Thursday, October 09, 2008

More on the class war of the "bailout" scam

Wall Street: A new Iraq War

By Pepe Escobar

WASHINGTON - As the US electoral college stands today, Barack Obama would win this presidential election, even according to the Macchiavelli from Texas himself, Karl Rove, Obama would win even across the Potomac, in northern Virginia, once a Republican stronghold, now "communist country", according to John McCain's brother Joe.

Red or blue, voters continued to flock to the Obama camp immediately after this Tuesday's second presidential debate - a total cool, calm and collected Obama wipeout, with McCain relegated to the role of a bewildered reptile, at times neurotic, sycophantic, dismissively all-knowing or just plain mean (like referring to Obama as "that one").

Voters also continue to flock to the Obama camp amidst the biggest state intervention in United States history. Biggest if we

don't count another monster state intervention - the soon-to-become trillionaire war in Iraq.

The Wall Street US$810 billion - and counting - bailout is being interpreted by millions of angry Americans as no less than a class struggle weapon of mass destruction. It may cost US taxpayers over $2 trillion after real interest payments are added. Yes, this bailout is a second Iraq war.

Even the initial Bush/Paulson numbers - everyone remembers those $700 billion - came out of nowhere. As a US Treasury spokesman told Forbes magazine, "It's not based on any particular data point ... We just wanted to choose a really large number."

So Americans will soon be listening to the sound, not of music, but of over a trillion dollars of their future taxpayer earnings being sucked-up by Goldman Sachs, Citibank, Bank of America and JP Morgan Chase. The Bank of China will also collect. There's absolutely no guarantee any of these banks will put the money back into productive US investments.

The US Treasury - that is, Treasury Secretary and former Goldman Sachs CEO Hank Paulson - will print money like crazy, just like during the Latin American crisis of the 1980s. And who is the Treasury hiring to decide which banks and which debts to buy up? Wall Street experts.

So this is a new Iraq war in more ways than one. In Iraq, Washington subcontracted the war to private military outfits, like Blackwater. Now it's time for Wall Street to pull its own Blackwater.

Did the US Congress make at least an effort to appoint a group of independent experts to analyze the whole mess? No, it didn't. The bailout ballet was staged to perfection. Representative Marcy Kaptur, Democrat from Ohio, was one of the few to denounce the intimidation tactics and the fearmongering atmosphere on the House floor. Representative Brad Sherman, Democrat from California, warned that martial law would be imposed in the US if the bailout did not pass.

Let's assume, for the sake of argument, Americans would want to vote out all the politicians who supported the bailout. They simply can't. Because there are not enough third-party candidates - or progressives - to replace them; this is the realm of money politics, and they simply cannot compete with the Democratic or Republican machines. Not to mention that two-thirds of the Senate - which also approved the bailout - are not up for re-election.

The economists' man
The Economist magazine - the voice of the City of London - says that economists are mostly Barack Obama cheerleaders. But what was Obama doing before the bailout was approved? Both Obama - and McCain - were frantically calling House representatives to change their "no" vote into a "yes".

Were there other options apart from the biggest redistribution of wealth - this one towards the top, not the bottom - since the 1917 October Revolution in Russia? Of course there were. One of them was offered on the pages of the Washington Post by two respected Yale economists. [1] Essentially, it says "pay off all the delinquent mortgages".

John McCain, in a desperate Hail Mary pass trying to stop the bleeding in his campaign, came up with more or less the same proposal ("It's my idea, not Senator Obama's") at the presidential debate - stunning all the punditocracy.

But he didn't know how to sell it. He didn't explain where the funds - expected to be upwards of $300 billion - would come from, he didn't say that the bailed-out banks under Bush/Paulson could in fact buy up mortgages, and on top of it, he incurred the ire of large sections of his already irate "base".

The Obama campaign, caught off guard, responded the next day via Obama economic adviser Jason Furman: "The biggest beneficiaries of this plan will be the same financial institutions that got us into this mess, some of whom even committed fraud."

Obama, for his part, bought the bailout hook, line and sinker - and has been busy trying to justify it on the campaign trail. He may be leading the polls - even before the debate - but this has more to do, according to the Washington Post, with "negativity about the country's financial prospects" than an Obama plan B to deal with the financial crisis. Obama was never pro-active - he was reactive to the Bush/Paulson plan, which then became the Bush/Paulson/Pelosi/McCain/Obama bailout plan.

Obama could have called dozens of economists to educate him about the financial crises in Mexico in 1997, Brazil in 1999 and Argentina in 2001. He could have learned how Sweden dealt with its own crisis in 1989 - yes, they pay high taxes but have one of the highest standards of living in the world.

All this when Paulson - Mr Goldman Sachs himself - revealed that the first bad debts would be bought up only after the November 4 elections. So American voters won't even evaluate if the bailout worked (the markets, for their part, have already said "no") before they elect Obama or McCain and their new House representatives.

