are being asked by Treasury Secretary Henry Paulson and US Federal Reserve chairman Ben Bernanke - through their representatives on Capitol Hill - to come to the aid of those Americans earning eight-figure salaries and owning several homes (Manhattan, Paris, Bermuda) while the average tax-payer struggles to pay his mortgage and credit card bills.

This anti-government and anti-Wall Street sentiment is reflected in public opinion polls that point not only to wide opposition to the bailout plan, but also to a sense of national depression when it comes to the current economic reality. Hence according to the American Research Group, which asked Americans whether they thought the national economy was getting better, staying the same, or getting worse, zero per cent of Americans said that the economy was getting better while 82 per cent said it was getting worse.

Mr Paulson and Mr Bernanke, testifying on their bailout plan before Congress on Tuesday, seemed to be at the receiving end of this public fury. They looked sleep-deprived and somewhat frail as they confronted lawmakers who were polite but at the same time made it clear to these two top US officials that selling their plan to the American people would be even more difficult than, say, exporting democracy to the Middle East.

When Mr Paulson tried to convince the senators that their rescue operation was 'all about the American taxpayer', there was a loud burst of laughter in the Senate hearing room. (Translation: 'Oh, please ... Who are you kidding?')

At the same time, these representatives of the American voters - the members of the more conservative Senate and the even more democratic House of Representatives - admit that while they have to respond to the pressure coming from their voters by not being seen as giving a 'blank cheque' to Mr Paulson to buy the troubled assets from financial institutions, they also recognise that they would need to approve some kind of a plan if they want to avert a total meltdown of America's financial system.

At a minimum, members of Congress want to demonstrate to their voters that they are baulking at quick action to pass the measure proposed by the administration. They want to convey the impression that they would give it a green light only after careful discussion and after getting a promise from Mr Paulson to modify some elements in the bailout plan.

The expectation on Capitol Hill is that the administration will be forced to embrace some of the elements in a counter-proposal offered by Democratic Senator Chris Dodd of Connecticut which would require the Treasury to receive an ownership stake in the companies it helps.

But neither the administration nor Congress would be able to resolve the main dilemma that the government will face as it implements its bailout plan. If the price of distressed assets that the government is going to purchase is set too low, the financial companies would have to take a major loss, and we're back at square one: a continuing credit squeeze. But if prices were to be too high, the chances that the taxpayers will get their money back - not to mention make a profit - would be close to zero.

The point is that even Americans who cannot read a spreadsheet understand that they are going to lose their US$700 billion (plus) while Wall Street will end up making more than a buck or two.

Expect therefore that economic populism is going to be the driving force in US politics in the coming years, and that the next president would be forced to operate against this backdrop. That explains why both Democrat Barack Obama and Republican John McCain are sounding these days like angry populists. Forget Islamo-Fascism. The real enemy now is Wall Street.

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.

The eerie parallels between Sept 11 and Sept 15

Business Times - 24 Sep 2008

US PRESIDENT George W Bush is standing next to his Cabinet's Alpha Male who has become the crisis manager. Mr Bush declares that America is facing a clear and present danger that is stunning in its proportions and calls on Congress - and by extension, the American people - to give his administration unprecedented broad legal authority to take action against the looming threat to life as we know it.

Trust the Man and his wise advisers, President Bush asserts. Give us a blank cheque to pursue a very, very costly policy. Trust us, guys! We know what we're doing.

Sounds very much like the scene we saw last Friday when President Bush, standing in front of the White House, was joined by Henry Paulson, the Secretary of the Treasury and former Wall Street banker, and the professorial chairman of the Federal Reserve, Ben Bernanke.

Mr Bush warned of the catastrophic consequences of the financial meltdown and requested that Congress give Washington a green light to back the most expensive government bailout of private industry that would allow the US Treasury to spend up to US$700 billion - perhaps more - to purchase mortgage-based assets from troubled financial institutions.

