My Big Ego Just Got Bigger

When Nobel Prize winner and Columbia economics professor Joseph Stiglitz, MIT economics professor Simon Johnson and Federal Reserve Bank of Kansas City President Thomas Hoenig repeat almost verbatim to Congress what you said a few days prior, it confirms what you've always known: you're full of yourself and you're a genius.

Please conveniently ignore the fact that my opinions are heavily influenced by these people.

What's Going On

On November 4th, 2008, I, like the majority of the voting electorate, voted for "Change." Over five months later, I'm beginning to wonder if we will ever see that "Change." In the last few weeks, it has become apparent, that the current administration's answer to the financial crisis is to continue the plan developed by the previous administration; namely, propping up the zombie banks through taxpayer funded bailouts.

Geithner's recently unveiled plan for the toxic assets amounts to nothing more then the transfer of risk from the banks to the taxpayer. Thankfully for us, there is no chance of this plan working. Because even with the non-recourse 85% levered FDIC loans (didn't leverage get us into this mess?), and the generous 7.5% taxpayer subsidies, the bids still won't come in high enough for the banks to be able to accept without sinking their balance sheets. Or so I thought. As Jeffrey Sachs points out, the banks will figure out a way to bid on their own toxic assets (with no transparency, of course) and then quietly unload them onto the taxpayer in the not too distant future. Doh!

But all of this is a moot point. You all heard the good news. Banks reported big profits in the 1st quarter, far above analysts expectations. The financial sector and our economy is on its way to recovery. Sure, if your willing to ignore that much of the profits came from a change in the mark-to-market accounting rules (who needs transparency in accounting anyways) and from a one-time payoff on AIG's credit default swaps (aka CDS. basically insurance for the toxic assets). Oh, and yes, the AIG taxpayer financed bailout was just another non-transparent way to funnel money to insolvent banks. Conveniently for the banks, both of these fortuitous events happened prior to the conclusion of the government's stress test; designed by the administration to determine which banks are insolvent (I'm guessing all the major banks are going to pass).

Look, I'm not a pessimist, but rather a realist. I want the bank rescue plans to succeed and want to believe that the latest rally is a reflection of improving market conditions. But the more research I do, the more it becomes apparent to me that many of the major banks are insolvent and the governments solution is to slowly transfer losses and debt from the banks to the taxpayers and hope that asset prices trend upward. Whereas, the most efficient (and beneficial to the taxpayer) way to deal with the economic crisis is to put all the insolvent banks in a temporary receivership; liquidate the good assets off to well capitalized super-regional banks and institutions and throw all the bad assets into a RTC type entity.

So, what's going on? Why are the banks receiving special accommodations? From my perspective, the government and large financial institutions interests are so commingled that they have formed a symbiotic relationship. Seriously, of the people in the government who are really running the show, what percentage are former employees of the financial institutions? I'm sure the number is extraordinarily high. What percentage of former government officials are currently employees or "Advisors" of the financial institutions? How is is possible to not have conflicting interests in dealing with the current mess?

For a more in depth look, I highly recommend you read " The Quiet Coup" from MIT professor and Atlantic writer Simon Johnson and "The Big Takeover" from Rolling Stone writer Matt Taibbi. They both do a brilliant job of giving a detailed account of how 146 years after President Lincoln delivered us a "government of the people, by the people, for the people," President Obama is on slippery slope to delivering us a government of the banks, by the banks, for the banks.

Quick tangent. For an administration that ran on transparency, you would think this would present a golden opportunity for the Republicans to make some legitimate criticism of team Obama's opaque handling of the banking crisis. But no, they would rather throw a tea party (protest on government stimulus spending and taxes). I'm not going to get into the merits of the tea party, but rather comment that the ECONOMY is not going to recover until the banks are once again well capitalized and lending money. This IS the ISSUE of the day. And every other issue is secondary in nature until the economy is headed down the right path. Yet the Republicans are still spewing out the same ideological company line. But why am I surprised? The Republican couldn't lead their way out of a paper bag right now.

OK, now back to What's Going On. Looking beyond my superficial conspiracy theory that the banks are now running the government, recently, Brad DeLong, economics professor at U.C. Berkeley and Matthew Yglesias, associate editor of the The Atlantic Monthly, have proposed four different narratives on what the administration is up to. But seeing as how I'm obviously much wiser than any economics professor or any editor (yes, I realize my posts are riddled with grammatical errors), I'll propose my own narrative. And if this narrative is true, in many ways, it makes me feel better about the administration's true agenda and largely renders everything I wrote above almost completely meaningless (which, I guess, would not make me very wise after all):

The people who are running our government; namely, Larry Summers, Tim Geithner, Ben Bernanke and formerly Hank Paulson, stared into the abyss, as Zerohedge points out, on September 18th, three days after the failure of Lehman Brothers. U.S. Representative Paul Jankorski paraphrases disclosures from Bernanke and Paulson:

On Thursday (Sept 18), at 11am the Federal Reserve noticed a tremendous draw-down of money market accounts in the U.S., to the tune of $550 billion was being drawn out in the matter of an hour or two. The Treasury opened up its window to help and pumped a $105 billion in the system and quickly realized that they could not stem the tide. We were having an electronic run on the banks. They decided to close the operation, close down the money accounts and announce a guarantee of $250,000 per account so there wouldn't be further panic out there.

