Page 1 of 2 Soulmates in latte land
By Julian Delasantellis
Here in Seattle, we sure know these guys. They're the warriors of the future's
dysfunction, the rebels without a clue, in other words the anti-globalization
protesters who in 1999 brought the city to its knees with three days of rioting
during the Ministerial Conference of the World Trade Organization (WTO).
Security was probably the least of the concerns of the meeting's organizers as
they initially scheduled their get-together in mellow, laid-back Seattle. They
were grossly mistaken in that assumption, as at least 40,000 protesters met an
ill-prepared and overwhelmed Seattle Police Department in the city's downtown.
Almost like Paris during the 1870 Commune, control in the downtown area was
essentially ceded to the protesters, especially since someone high up in the
protesters' planning staff
had apparently read enough of Sun Tzu to know the importance of chokepoints.
The protesters blocked police from taking back control of the city by filling
street intersections with overturned trash dumpsters and, frequently, just
their own bodies.
In the "liberated" zones, the protesters passed judgment on the ancien regime
by breaking windows and trashing high-end jewelry and name-brand clothing
stores, banks, and, especially, Starbucks. My favorite vignette of the period
involves a protester picking up a newspaper box (perhaps a little bit of
subliminal resistance against all those hated "help wanted" ads the papers had
in their classified sections) and throwing it through a Starbucks window.
Like the Chinese patriots fighting first the British, and then the British and
French, during the 19th century's Opium Wars, the point here seems to have been
a protest against the corporate institution peddling the addictive substance
sapping their ambition, their purpose in life, and for the very souls of those
who spent their entire waking lives in one of these caffeinated dens of
iniquity.
The WTO, indeed all the institutions of global management of the capitalist
system such as the World Bank and International Monetary Fund, sure learned
their lesson fast. All subsequent gatherings of these conclaves of the world's
rulers have taken place behind the protection of tens of thousands of police
and soldiers guarding the gates of finance against the assault of the
barbarians.
When the time came to hold the 2001 summit, it could not have been much of a
surprise that the WTO chose to meet in Quebec City, Canada, a city with a
fortress so formidable and redoubtable, the "Citadelle", aka the "Gibraltar of
the Americas". It was built first by Louis XIV in the 17th century to defend
French Canada against the British, and later, after the expulsion of France
from Canada following its 1763 defeat in the Seven Years War, was expanded and
manned by the British to defend English Canada against the Americans. The
meeting planners must have felt sure that they would be safe from yet another
assault from the Anglo-Saxons, this time in the form of their own pampered,
alienated children.
Still, at least some measure of anti-globalization protest has accompanied most
of the WTO/World Bank/IMF conclaves that have occurred since Seattle - until
last weekend. At the annual conferences of the IMF and World Bank in
Washington, DC, last weekend, where there was hope that solutions to the
current financial crisis bedeviling the capitalist world would be reached, nary
a peep of protest was produced by the peeved pseudo proletariat; media types
looked long and hard for them, and found none.
That's the best indication of the seriousness of the current situation.
Apparently not even the Trotskyites, Foucault/Marcuse deconstruction freaks or
anarchists want to stand in the way of a solution. After all, if your coffee
shop can't renew its revolving line of credit to buy a new shipment of fair
trade, shade-grown coffee beans, you'll have nothing to nurse all day long as
you sit there reading The Guardian and Le Monde.
An old sexist saw has it that it's a woman's prerogative to change her mind; to
this must be added that it's now apparently equally acceptable to change one's
mind should you be the US Secretary of the Treasury. Less than two weeks after
the present incumbent of that post, Henry Paulson, asked dozens of US
legislators to put their heads in nooses by voting for his Troubled Asset
Relief Program (TARP) to buy illiquid mortgage-backed securities from out of
the portfolios of the financial system, Paulson has come back with another
idea.
The current plan has US$250 billion of the $700 billion of TARP's legislative
authority going not to buying subprime securities rotting away in the bank's
portfolios but for actual purchases of equity positions in America's banks;
$125 billion of this largesse will go to the starting nine of American finance
capitalism's all stars, among them Citigroup, Wells Fargo, Goldman Sachs, JP
Morgan Chase and Morgan Stanley, with another $125 billion going to America's
other, smaller farm team of financial institutions on the other side of the
Hudson River.
