Because he preached the virtues of the “free [Latin = liber]  market.”

DON PEDRO. Why, then are you no maiden. Leonato,
I am sorry you must hear: upon mine honor,
Myself, my brother and this grieved count
Did see her, hear her, at that hour last night
Talk with a ruffian at her chamber-window
Who hath indeed, most like a liberal villain,
Confessed the vile encounters they have had
A thousand times in secret.
–Much Ado about Nothing 4.1

Neoliberal policies are designed to transfer control of the economy from the government to the “private sector” (i.e., wealthy individuals and corporations). That’s the vile encounter at the heart of what the liberal villain Friedman did (but hardly in secret: he was an accomplished publicist).  His work was a paradigm case of what neoliberalism means. (Brother, can you paradigm?)

The problem is the protean word “liberal,” from the Latin for “free,” which takes on a political meaning in the 18th century in the struggles for freedom (and the reflection on them) from state feudalism, as in the French Revolution.

But freeing people from pre-capitalist political control was shortly to subject them to (often greater) control by the class of owners, to whom they must now sell their labor. Paradoxically, “liberalism” came in 19th century English (as in “Manchester Liberalism”) to mean the freedom of the owners to do what they wanted with their money, namely subjugate the workers.

(That paradox BTW may justify a comment by Chinese premier Zhou Enlai [d. 1976]: asked about the historical effect of the 1789 French Revolution, he is said to have replied, “Too soon to tell.”)

“Neoliberalism” is the new (late 20th century) form of that 19th century meaning.

Robert McChesney describes it nicely in a 1999 article:

Neoliberalism is the defining political economic paradigm of our time - it refers to the policies and processes whereby a relative handful of private interests are permitted to control as much as possible of social life in order to maximize their personal profit. Associated initially with Reagan and Thatcher, neoliberalism has [since the 1970s] been the dominant global political economic trend adopted by political parties of the center, much of the traditional left, and the right. These parties and the policies they enact represent the immediate interests of extremely wealthy investors and less than one thousand large corporations.

Aside from some academics and members of the business community, the term neoliberalism is largely unknown and unused by the public at large, especially in the United States. There, to the contrary, neoliberal initiatives are characterized as free market policies that encourage private enterprise and  consumer choice, reward personal responsibility and entrepreneurial initiative, and undermine the dead hand of the incompetent, bureaucratic, and parasitic government, which can never do good (even when well intentioned, which it rarely is). A generation of corporate-financed public relations efforts has given these terms and ideas a near-sacred aura. As a result, these phrases and the claims they imply rarely require empirical defense, and are invoked to rationalize anything from lowering taxes on the wealthy and scrapping environmental regulations to dismantling public education and social welfare programs. Indeed, any activity that might interfere with corporate domination of society is automatically suspect because it would impede the workings of the free market, which is advanced as the only rational, fair, and democratic allocator of goods and services. At their most eloquent, proponents of neoliberalism sound as if they are doing poor people, the environment, and everybody else a tremendous service as they enact policies on behalf of the wealthy few.

But wealth owned by corporations should be assigned to individuals (principally shareholders) for accounting purposes and then taxed. (We do that now informally — that’s why we say Bill Gates and Warren Buffett are rich.)

Wealth should be taxed in a way that reverses the accelerating trend to inequality (and plans for that exist). Under the pressure of neoliberalism, those European countries that had (small) wealth taxes have removed them (except France and Switzerland).

Removing taxes from productive investment (but not speculation — the Tobin tax) would presumably create jobs, as would the removal of income taxes (a much larger stimulus than is being contemplated). But the existence of jobs shouldn’t depend on whether they enrich corporations. People have a right to exercise their talents of head and hands in a useful way, and government must organize and apply that work. Everyone has a right to a job and a livable income.

I defended these proposals — which are hardly original — when I ran for Congress in Illinois’ 15th Congressional district in 2002. –CGE

La Repubblica published his impatient answer to the question of what today’s
left should do:

It’s a waste of time and sense to try to define a leftist identity. You have to do what’s right and necessary for the country. It’s up to posterity to decide whether it came from the right or the left.

Amen. Requiescat in pace. La lotta continua.

Obama’s position has been clear for some time. But it’s been expressed in such a way that he and the Democrats have been able to eviscerate the anti-war movement, owing to the false notion that he was an anti-war candidate.

Remember that the largest anti-war demonstrations in human history occurred before the Bush administration’s descent upon Iraq, with more than a million dead? Where did that sentiment go? In fact, it never went away — three-quarters of he American populace still disapprove of the war. But the American parody of democracy has made that fact irrelevant.

