1. The banks have long ago figured out that bailouts are for losers—that government money comes with so many political restrictions that it prevents the recovery of any institution that accepts the loot. Thus, ten large banks who foolishly let themselves be intimidated into selling stakes to the federal government have finally gotten permission to repay the bailout money and escape government control.
Tellingly, this is precisely what the New York Times complains about in the editorial below—that the banks will be able to escape some of the controls planned by the Obama administration. This reveals what the whole purpose of the bailout was from the beginning—not to save the financial system, but to bring it under government control.
"Payback Time," New York Times, June 11 President Obama struck a cautionary note on Tuesday as he announced the administration's decision to permit 10 banks to repay a combined $68.3 billion in bailout money. "Now, this is not a sign that our troubles are over," he said. "Far from it."
If anything, he was not cautionary enough. The payback could be premature, requiring more bailouts later on. Worse, by allowing it now, before reforms are in place to prevent a repeat of the current crisis, the administration is weakening its hand in reining in the banks….
Goldman Sachs, JPMorgan Chase and other banks have been pressing for months to repay the money, to escape the bailout's pay caps and other constraints. To prove their soundness, they raised fresh capital and issued debt without government guarantees. Eight of the 10 banks were also deemed adequately capitalized under the government's recent stress tests. Of the other two, Morgan Stanley moved quickly to raise needed additional capital and Northern Trust was not tested because of its relatively small size….
Clearly, the way the banks see it, last year's bailouts meant unwanted public scrutiny and salary restraints, so paying the money back frees them from those burdens. That bodes ill for regulatory reform….
The Obama administration said on Wednesday that it will develop compensation standards to discourage excessive risk-taking. But the 10 large banks that are repaying their bailout funds face no mandatory changes to their pay practices. The administration has also promised—as early as next week—a broad regulatory reform proposal. It would have been better to release it before springing the banks.
2. The Bailout Laboratory If the real purpose of the bailouts was not to revive the banks but to control them, then the bailouts can be viewed as a laboratory. The Obama administration is using the bailout money as leverage to impose on a group of large banks and other corporations the kind of fascist economic system he would like to impose on the economy as a whole.
The economics of fascism is distinguished by nominal private ownership masking de facto government control, particularly control exercised by decree, directly out of the office of the chief executive. That's the significance of the army of "czars" appointed by Obama to be his delegated dictators over various aspects of the economy.
(I will have to revise my estimate of Russian efficiency. They managed to establish tyranny with only one czar. Obama needs fifteen of them, by the latest count.)
The latest "czar" is the "pay czar," empowered to dictate the salaries of top officials at bailed-out firms. This is Obama's vision of the economy—an economy micromanaged out of the White House, with Obama as "CEO in Chief." The good news is that this test of Obama's dictatorial power is limited only to bailed-out firms—and more and more companies are deciding to pay back their bailout funds and escape.
"Treasury to Set Executives' Pay at 7 Ailing Firms," Stephen Labaton, New York Times, June 11 The Treasury Department on Wednesday appointed a well-known Washington lawyer, Kenneth R. Feinberg, to oversee the compensation of employees at the seven companies—the American International Group, Citigroup, Bank of America, General Motors, Chrysler and the financing arms of the two automakers.
He will have broad discretion to set the salaries and bonuses for their five most senior executives and their 20 most highly paid employees.
The new plan also calls on Congress to adopt legislation that would let shareholders vote on pay levels and require public companies to strengthen the independence of board panels that set executive pay….
For other financial institutions that have received federal assistance, Mr. Feinberg will play an advisory role in establishing the overall compensation structure, but without setting the exact level of pay. The goal is to reduce excessive risk-taking by executives whose compensation is tied to company performance….
The latest plan tries to satisfy public demand for controlling excessive pay while not spooking Wall Street, which the administration is relying on to help buy the troubled mortgage-backed assets at weaker banks.
Mr. Geithner told reporters on Tuesday that financial institutions remain worried about "political risks" including more government regulation of compensation, if they participate in the Public-Private Investment Program to buy those assets.
3. The Lawless State The high point of Obama's fascist economics—so far—is his management of the Chrysler pseudo-bankruptcy. I call is a "pseudo-bankruptcy" because its conditions were dictated to Chrysler's creditors by the White House, in defiance of the normal rules of bankruptcy court. Specifically, Obama chose to sacrifice Chrysler's "secured creditors" for the sake of his political supporters in the unions.
Unfortunately, it doesn't look like we can count on the courts to block this abuse of power. After briefly putting a hold on the Chrysler deal, the Supreme Court has refused to hear a motion to block a key part of that deal, the sale of the company's core assets to Fiat.
