Breathtaking developments in financial crisis... by gimleteye

Eyeonmiami posted the entry, "Wall Street and madmen drowning", on August 7, 2007. (click on read more, for the whole post). It ended with the a metaphor comparing Wall Street titans to a synchronized water ballet; all smiles and calm in unison up top, while furious beneath the waterline. To refresh the metaphor a year later, the pool is nearly empty, the swimmers are standing and flailing, the unison has disappeared. It's not a pretty sight.

Yesterday's defeat by Congress of the Paulson/Bush bailout plan to cost taxpayers some $700 billion to start, was horrific to listen to and watch.

Congress and the White House have taken a whack at a financial crisis they all seem to believe came from thin air. But this isn't a case of financial creationsim so much as a case of disaster capitalism (see: Naomi Klein). Today's crisis was engendered as a deliberate matter, because it created so much wealth for a few. Its underpinning was the sales job by neoconservatives from think tanks like the Cato Foundation and American Enterprise Institute, to name just two; their arguments against regulation in the financial sphere and in government generally coincided with the shifting of billions in wealth to Wall Street and the Growth Machine.

Now Secretary Paulson wants to go back to the "tool box", but any tools that might have been employed this economic disaster are rusty with disuse and certainly not sized to fit the dimensions of the current crisis: trillions of dollars of financial instruments that no one knows how to unwind except to call them worthless.

It is equally distressing to watch the great American public wake suddenly, as if from a dream, and level the full measure of anger against the symptoms of economic instability that had been evident for decades-- beginning with Ronald Reagan's bluster about business being able to do better for people than government ever could. (In case anyone is looking the other way, GM is teetering on the edge of bankrupcy: what's good for Detroit is good for America?)

On NPR last night, there was a segment about how the Republican votes in Congress broke down on the bailout fiasco: those in close competitive races voted against it-- Congressmen like Mario Diaz Balart who was quoted, saying that he "would never vote to put this crisis on the taxpayer" or something to that effect.

What someone needs to explain to the American people is that this financial crisis is rooted in the systemic aversion by elected officials for regulations in all spheres of public policy, not just finance.

It was only the deforming of regulation and its purposes-- in finance, in land use, in wetlands regulation, in public health, the environment and safety-- that allowed the great machine of the building and construction industry to take off after the collapse of the dotcom boom.

Detractors of this view are now saying that the "liberals" are back with their hideous plans for big government. Nothing could be further from the truth. The biggest expansion of government in history has been put in place by so-called conservatives, represented by the Congressional majority that controlled Congress for six of the last eight years and still maintains veto power.

The horrid truth is that the core ideology of the K Street Project and Karl Rove White House operation is that these forces wanted government to fail. When Grover Norquist boasted that he wanted to shrink the size of government so it could fit in a bathtub, he meant to drown it there.

One way to make government fail is to use intimidation within government agencies; that is exactly what has occurred from the Department of Health, to the US EPA, to Department of Interior, to the US Department of Justice. The goal of intimidation is to make agency staff look over their shoulders, keep their heads down, go along to get along.

The machinery that delivered so much Wall Street wealth in the absence of regulation meshed with the smaller gears of the anti-regulatory environment from the unreformable majorities of local legislatures, like our own county commission, to zoning processes that always pushed the urban fringe of development closer to the Everglades. The result was the unsustainable boom in construction and building that, in fast growing states like Florida, enriched lobbyists and "environmental" attorneys and ruined communities, sound planning for infrastructure, and civic involvement in the shape and design of communities. The triumph of suburban sprawl contains all the seeds of today's destruction of financial assets; from homes to banks.

The fact is that most of the incumbents in Congress-- on both sides of the aisle-- relied on campaign contributions from industry (ie. Fannie Mae) that kept this economic equation in motion.

And it was the ascendency of Jeb Bush in Florida, first, and after, George W. Bush to the presidency, that provided the secure hold for the architects of today's financial crisis. They seized the reins of power and imposed their version of reality, abjuring regulation of all kinds where it could not be deformed to their interests, unless that regulation involved women's rights and personal choice.

So we are at the fearsome impasse. None of us should wish for another Depression, but it is not clear to me that there is any possibility of comprehensive reform and change-- based on making government work instead of tearing it down-- until the economic pain grows worse.

Prices of assets will return to historical norms. The titans of industry who made millions, tens of millions, and hundreds of millions during the housing boom will all be, OK. They will survive this mess. But the equations they counted on to advance their causes are being battered by the biggest outcry of public anger since the Vietnam War.

It is remarkable to witness, given the passivity of the public, these long years.


TUESDAY, AUGUST 07, 2007

Wall Street and madmen drowning, by gimleteye
Will the Fed come to the rescue of a global credit crisis, falsely reported as only relating to subprime mortgages? Will Fannie Mae and Freddie Mac-- whose executives took down tens of millions of dollars in pay while the books were cooked-- now be used as a waste dump for toxic mortages totaling in the tens of billions?

I'm seasoned enough to know that the conversations between Wall Street, the Treasury Dept., the White House, and the chairs of the Senate Banking and House Financial Services committees are at the level of panic.

Hedge funds have no requirements to report on the value of their holdings, so there is a long delay between the nearly instantaneous and massive tightening of credit over the past two weeks-- which means a severe loss of value in secondary markets for financial derivatives--and the day of reckoning for investors. Oh boy.

I know what the White House is going to do: try to find a fix even though it will be massive government intervention in "free" markets.

What are the Democrats going to do? is a question no one is asking.

In the meantime, think of what Wall Street is doing as a form of synchronized water ballet.

If you've ever watched the Summer Olympics, you know how all the women's heads turn at the same time in the pool, and their arms move this way and that with calm fluidity, all while their legs are churning out of sight like madmen drowning.

THAT'S what is going on in the markets today.