So there was no US national debate. Could it be because, according to the nonpartisan Center for Responsive Politics, those who voted "yes" had received 41% more money from the financial sector over their congressional careers than those who voted "no"? As the Center points out, "election after election, the finance, insurance and real estate sector has been the top campaign contributor in federal politics, giving more than $2 billion to federal candidates and political parties since 1989."

Whoever is elected, Obama or McCain, will inherit this supreme Bush administration-made toxic mess - which includes the biggest fiscal and foreign deficits in US history, a fiscal debt currently at 70% but bound to explode to about 90% of US GDP, and no control of monetary policy.

Both Obama and McCain, during the debate, have adamantly refused to admit that the US economy will get much worse before it gets better. McCain has already admitted, on the record, that he knows virtually nothing about the economy - his top economic adviser was uber-deregulator Phil Gramm, the eminence grise who said America is a "nation of whiners".

As for Obama, these are some of the questions he is not answering at the moment:
How deep will the recession be?
Will the US invent another bubble to try to dribble the recession?
And, if that is the case, will that be an military-industrial complex bubble? Or a disaster-capitalism bubble?

'A new world is coming into being'
The McCain campaign strategy in the face of all this is simple: more sleaze, in the form of a barrage of unsubstantiated attacks on Obama on the campaign trail (he's a dangerous black man, maybe a Muslim, and maybe a terrorist) by the lipstick pitbull from Alaska, mooseburger-eating creationist hockey mom Sarah Palin, who seems to have better things to do than reading the Constitution, or picking up a dictionary, or stop winking, or ending her habit of misquoting people. In the words of a McCain strategist, "If we keep talking about the economic crisis, we're going to lose."

And why don't they want to keep talking about the economy? Refer, for instance, to the new Obama campaign strategy - a 13-minute documentary posted on the net about the late 1980s Keating Five savings and loan scandal, a deregulation fiasco in which McCain had a starring role.

Both campaigns are not even trying to really debate the pitfalls and the seriousness of it all. Remember that low-level functionary who came up with that sub-Hegelian concept of the "end of history" after the fall of the Soviet Union - one Francis Fukuyama? Even he is alarmed.

Once again, it's up to those pesky Europeans to tell it like it is. Jean-Claude Milner, former president of the International College of Philosophy, puts it in stark terms. The European bourgeoisie worries about savings security. The American bourgeoisie worries about credit security. In Western Europe, credit is a means to acquire assets. In America, it's the opposite: an asset is a means to obtain credit. The whole thing works, as long as there's no depression.

Then there are the enormous Pentagon budgets. They aren't solely dedicated to facilitate "preemptive wars"; they are above all a means of permanent support to the economy. So, American capitalism is in fact state capitalism - where the state is not an entrepreneur, or an owner, but a larger-than-life client. Therefore, this client must intervene in times of crisis. In Milner's lovely formulation, the US state is "the invisible hand behind the visible credit".

Milner goes beyond the military-industrial complex. He identifies a "military-financial complex". That's how the snake bites its own tail: "Wall Street relies on credit. Credit relies on the absence of depression. The military budget makes a depression impossible." It's this idea of capitalism, based on credit and disconnected from natural resources, that is today on fire. And not only because of the subprime crisis. Miller stresses how the US Army is above all an economic tool, and much less a traditional army (which the neo-cons, drunk with power, imbued with the mission of bringing democracy to the Middle East).

The other key factor is that owners of natural resources don't accept this financial capitalism disconnect anymore. The best example is Russia. That's also where al-Qaeda's logic fits in. Al-Qaeda reasoned that what causes the disconnect is financial capital. The symbol of financial capital is the Twin Towers. So the towers must be destroyed. Whether al-Qaeda is, or is not, a US-controlled cipher is beside the point; the fact is bin Laden and al-Zawahiri, in their writings, have always stressed their strategy of bleeding the empire through its overextended Achilles heel.

Milner is somewhat apocalyptic. For him, if American financial capitalism collapsed, it would drag most developed and emerging markets. The other main protagonist left on stage would be Russian capitalism - which follows a completely different logic: excess of natural resources, and state control over how they reach the market.

Another pesky European, John Gray, professor of European Thought at the London School of Economics, author of crucial books like Straw Dogs and Black Mass, and one of Europe's most brilliant intellectuals - of course, Bush, McCain, neo-cons, they all hate intellectuals - says the financial crisis is the American equivalent to the fall of the Soviet Union. As he wrote on the London Observer,
Having created the conditions that produced history's biggest bubble, America's political leaders appear unable to grasp the magnitude of the dangers the country now faces. Mired in their rancorous culture wars and squabbling among themselves, they seem oblivious to the fact that American global leadership is fast ebbing away. A new world is coming into being almost unnoticed, where America is only one of several great powers, facing an uncertain future it can no longer shape.
A new world, coming into being almost unnoticed. You betcha.

1. The Trickle-Up Bailout, by By Jonathan G S Koppell and William N Goetzmann, Wednesday, October 1, 2008, Washington Post

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2008). He may be reached at

Original article posted here

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