This is a low point for the court, since the constitutional issues raised by the automaker bailouts are vast and significant—including the fact that the original bailout funds provided to the automakers by the Bush administration were allocated against the express wishes of Congress, making this an illegal appropriation of federal funds by the chief executive.
This is a big disappointment for a court in which the "conservatives" are still nominally in charge. If we can't count on the Supreme Court to insist on the rule of law in this case, then we have to be afraid that we cannot count on the court to do anything to brake our descent into the fascist variant of socialism.
The material at the link below, by the way, has oddly changed since I first grabbed it, so the text excerpted below is from the original article at that address. Sorry for any confusion this causes.
"Supreme Court Won't Block Chrysler-Fiat Deak," AP via MSNBC, June 9 The Supreme Court on Tuesday cleared the way for Chrysler LLC's sale to Fiat, turning down a last-ditch bid by opponents that included consumer groups and three Indiana pension plans.
The court rejected a plea to block the sale of most of Chrysler's assets to the Italian automaker….
Justice Ruth Bader Ginsburg ordered a temporary delay just before a 4 pm deadline on Monday. A little more than 24 hours later, the court freed the automakers to complete their deal….
The court did not consider the merits of the opponents' arguments, only whether to hear their full-blown appeal….
The Indiana funds filed an objection to the sale and later appealed to the 2nd U.S. Circuit Court of Appeals and the Supreme Court. They claim the sale unfairly favors Chrysler's unsecured stakeholders such as the union ahead of secured debtholders like themselves.
The funds also are challenging the constitutionality of the Treasury Department's use of money from the Troubled Asset Relief Program to supply Chrysler's bankruptcy protection financing. They say the government did so without congressional authority.
4. The Cedar Revolution Makes a Comeback In foreign policy, there have been three pieces of good news in the past week. The first is the unexpected election victory of Lebanon's relatively liberal, anti-Syrian, anti-Iranian March 14 Coalition.
It is difficult, however, to find good reporting on this, because so many mainstream media sources seem intent on attributing this victory, quite implausibly, to President Obama's big speech last week to the Muslim world. This is just mindless media boosterism; Obama's speech was far too insubstantial to move election results.
No, this election has a lot more to do with a leaked report that investigators have conclusively pinned the 2005 assassination of Rafik Hariri—Lebanon's pro-independence prime minister—on a Hezbollah assassination squad.
The real issue in the election was whether Lebanon would continue to be a helpless, terrorized pawn of Hezbollah's Syrian and Iranian masters—and the Lebanese majority voted "no."
"A Ballot in Beirut," London Times, June 9 The decisive electoral victory for the ruling pro-Western coalition in Lebanon on Sunday has taken almost everyone by surprise. All the forecasts pointed to a narrow win for the Opposition, led by Hezbollah, and a subsequent tilt of this crucial cockpit of Arab politics towards Syria and Iran….
At issue was not simply Syria's influence in its former satrapy. Lebanon has long been the small battlefield for competing ideologies and interests from across the Arab world. The pro-Western Government was backed by Egypt and Saudi Arabia, its opponents by Syria and Iran. The losing faction in these clashes has often resorted to violence that has embroiled Lebanon in fighting and the periodic assassination of leading politicians and clan chiefs. This time, the Lebanese have had enough. There is no appetite to return to the recent virtual civil war that ended only with the truce signed in Qatar 18 months ago. All parties have accepted the electoral result, a vital boost for political peace and Lebanese democracy….
Will Iran let its Hezbollah protégés accept the result, curb their militias and allow Lebanon to play its role in the search for a Middle East settlement?
5. "Death to Dictators" Meanwhile, Iranian President Mahmoud Ahmadinejad is up for re-election—and the surprise is that he just might lose.
Normally, I view Iranian elections as irrelevant, since all candidates are screened first by the ruling theocratic establishment, which holds all of the real power. Thus, Mir Hossein Mousavi, the candidate challenging Ahmadinejad, is an established Islamic revolutionary who has not promised sweeping reforms or openly challenged clerical rule.
And yet, as the article below makes clear, Mousavi has become the vehicle for a loud display of popular rebellion against Iran's religious dictatorship, with his supporters chanting, not "death to America," but "death to dictators."
For their part, the theocrats certainly seem to be taking this seriously, admitting that they are afraid of a "velvet revolution" that will topple the regime.
