October 2, 2008

the shaking keeps me steady
the evening makes me whole



Jozsef Bullas

* Can the bailout succeed? excerpt:

"While the U.S. Senate predictably capitulated to the demands of Wall Street last night, for the first time in recent memory the House listened to the American people and blocked Paulson’s bailout of his rich buddies by US taxpayers. The same House that refuses the public’s demand that the Bush regime be held accountable and its gratuitous wars halted refused to hand over $700 billion to the financial institutions whose irresponsibility has brought the US to its worst economic crisis since the Great Depression.

"We must be thankful for this sign that American democracy is not completely dead and supplanted by executive branch authority. However, whatever bailout package that emerges will fail unless it takes into account the following.

"Any package that maintains the mark-to-market rule and permits the resumption of short-selling will undermine itself. In panic conditions without the existence of a market, the mark-to-market rule results in asset prices being driven below their values, thus eroding balance sheets and producing insolvencies. Short-selling permits short-sellers to profit by destroying the share prices of institutions suffering balance sheet problems, thus eliminating their ability to borrow and driving them into failure.

"A bailout, however large, that maintains the mark-to-market rule and permits short-selling will pour money into a black hole.

"A bailout that is treated as a mere addition to the US government’s already massive indebtedness will disconcert foreign creditors. There is a limit to the amount of debt for which the US Treasury can assume responsibility without undermining its own credit rating. The bailout, especially if the $700 billion proves insufficient and more is needed, could impair the Treasury’s credit standing."
...
"Over the last 20 years the US has made a collection of serious mistakes that may yet prove fatal. With the collapse of the Soviet Union, the US government launched a policy of world hegemony for which it lacked the means. The US government permitted much of its manufacturing base to be located offshore to the point of even being dependent on imports for its military capability. The US government deregulated the financial sector and permitted the rise of new highly leveraged financial instruments whose failures currently threaten the US with economic collapse.

"University of Maryland economist Herman E. Daly points out that the current crisis is really one of the 'overgrowth of financial assets relative to growth of real wealth.' Daly believes that 'financial assets have grown by a large multiple of the real economy' and that 'paper exchanging for paper is now 20 times greater than exchanges of paper for real commodities.' Exploding debt liens have simply outgrown the wealth.

"The problem, in other words, cannot be bailed out. Historically, debt that cannot be redeemed has been repealed by inflation. The same inflation that wipes out debt will wipe out savings.

"A failed bailout is the worst possible outcome. The chance of failure rises if the US government tries to turn bad private debt into good public debt without regard to the expansion of the public debt.

"In this event, foreign creditors might not provide the funds needed for the bailout or would provide them only at higher interest rates, which would themselves undermine the bailout’s success."

* The Hart Crane controversy: a critic takes on his critics.

* Watch a giant pumpkin get dropped on a car.

* "The more horrifing the world becomes, the more art becomes abstract." -- Paul Klee

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