It testifies to a form of control — of media, of propaganda, of politics, and of what is generally thought — that any 20th-century totalitarianism would envy, that the Democrats and Obama have been so successful in co-opting and neutralizing the anti-war movement.

The only answer we have is to begin to build a serious movement in opposition to the Obama administration and its war policy, in the first place by exposing its lies — such as his lie that we are deterring terrorists by killing children in AfPak.

The presidential election campaign was primarily a distraction.  There were serious issues presumably at stake, notably the war and the economy, and the campaign not only ignored them but purposely obscured them.

The reason’s not far to seek.  As the late Australian social scientist Alex Carey wrote, “The 20th century was characterized by three developments of great political importance: the growth of democracy, the growth of corporate power, and the growth of corporate propaganda as a means of protecting corporate power against democracy.”  A trillion dollars spent every year on marketing in the US — where political candidates are sold like cars or coffee — has some effect.

The issues were important, and for that very reason could not be submitted to the voters for their consideration.  The dirtiest secret of American politics — or at least the most important one — may not be the government’s torture policy, filthy as that is, but rather the contradiction between the interests of the tiny elite of possessors (perhaps less than 1% of the US population) and those of the large majority of the population.  But of course it’s not *very* secret: as Noam Chomsky points out,

This is a business-run society: you market commodities, you market candidates. The public are the victims and they know it, and that’s why 80% think, more or less accurately, that the country is run by a few big interests looking after themselves. So people are not deluded, they just don’t really see any choices…

–and, as a result, many ignore the distraction thrown up for them by the advertising/propaganda industry, the “campaign” (particularly protracted in a year when the two major parties are noticeably promoting unpopular policies on the war and the economy: there’s a lot of distraction to be done).  About half of the electorate doesn’t vote, in part because they think not unreasonably that the outcome of the election will make little difference to them and polices won’t change much.  Even in the most recent presidential election “landslides” — 1972 and 1984 — three out of four of the eligible voters did *not* vote for the winning candidate (Nixon and Reagan, respectively).

Most of the media propaganda that passes for politics in the US is directed to what Gore Vidal calls the “chattering classes” — about a quarter of the total US population who make up what some have called the “tertiary bourgeoisie,” i.e., most of those with a traditional college (third level) education.  Given that the actual ruling class — the owners — is probably less than one percent of the US population (approximately a million people), that leaves three-quarters of the US population generally ignored in the “manufacture of consent” — and they return the favor, as they are meant to.

It has not escaped the attention of our rulers in general that people who work long hours and are anxious about their circumstances can spend less time finding out how those circumstances are determined, talking to other people about it, and doing something about it — i.e., practicing democracy.  The US anti-war movement of the 1960s arose in part from the greater prosperity and relative economic equality of that decade in comparison with this one. Americans had the leisure to do politics, as the Trilateral Commission described in dismay in “The Crisis of Democracy: On the Governability of Democracies” (1976). The crisis was that there was too much democracy: that had to be stopped, by the counter-policies of neoliberalism. American politics in the last thirty years shows that it was.

Of course that 25% of the population who are the especial concern of the propaganda system show the effects as well.  It is a surprising fact that, throughout the Vietnam War, support for the US government’s position was directly (not inversely) proportional to years of formal education; that is, in spite of the myth that the anti-war movement of those days was confined to the colleges, in fact the  college-educated were more likely to support administration policy than those without a bachelor’s degree.  The ideological institutions — the universities and the media — were doing their job, even though by the end of the 1960s, 70% of Americans came to say that the Vietnam War was “fundamentally wrong and immoral,” not “a mistake,” according to longitudinal studies by the Chicago Council of Foreign Relations.

It is quite remarkable that, prescinding from the enthusiasms of the moment (Obama v. McCain et al.), polls show that Americans hold political opinions of a general social-democratic/New Deal sort — opinions, it need hardly be said, that they do not hear in the media or from Obama, McCain et al.  The result is that the two business parties, for all their struggle at product-differentiation, like Coke and Pepsi, support largely similar policies that are generally to the Right of those favored by a majority of the population.  Medical care is just the most obvious example, and is has been for decades.