That dramatic announcement followed the devastation of the financial markets, culminating in Black Monday last week which saw the downfall of Lehman Brothers, one of the oldest and most exalted American financial institutions. It also saw a drop of about 500 points on Dow Jones in a single day. It rattled confidence in global economy and produced a sense that Washington needed to 'do something'.

It was a defining event in economic history; everything was bound to change, including the face of Wall Street.

I don't know about you, but watching President Bush and Mr Paulson on Friday, I had a feeling of deja vu, recalling a very similar display on the White House's Rose Garden on Oct 2, 2002, when President Bush was joined by Donald Rumsfeld, the then Secretary of Defense.

Mr Bush warned that against the backdrop of the US-led war on terrorism, the nation was facing an immediate threat from Iraq and the weapons of mass destruction (WMDs) that it had (supposedly) acquired. He asked that Congress provide him authority to deploy US troops to the Middle East as part of a plan to invade Iraq.

That event in the White House came a year after terrorists attacked the World Trade Center in New York and the Pentagon on Sept 11, 2001, and the aftermath of the US-led invasion of Afghanistan. The 9/11 attacks were a painful blow to US national security and led to a major transformation of American foreign policy.

It's not surprising therefore, that as Congress debates the Bush Administration's current bailout proposal, lawmakers feel the need to revisit the decision by Congress to give Mr Bush a green light to invade Iraq - which in many ways, reflected the failure by the legislative branch of government to exercise its constitutional prerogatives vis-a-vis the executive branch.

That Congressional approval in turn created the conditions under which Mr Bush, Vice-President Dick Cheney and Mr Rumsfeld were able to accumulate enormous legal powers that made Abu Ghraib and the rest of the mess in Iraq possible.

Congress is now being asked to empower Mr Paulson with an authority to dispense hundreds of billions of dollars that would go eventually to the coffers of failed and irresponsible American companies, with little or no Congressional oversight.

It would give the next Master of the Universe - King Henry or President Paulson, the terms that media pundits are using now to describe the Treasury Secretary - with the power to make decisions that would shift the balance of power in the financial markets from Wall Street to Washington.

The parallels between 9/11 and 9/15 become quite instructive when one considers the policies pursued by Washington that brought about these two disasters.

In the pre-9/11 era, both Republican and Democratic administrations attempted to establish an American hegemony in the Middle East - but without preparing for the eventuality that anti-status-quo players in the Middle East, including terrorist groups, would try to challenge US power. Al-Qaeda ended up ravaging the foundations of this cost-free Pax Americana.

Similarly, in the pre-9/15 period, both Republican and Democratic presidents and their aides tried to promote free-market-oriented agenda by deregulating the financial markets, including by getting rid of the Glass-Steagall Act and by reducing federal oversight.

At the same time, Washington continued to use the power of the government through the Fed to inject easy money after 2001 which helped inflate the financial and housing bubble. And through Fannie Mae and Freddie Mac, the semi-private huge mortgage companies that enjoyed government subsidies and guidance, the federal government was encouraging consumers to buy homes that they could not afford.

By removing oversight and regulation from the financial markets, while allowing the government to create incentives for financial irresponsibility, it becomes clear how Washington helped produce the current crisis.

The failure of intelligence agencies to warn of the terrorists planning to attack America and the failure of rating agencies to warn of the problems facing the big financial houses - shocking examples of bureaucratic and business malfunctions - turned 9/11 and 9/15 into catastrophes.

And the Bush administration's responses - after 9/11, a failed and costly invasion in Iraq that helped to weaken US strategic position in the region and create more anti-Americanism; and after 9/15, a series of bailouts that encouraged financial companies to continue pursuing irresponsible policies while using monetary and fiscal policies to encourage American to spend - only helped to turn the two catastrophes into cataclysmic events that would take many years to contain.

In the short run, the 'surge' in Iraq and the 'splurge' that King Paulson will be doing in Wall Street would create the impression that Iraq and the financial crisis are 'under control'.

In the long run, only structural changes - a reassessment of US strategic and economic policies would - would make it possible to readjust US military and economic power to the new global realities.

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.