They Knew Eighteen Months Ago

Bush, Bernanke, Paulson, and McCain to the rescue?

We were expecting the Republican Party to produce a “security emergency” a week or two before the election, but the current “financial crisis” must rate as one of the most creative pieces of mass electoral manipulation in recent times.

In January 2007 a friend who knows about these things phoned me to warn of an impending financial collapse and advised me to put my investments into cash. If he, a middle manager in the financial sector, knew about the oncoming train wreck eighteen months ago, surely the masters of the universe knew too, along with the President´s economic advisors.

The following idea comes to mind: the Republican Administration knows for ages about the problem and tries not to rock the boat. It talks up a declining economy, which under any reasonable prediction (given the state of the housing market), should by now be in serious recession. Oblivious to the economic good of the country and in full knowledge that lack of oversight has brought the United States to its financial knees, it nevertheless hopes to get by and to ensure that the election is not lost by the Republicans.

Alas for the Republican Party. They don´t quite make it. Their government sat on the impending calamity for a year, but can´t hold out till November 4th. Instead the markets collapse on their watch. The responsibility is solely theirs and the electorate swings in favor of Obama. Panic ensues among the ranks of the McCain operatives.

There are now two scenarios to consider. In the first, the economy really is in crisis. In this case there appear to be several better answers to the financial mess than the loosely-structured one Mr. Paulson is trying to ram down the throats of Congress and the public. This multi- millionaire, recently a Wall Street CEO, wants to stampede us like a herd of buffalo into a sudden and almost certainly ill-thought-out deal whose beneficiaries are his irresponsible pals.

Back to my friend. Six months after the phone call to which I alluded above, he told me he had investigated every loan he had on his books and had eliminated those with securitized mortgage components. Why, in the last twelve months, have the big banks not done the same, dealt with them, written them down in a conservative manner? Maybe they were hoping for the best? Maybe they were in denial? Maybe the top “managements” were extracting the last few pennies for themselves before Armageddon closed in? In any case, it could have been clear to them that if they were going to be rescued the trick would be to wait until just before the election, then hold a gun to the heads of Congress and the taxpayers of America. Thus, the timing of this flap is not accidental and suits both the politicians and the kings of Wall Street.

But there is another scenario in which calculation takes front stage. Suppose that this is not a 1929-style crash after all. Suppose it is a normal, if severe, economic downturn such as we expect from time to time. Mr. Bernanke may have watched the figures and realized that the economy was going to tank in the weeks before the election. How was the Administration going to prevent an electoral disaster for Republicans?

Answer: faced with economic disaster only six weeks before November 4th they present the situation as a “severe financial crisis” that is going to threaten all our pensions and investments and the financial health of the world, instead of a straightforward recession caused partly the economic cycle and partly by lax regulation. In this scenario the Administration ride in to save the embattled public with a rescue package, which of course has to be implemented instantaneously. They thus demonstrate national leadership, decisiveness and love of country. Into the battle also rides John McCain, patriotically abandoning his campaigning to help as the “decider” in the titanic struggle and to impress the voters with his grasp of issues that have struck fear into the hearts of us all. Striking fear into our hearts works time and time again for Republicans.

In this scenario, the administration are inflicting a “weapons of mass destruction” on the American public for second time. To say the least, their apocalyptic warnings could be over-stated. Where have we heard all this before? “Panic, panic, we have to act instantly. Do as I say, take my word for it, our information is sound.” If the aftermath of 9/11 is any guide, this government believes that the Executive trumps the other branches of government. It cried “wolf” before, passing the dire Patriot Act, taking upon itself huge and possibly unconstitutional powers over the citizenry. Do they think us more gormless than we actually are? Not only would Mr. Paulson be “rescuing” the Party from electoral disaster but he would be expanding the power of the Executive and doing it wholly at the expense of the taxpayer. Clever.

Meanwhile, foreign governments and financial organizations are standing by, amazed at the effectiveness of American panic-mongering and the manipulations of big money. The Japanese and others are picking up the still-profitable pieces for a song. The U.S financial sector accounts for some twenty per cent of GDP. Now that manufacturing has moved abroad, finance has become the pinnacle of the economy. We are in part abandoning parts of this activity to foreign interests, and this is the price we are being asked to pay for keeping the ruthless power-brokers of the current regime in place.

All is not lost. It can be stopped by people power.

September 25th 2008