In an important article (”If Obama Loses,” August 18, 2008), Paul Street writes about “Thomas Frank’s widely mentioned but commonly misunderstood book on why so many white working class Americans vote for regressive Republicans instead of following their supposed natural ‘pocketbook’ interests by backing Democrats. Released just before Bush defeated Kerry with no small help from working class whites, Frank’s ‘What’s the Matter With Kansas? How Conservatives Won the Heart of America’ (New York: 2004) has generally been taken to have argued that the GOP distracts stupid ‘heartland’ (white working-class) voters away from their real economic interests with diversionary issues like abortion, guns, and gay rights.  Insofar as Democrats bear responsibility for the loss of their former working class constituency, Frank is often said to have argued that this was due to their excessive liberalism on these and other ‘cultural issues’.

“But Frank’s argument was more complex or perhaps more simple. At the end of his book, in a passage that very few leading commentators seem to have read (a shining exception is New York Times columnist Paul Krugman), Frank clearly and (in my opinion) correctly blamed the long corporatist shift of the Democratic Party to the business-friendly right and away from honest discussion of — and opposition to — economic and class inequality for much of whatever success the GOP achieved in winning over working-class whites.”

Street quotes Larry M. Bartels, director of the Center for the Study of Democratic Politics at Princeton: “Frank exaggerated white working-class voters’ susceptibility to cultural diversion: ‘In recent presidential elections,’ [Bartels] notes, ‘affluent voters, who tend to be liberal on cultural matters, are about twice as likely as middle-class and poor voters to make their decisions on the basis of their cultural concerns.’ In other words, working class white voters don’t especially privilege ‘cultural issues’ (God, guns, gays, gender, and abortion) over pocketbook concerns and actually do that less than wealthier voters.”

Bartels summarizes an effect of the propaganda system. “Small-town people of modest means and limited education are not fixated on cultural issues. Rather, it is affluent, college-educated people living in cities and suburbs who are most exercised by guns and religion. In contemporary American politics, social issues are the opiate of the elites.”  It’s the tertiary bourgeoisie who are (taught to be) distracted by these issues.

Like the presidential election in which they figure, these issues are meant to be a distraction — and they are safe issues from our rulers’ point of view, because decisions on them do not much affect central governmental responsibilities like war and the economy. In our America, policy is well-insulated from politics: we have at best a simulacrum of democracy.  Passionately preferring a candidate who’s within the allowable limits of debate is a recipe for irrelevance, as it’s meant to be.  The show must go on; ignore the little man (many men, actually) behind the curtain.

THE WAR WAS NOT A PRESIDENTIAL CAMPAIGN ISSUE

With two-thirds of Americans saying since the beginning of the campaign that the war in Iraq was a mistake, one might ask why it was removed as an issue.  Why didn’t one candidate put himself in opposition to the war and promise a real withdrawal from Iraq (which Obama didn’t promise)?  That one could even have been McCain, once Obama’s scenery-chewing over Afghanistan and Pakistan (”AfPak,” in DC-speak) made it clear to all (except those liberals who assumed that he would change in office) that he was not an anti-war candidate.  McCain could have protected himself from the charge of flip-flopping by off-loading the responsibility to the “commanders on the ground’ (as they both did anyway) and claim that conditions had changed (either for the better or the worse — it wouldn’t matter).

The answer reveals the nature of the presidential candidacy.  Far from being driven by the polls, presidential candidates are auditioning for a role essentially in the gift of the elite. (The media, owned almost entirely by the largest corporations — there are brave exceptions like *CommonSense* — are the necessary enforcers.) When the contrast between the views of the elite and those of the majority becomes clear, the candidates know to take up those of the elite.  (In 1992 Clinton was barely elected with a vague promise of providing health care as all other industrialized states do.  But when it became clear that Americans favored that plan — “single-payer health care” — when it was explained to them — the Clinton administration replied that it “was not politically possible”: i.e., the elite did not support it.)

Obama was never for the ending of the war and the withdrawal of the U.S. from Iraq.  He was never opposed to the war in principle, just tactically: it was “the wrong war in the wrong place at the wrong time,” he said.  But “removing the troops now,” he said three years ago, “would result in a massive bloodbath for both countries,” and so couldn’t be done.  He criticized the hash the Bush administration had made of the war, and well-funded Democratic party front groups like MoveOn and Americans Against Escalation in Iraq [sic] worked to co-opt the antiwar movement for he Democratic party, but Obama could not adopt a principled opposition to the war.

The reason was that, for all the effort to use the war against the Republicans, the Democrats like the Republicans support the general US government policy of which the war in Iraq is a part.  With Israel as its “local cop on the beat,” as the Nixon administration put it, the US has conducted a generation-long war for the control of energy resources in a 1500-mile radius around the Persian Gulf — from the Mediterranean to the Indus valley, from the Horn of Africa to Central Asia. That war will continue in the coming administration.  And not because the US is dependent on Middle East oil: less than 10% of the oil the US imports for domestic consumption comes for the Middle East.

