September 19, 2008

Only One Winner, and Only One Loser

The economic unraveling continues to make several points indisputably clear. First, in the most significant sense, there is nothing anyone can do to stop the economic collapse. The illusory economic prosperity that had obtained in the United States had been based on non-existent wealth. Before the economy can begin to be rebuilt on a solid foundation, the fantasy wealth has to be wrung from the system. As is true of every area in life, there will not necessarily be an uninterrupted decline to the lowest point. If the government throws enough pretend money at the problem (enough more pretend money, that is) -- money to be paid by future generations into eternity -- periods of limited recovery may occur, and the stock market may temporarily go up. All such "good signs" are meaningless distractions and nothing more. From everything I've read and based on everything I can understand, the end point remains much farther down, and it will probably not arrive until approximately the summer of 2009 (and perhaps even somewhat later).

Second, in all the mad scrambling to avert catastrophe, you are seeing nothing but the ruling class protecting itself, and protecting its own wealth and power to the extent it can. The ruling class is the only winner in this crisis, and you, the "ordinary" American without wealth, power or influence, are the big loser. You are in the process of receiving the biggest screwing of your life.

Third, and I underscore this at least ten times, insofar as their publicly proclaimed aims are concerned, no one knows what they're doing. (I will be explaining that statement in more detail in future articles. [See a new post on this issue.]) I remind you of what I wrote at the beginning of this week. I called this one precisely correctly. From "The Vampire, Struck by Sunlight":
Those people who have followed the foreign policy catastrophes of recent years are repeatedly struck by this phenomenon: all the "experts" who are supposedly so knowledgeable in this area -- that is, all the "experts" who led us into the catastrophes and who were grievously, bloodily, murderously wrong about every significant matter -- remain entrenched in the foreign policy establishment. Moreover, they are precisely the people to whom everyone turns for the "solution" to the disasters that engulf us, both now and the disasters likely to come. This is what it means to have a ruling class. As I have said, the ruling class rules. The ruling class exercises a lethal monopoly on the terms of public debate, just as it exercises a lethal monopoly on the uses of state power.

What you have seen over the last six months and more, and what you will see in the coming months and years, is the same phenomenon in the realm of economic policy. All of the solons who led us into this abyss of mounting debt, worthless securities, failing financial institutions, economic contraction and collapse ... and all the rest, will now instruct us as to how we should "solve" the crisis that they have created. The crisis may be ameliorated to a degree, and the worst of the consequences may be postponed for a while. But whatever "solutions" are implemented, whatever reorganization and reregulation is imposed, it will all be done in accordance with the ruling class's desires and goals. It will all be to protect their own wealth and power to whatever extent is possible, and to expand their wealth and power still more, if that remains at all feasible. And it probably will be feasible: your taxes can increase. They can increase a lot. You still have some blood that can be drained. And/or, if Obama is elected, you can look for his adoration of "voluntary" service to switch seamlessly to mandatory service very quickly, especially if the crisis deepens sufficiently. Almost no one will complain. Almost no one will remember the bloody history of those past regimes, of both left and right, that relied on mandatory national service.

The ruling class is the state. The state exists to serve the interests of the ruling class, and only the interests of the ruling class. They may promise you greater unemployment benefits, better health care, and a host of other government benefits -- all benefits also paid for by you, please note (the ruling class does have a sense of humor, after all; vampires are often crudely funny creatures) -- and those promises will cause most Americans to fall for the con still one more time.
I'm working on a new essay dealing with these issues from a different perspective. In the meantime, it is worth considering Mike Whitney's latest column on its own.