Heightening the tension before the race, a top official of Iran's hard-line elite Revolutionary Guards accused Ahmadinejad's reformist opponents of seeking to launch a "velvet revolution"—alluding to the 1989 ouster of the Communist government of then-Czechoslovakia—and vowing to crush any such attempts.
Yadollah Javani said, in remarks published Wednesday on a Guards' Web site, that reformists plan to claim vote rigging should their candidate lose in Friday's vote and provoke street violence. He said the group is ready to deal with any possible post-election violence and crush opponents.
The cause of liberty in Iran and in Lebanon faces the same problem: the enforcers of tyranny are still armed and fanatical—and it will probably take more than "velvet" to force them out of power.
"Iran Demonstrators Aim to See Off Mahmoud Ahmadinejad's 'Empire of Lies'," Martin Fletcher, London Times, June 10 "Death to the Government," chanted the several thousand Iranians packed into a football stadium in Tehran. "Death to dictators," roared the young men and women, draped in green shirts, ribbons, bandanas, and headscarves to signal their support for Mir Hossein Mousavi. "Bye-bye Ahmadi," they sang as they waved a sea of banners for the man who hopes to topple Mr. Ahmadinejad in the presidential election on Friday. "Don't rig the election," they added for good measure….
"I feel danger every second I'm on the street because of the morality police," an arts student called Nina said. As she was speaking another young woman way back in the mêlée scribbled a note and passed it forward. "We need freedom. We want big change. We don't want liar government," it declared….
The biggest roar of the afternoon was reserved for the main speaker, Zahra Rahnavard, Mr. Mousavi's wife. "You're here because you don't want any more dictatorship," she declared. "You're here because you hate fanaticism, because you dream of a free Iran, because you dream of a peaceful relationship with the rest of the world." The candidate himself was nowhere to be seen, but that hardly mattered because the crowd was inspired by a hatred of Mr. Ahmadinejad rather than a love for Mr. Mousavi….
His candidacy had to be approved by the Guardian Council, a body of senior clerics not known for its liberalism. He is seeking to appeal to disaffected conservatives as well as moderates. His platform is one of managerial competence and stability. He wants better relations with the world but would not suspend Iran's nuclear programme. He promises greater equality for women but has no plans to challenge the political system….
It is a measure of how much Iran's urban middle class loathes Mr. Ahmadinejad that they have thrown their weight behind Mr. Mousavi's imperfect candidacy, and that so many liberals who would normally refuse to vote lest they legitimize the regime are prepared to do so this time.
"I didn't know anything about Mousavi until a few days ago, but I'd vote for anyone to get Ahmadinejad out," one English-speaking Iranian woman admitted last night.
6. An "Awakening" for Af-Pak? One of the principles of counter-insurgency war is that every counter-insurgency is different. So we cannot expect that the exact strategy we used with success in Iraq—turning the local tribes against al-Qaeda—will be the key to victory in Afghanistan-Pakistan.
On the other hand, we should never underestimate the ability of the Taliban and al-Qaeda to alienate local populations. These organizations are bands of ideological serial killers whose standard mode of operation is the commission of atrocities.
This is the basic contradiction that we should try to use against the Muslim theocrats: they promise the rule of virtue on earth, but they actually unleash the rule of monstrous brutality.
All of this is the context for news of a local uprising against the Taliban in northern Pakistan. The question now is whether the Pakistani army will have the will and the ability to support this local rebellion, and others like it, in the same way that the US did in Iraq.
"Attacked, Pakistani Villagers Take On Taliban," Sabrina Tavernise and Irfan Ashraf, New York Times, June 9 Villagers are rising up against the Taliban in a remote corner of northern Pakistan, a grass-roots rebellion that underscores the shift in the public mood against the militants and a growing confidence to confront them.
More than a thousand villagers from the district of Dir have been fighting Taliban militants since Friday, when a Taliban suicide bomber detonated his payload during prayer time at a mosque, killing at least 30 villagers.
Enraged by the bombing, men from surrounding villages began looking for Taliban militants and their supporters, burning houses and killing at least 11 men they identified as Taliban fighters, according to accounts from seven local residents, including one who took part in the fighting.
The uprising is not the first time that Pakistanis have formed their own militias to stand up to the Taliban, and previous efforts have often collapsed largely because the government and military did not come to their aid….
The rebellion, locals said, gives the government a chance to demonstrate to the Pakistani people that it is serious in supporting them this time….
If it can be sustained, the Dir uprising could prove strategically important as the insurgents come under increasing pressure from the Pakistani military in places like Swat and seek to preserve their havens. Close to the border with Afghanistan, the area is used by the Taliban as a passageway to fight American forces in southern Afghanistan, local people said.
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