Rather, the US goal in every administration for half a century has been to secure by means of the control of Middle East oil and gas what Obama foreign policy advisor Zbigniew Brzezinski calls “indirect but politically critical leverage on the European and Asian economies that are also dependent on energy exports from the region.” Those economies in Europe and northeast Asia (China, Japan and South Korea) are the real rivals to US economic hegemony, and the control of energy resources gives the US the whip-hand.  We will not give it up in the new administration, so the war was not an issue.

And it should by now be clear that, whether we call them al-Qaida, Taliban, insurgents, terrorists or militants, the people whom we’re trying to kill in the Middle East are those who want us out of their countries and off of their resources.  In order to convince Americans to kill and die and suffer in this cause, the Bush administration has repeatedly lied about the situation, from trumpeting the non-existent weapons of mass destruction to, apparently, forging incriminating letters.  But the new administration will continue with the biggest lie, that the US is fighting a “war on terror” — as they expand the war to Pakistan, which the Realists believe is the center of armed opposition to US control of he Middle East.

There are in fact presidential candidates who — unlike McCain and Obama — have serious things to say about the US government’s war policy.  The following is from a statement presented to the media on September 10 by Rep. Ron Paul, former Republican presidential candidate, joined by Cynthia McKinney, Green Party presidential candidate, Chuck Baldwin, Constitution Party presidential candidate, and Ralph Nader, independent presidential candidate; former Rep. Bob Barr, the Libertarian Party presidential candidate, said he also agreed with the statement :

“The Iraq War must end as quickly as possible with removal of all our soldiers from the region. We must initiate the return of our soldiers from around the world, including Korea, Japan, Europe and the entire Middle East. We must cease the war propaganda, threats of a blockade and plans for attacks on Iran, nor should we reignite the cold war with Russia over Georgia. We must be willing to talk to all countries and offer friendship and trade and travel to all who are willing. We must take off the table the threat of a nuclear first strike against all nations.

“We must protect the privacy and civil liberties of all persons under US jurisdiction. We must repeal or radically change the Patriot Act, the Military Commissions Act, and the FISA legislation. We must reject the notion and practice of torture, eliminations of habeas corpus, secret tribunals, and secret prisons. We must deny immunity for corporations that spy willingly on the people for the benefit of the government. We must reject the unitary presidency, the illegal use of signing statements and excessive use of executive orders.”

THE ECONOMY WAS NOT A PRESIDENTIAL CAMPAIGN ISSUE

Similarly, the other great issue of the day, represented in the Wall Street bailout, saw no real difference between the candidates.  On the economy, as on the war, McCain could have employed a rhetorical flanking maneuver and taken the popular position in opposition to the bailout, along with the House Republicans, painting Obama as a tool of Wall Street (which he clearly was: the Obama campaign even received more contributions from Wall Street than McCain’s did).  It would however have taken more guts than McCain had to attack Obama on the bailout, as on the war.  More importantly, the elite position favored the bailout, despite the fact that constituents’ calls to congressional representatives were overwhelmingly in opposition.

The joint statement of the third-party candidates did however depart form elite demands on economic issues:

“We believe that there should be no increase in the national debt. The burden of debt placed on the next generation is unjust and already threatening our economy and the value of our dollar. We must pay our bills as we go along and not unfairly place this burden on a future generation.

“We seek a thorough investigation, evaluation and audit of the Federal Reserve System and its cozy relationships with the banking, corporate, and other financial institutions. The arbitrary power to create money and credit out of thin air behind closed doors for the benefit of commercial interests must be ended. There should be no taxpayer bailouts of corporations and no corporate subsidies. Corporations should be aggressively prosecuted for their crimes and frauds.”

POLICY IS INSULATED FROM POLITICS

In the last days of the lesser Bush, it seems that US government policy is being made almost entirely within the executive branch, in the clash of two factions — the Neocons, who gained control after the 9/11/01 attacks and produced the invasion of Iraq, and the “Realists” (for lack of a better name), the foreign-policy establishment that continues as administrations come and go.  There’s no real opposition to the policies that issue from their rivalry.  Both the legislative and judicial branches are irrelevant. Congress has resigned to the administration its authority to make war, to make appropriations (in the bailout of Wall Street) — and even to make criminal law (in the PATRIOT Act, FISA, and MCA); the Supreme Court has made decisions on torture and false imprisonment, but ineffectually: the torture regime and the secret prisons still exist, and the courts have not released prisoners from Guantanamo, originally and openly designed designed to be outside the scope of the US courts.