For appearances sake, the banks forced to receive this blessing will be
required to cut down a bit on the compensation of their senior executives (such
as reducing the pay packets of those at the top from obscene and unconscionable
to, maybe, just plain old obscene). Most importantly, they will have to agree
to lend the value of the equity positions back into the commercial loan market.
That's the potential Achilles heel of the new Paulson Plan. Unlike the UK's 39
billion pound (US$68 billion) Bank Reconstruction Fund, (on which the new
Paulson Plan was substantially based), which gave the British government near
majority control over major financial institutions such as the Royal Bank of
Scotland, HBOS, and Barclays, what Washington will be getting for its $250
billion will be preferred, non-voting equity stakes.
There's no enforcement mechanism or sanction to make sure the banks lend out
what they have just taken in. If the US banks, arguing that they have a greater
fiduciary responsibility to their common, voting shareholders over their silent
partners in the US government, continue to hoard, not lend, their new riches,
or maybe just invest them in short-term US Treasury Bills (essentially the same
thing), this will all be for naught, and then we'll be seeing what bright boy
or girl has the next big idea to deal with this current catastrophe.
The original Paulson plan, leaked into the market on September 18 and formally
released on September 20, was to simply buy up the currently depreciating in
value mortgage backed securities out of the bank's portfolios (see
Rules, leverage and the fall of man, Asia Times Online, September 23,
2008). It spurred a brief, 1,000-point rally in the US Dow Jones Industrial
Average, as has its current variant, the Paulson 2 equity buy-in plan.
However, the time and inherent indignities of getting the first plan through
the legislative process (see
Crisis control fit for the TV age, Asia Times Online, October 3, 2008),
and the speed in which the credit markets in the capitalist world were seizing
up, had people looking for another, more comprehensive alternative.
Legislators pleaded for time to ponder and logroll the original Paulson plan,
but this crisis was moving at the speed of 21st century turbo-capitalism, not
the more leisurely pace of Congress Time. Between the final passage of the
modified Paulson 1 plan through Congress on October 3 and the lows of last
Friday, the world's stockmarkets had one of their worst weeks in history -
Japan's Nikkei 225 index lost 25% of its value, Britain's FTSE-100 index 22%,
and the Dow Jones Average a whopping 28% in just over five trading days.
Also dooming Paulson 1 was the sclerotic pace of its implementation; in a
market burning down in a general alarm conflagration, the Treasury Department
continually seemed like it was going to be taking another extra long coffee
break before responding. It was always three weeks or more before the first
mortgage-backed securities were going to be purchased from the market; when the
markets most needed help, the Treasury was almost acting like minimum-wage bank
tellers slamming the "Gone to lunch" sign on their windows just as your turn to
be waited on had arrived.
The equity buy-in features of Paulson 2 met with near universal enthusiasm in
the academic economic community, most notably exemplified by Princeton
economics professor, New York Times columnist and 2008 Nobel economics prize
winner Paul Krugman, who said the UK's equity program "vastly exceeded
expectations last week - and has effectively shown the world the way forward".
Yet I still have my doubts about just how much good these financial institution
semi-nationalizations will do, especially within the limited context which it
is being attempted in the US. The heart of the actual problem is not really
being addressed - that is, the deleveraging dynamic caused by toxic and
illiquid mortgage-backed securities in the banks' portfolios losing value,
shearing away the banks' asset base, and thus causing further contractions in
lending that kicks the system another leg down.
The predicament is not a static problem, in that the banks haven't suddenly
come up $250 billion short. It's the dynamic problem of the deleveraging
monster that only gets stronger with each institution it destroys. That $250
billion is nothing to this beast; the world's central banks have tried to
provide the system with about four times that amount in recent weeks, with the
money disappearing into deleveraging's black hole to emerge out the other side
as Treasury bill purchases.
Even so, and in spite of my doubts about the equity buy-ins, there is one
feature of the new initiative that is an unquestioned good - and it is, as
usual, being ignored by the media.
Perhaps the most proactive of the American economic mandarins in dealing with
the crisis has been Federal Deposit Insurance
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