As is always true with Whitney, you should read the complete article. Here are some critical passages:
There are a number of signs that the financial system is at the brink of collapse and that Wall Street is headed for a 1929-type crash. Depositors have begun to withdrawal their savings from money market funds alarmed by the gyrations in the market and the daily deluge of bad economic news. According to the Washington Post, funds dropped "by at least $79 billion, or about 2.6 per cent" on Wednesday alone. The withdrawals are the equivalent of a slow bank run just at the time when stressed commercial banks need access to cheap capital to finance daily operations and provide loans for a steadily weakening economy. There's also been a surge of panic-buying of US Treasurys which is considered the safest of investments. According to the Wall Street Journal, during Wednesday's market-rout, "investors were willing to pay more for one-month Treasurys than they could expect to get back when the bonds matured. Some investors, in essence, had decided that a small but known loss was better than the uncertainty connected to any other type of investment. That's never happened before." (Wall Street Journal) Also, the VIX, or "fear gauge", has soared to levels not seen since the crisis began in August just over a year ago.


Before the end of the day, the Fed had quadrupled the amount of dollars (to $247 billion) that central banks around the world could access in an effort to loosen up trading between the banks and resume lending to loan applicants and businesses. According to Bloomberg: "The Fed will spray dollars around the world via swap lines with other central banks. They can then auction them in their own markets." At first, the stock market reacted positively to the Fed's announcement, but by noon the market was 200 points down and losing altitude fast. It took another surprise announcement by the Treasury Dept -- of a massive government intervention to remove the bad loans and withering mortgage-backed securities from banks' balance sheets -- of to jolt the market out of its funk and send it climbing 410 points higher on the day.

Paulson's emergency session with Congress last night was characterized by lawmakers who attended as "chilling". The situation is much worse than government officials have let on so far. The resurrecting of the Resolution Trust Corporation (RTC) is a desperate attempt to address the banking system's troubles head-on by providing a taxpayer-funded clearinghouse for illiquid assets and toxic mortgage-related securities for which there is presently no market. The taxpayer is being asked to pay up to $1 trillion for the speculative excesses of Wall Street investment banks and their fraudulent securities scam. Homeowners who are likely to lose their homes through foreclosure will not benefit from Paulson's RTC. Both presidential candidates have already declared their support for the plan.
And focus your besieged mental faculties on this:
Not a dime of public money is provided for over-extended mortgage-owners trying to stay in their homes. Not one congressman or senator at Thursday's meeting rejected the bailout plan or called for a criminal investigation to establish whether laws were broken in the sale of fraudulent securities which have clogged the global system; pushed banks, hedge funds, insurance companies and homeowners into default, and precipitated the greatest financial crisis in the nation's 230 year history.

Ironically, the very people who created this mess, are the ones who will decide how to resolve it; the Federal Reserve and the US Treasury. Where else, but Washington would such massive failure be rewarded with more power and authority.

The investment giants and the Federal Reserve are entirely responsible for the current meltdown. Currency deregulation brought foreign capital flooding into the equities and bond markets while the real economy suffered. Businesses were off-shored while good paying manufacturing jobs were moved overseas. Wall Street gorged itself on foreign capital while America was transformed into a nation of construction workers and service industry workers. Now those jobs are vanishing by the millions and unemployment lines are swelling
And one more excerpt:
Tuesday's 449 point bloodbath on Wall Street is the beginning of an unavoidable market crash. Regardless of Paulson's plan, there's more pain on the way. According to Bloomberg: "More than $19 trillion has been wiped off global stock market value since a high on Oct. 31 as the worst U.S. housing recession since the Great Depression and a resulting global credit crisis slowed the world economy." All of the economic indicators point to greater losses. Once the system begins to deleverage, there's nothing anyone can do to stop it. Paulson can place himself in front of a market avalanche if he chooses, but it won't change the outcome. Market corrections are as inexorable as the force of gravity. That's why equity bubbles cannot be allowed to develop without interest rate intervention. Responsible action by the Central Bank could have prevented the present crisis.
Read the rest.

The simplest and most important lesson is the one I keep repeating, the one I emphasized in my earlier essay: The ruling class wins. The ruling class always wins, until your body is completely drained and empty.

More to come on our growing nightmare later today or tomorrow.