If they had not done that, their estimation is that by 2pm that afternoon, $5.5 trillion would have been drawn out of the money market system of the U.S., would have collapsed the entire economy of the U.S., and within 24 hours the world economy would have collapsed. It would have been the end of our economic system and our political system as we know it.

This event so traumatized them, that they are fearful that nationalizing the major banks may lead to another run on the banks; one in which they can not stop, resulting in the collapse of the world's financial and political system. And this fear has dictated every major economic policy since. Faced with the unthinkable,the administration has decided to do everything in their power to keep the insolvent banks afloat. Even if that means being disingenuous with the public and reckless with their money.

The Yin & Yang of Politics

The Yin and Yang of the current US political system can be found within the following two Questions and Answers:

Question 1: What are the definitions of a Democrat and a Republican?

Answer 1: A Democrat is one who criticizes and assigns blame to everything a Republican does. A Republican is one who criticizes and assigns blame to everything a Democrat does.

Question 2: What are the aspirations of elected Politicians and elite Businessmen?

Answer 2: Elected Politicians aspire to use their power to gain the wealth of elite Businessmen. Elite Businessmen aspire to use their wealth to gain the power of a Politician.

Let me enlighten you on how all this fits together.





Q&A 1: The Republican and Democratic parties, as institutions, own a monopoly over the political process. For this reason, they have no real desire to promote honest and intelligent discourse on the issues. You see, honest discourse and cooperation promotes innovation in political thought. Innovation in political thought gives rise to new political platforms. If a new political platform were to gain momentum, a new political party could possibly emerge; a threat to the two parties stronghold on political power.

The thought that the entire realm of political representation can be contained within two diametrically opposing concepts is ridiculous. But the Republicans and Democrats have succeeded in doing this very thing. They have done this by constantly assaulting the other party's laws and ideas, no matter their substance. By always being at odds, the Democrats and Republicans have created a dichotomy of ideology, a love/hate relationship, an us vs. them philosophy, that defines each as the opposite of the other and renders the need for any other competing parties as irrelevant.

To sum things up, through their monopoly of the political system, the two parties have reduced intelligent political debate into frantic yelling matches and simultaneously crowded out constructive competitors.

Which brings us to Q&A 2: The Democrats and Republicans, despite their polar ideologies, are, at their core, identical in nature. They exploit your ideologies to gain votes and get elected. Then, they transfer the power that comes with the office to an elite class of Businessmen in exchange for wealth. The entire political system is static. Wealth and Power stays in the hands of a few at the expense of the masses.

I'm not trying to downplay the fact that people have conflicting conservative and liberal ideals. But what does it matter when your elected politicians are willing to sell these ideals for wealth. In essence, if you are an ardent supporter of either party, you are being screwed. You may think that you're electing someone who shares your vision. And in some cases, maybe they do. But that support will not translate into policy that directly benefits you in a significant way. Rather, it will just ensure the preservation and consolidation of wealth amongst the handful of elite that really run this country.

But DLaz, don't give us the hows and whys of our political system. Tell us what we can do; what we can do to prevent the corruption of our elected officials, see the execution of the will of the people and provide a system that encourages the introduction of constructive thoughts. At the risk of sounding naïve and unaware of how the world works, here it is:

1. If you want to devote your life to public service and the common good of your constituents, prove it. All elected officials, throughout their lives, should only be able to maintain a certain predetermined level of wealth. You are free to earn as much as you can in your lifetime, but everything beyond this predetermined level will be liquidated and distributed, according to the will of the politician's constituency, to various charities and public projects. The level of wealth a politician can obtain should be based on a formula that takes into account spouses and children. The level of wealth should be in significant excess of the average family's wealth, but nothing too extravagant. If one's wealth is beyond this level upon entering politics, they will be able to maintain up to that higher level.
   
2. Politicians should have to run on their own ideas, not on the denunciation of others. They should be forbidden from negative campaigning and attacks on opposing parties. I can see a three-strike system here. First strike is a warning. Second strike is a fine. And third strike will result in losing your office. If you are worried about legitimate criticism of bad ideas, don't worry. There are plenty of talking heads out there to do that.


3. Only individual citizens should be able to donate towards a campaign or party (with a reasonable maximum contribution). If corporations want to buy legislation and power, so be it. But they shouldn't be able to do this through lining the pockets of politicians and parties. They should do it by gaining good will with the voters through donations to charities and public projects.


4. Term limits for Congress. No single individual should be in power more than a decade. We can go through the pros and cons of this, but my argument comes down to the saying/quote: power corrupts; absolute power corrupts absolutely.


5. The political parties should be subject to anti-trust laws.
   

I'm a realist, not an idealist. For the transformation discussed above to take place, you would need a revolution of our political system. But every revolution needs to start somewhere.