Nothing characterizes the last year of the Bush administration more than the break with the Neocon dominance and the reassertion of control by the Realists.  The result of incapacity? (Was Bush in fact publicly drunk at the Olympics, as rumored on the net?)  Or pique? (The split between the White House and the Neocons in the office of the Vice-President may already be in place at the time of the Libby affair.)

In any case, Cheney’s easy use of Bush as an instrument (seen in the investigation the Washington Post had done but wouldn’t publish before the 2006 election) is no more. That means that the US government is largely back in the hands of a foreign policy establishment that brought us wars from Kennedy to Clinton.  And their drive for “full spectrum dominance” — hegemony, not survival — may finally make them more dangerous than the murderous Neocons. What some psychologists call splitting should be avoided (”Since the Neocons are bad, the foreign policy establishment must be good”) — noticeable as it may be in the presidential campaign…

There seems to have been a debate within the Bush administration on how best to construct the enemy that justifies the continuing US military presence in the Middle East: the Neocons wanted to make a bete noire out of a pacific and indeed helpful (to US regional interests) Iran, while the Realists wanted to do the same with terrorists in Pakistan — and they seem to have the upper hand in both the old and new administration.

Secretary of Defense Robert Gates was perhaps the senior member of the foreign policy establishment in the Bush administration, and it seemed clear that his people would have charge of the ongoing Middle East War, regardless of who the new president was.  Obama even suggested that he would like Gates to remain at the Pentagon (and Paulson at the Treasury).  In 2004, Gates co-chaired, along with Obama advisor Brzezinski, a Council on Foreign Relations task force report entitled, “Iran: Time for a New Approach,” the main point of which was to advocate a policy of “limited or selective engagement with the current Iranian government.”

Military action against Pakistan — which Obama called for more urgently than McCain — was already underway, and Obama’s intention was to improve upon the “baby steps” (as his adviser said) already taken by the Realists in the Bush administration in killing Pakistanis (many of them apparently Pushtun babies who would take no more steps).  But it was also clear that McCain in office would give way to the Realist consensus in the Pentagon and State Department. (Both McCain and Obama said that they will be guided by the “commanders on the ground”). The Neocons — holed up in the OVP and concentrating on avoiding prosecution (that’s what the Military Commissions Act was about) — have been largely brushed aside.

If one means the consideration of possible policy changes, the presidential election did not take place, and the new administration will present a strategic continuity with the old, both domestically and in the matter of killing foreigners.  God help us.

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Taxpayers receive preferred stock and collateral from a bank borrowing from the Taxpayers, both in the full amount of the loan sought by the bank.  In other words, stock plus collateral in double the amount of the loan. Taxpayers profit from a bailout before anyone else does.

Thanks to Warren Buffett and Goldman Sachs for the heads-up by disclosing the terms of their deal, which should be the low water mark for any Taxpayer bailout.  A higher water mark would be the terms suggested above, which are not uncommon in private equity deals and chapter 11 bailouts.

Paulson’s plan calls for him to buy assets of an unknown but admittedly low value, at an inflated book value, for cash, from the member institutions of his own industry, with other folks’ money (ours).  He sees his industry and its member institutions as too important to fail.  With all due respect, Paulson cannot claim to be objective or disinterested.

Paulson’s plan pays in cash the price on the bank’s books for the subprime mortgage-based assets.  The book value is probably a high percentage of the total balances owed on the underlying mortgages.

Paulson’s price for the subprime mortgage-based assets is favorable to the banks. If Paulson’s price for the subprime mortgage-based assets was not favorable to the banks, the banks would not sell.

Neither Paulson nor the banks have presented any rationale, much less a convincing argument, for the proposition that the US is on the brink of financial chaos.  They have declared it to be so.  If you believe them, the banks are on the brink of failure without a bailout. If you believe them. One of the benefits of the better plan is to put that proposition to the test.  To accept the terms of the better plan, the banks will have to be on the brink of failure.  Otherwise they will not seek a loan, and a new equity participant, under the terms of the better plan that will enable them to survive.

Does the banks’ condition put the US on the brink?  What, because the banks won’t lend without a bailout?  I don’t believe so.  The banks remind me of the Sheriff in Blazing Saddles who takes himself hostage.  The banks commit suicide by not lending.  The banks won’t lend without a bailout? Fine. Don’t lend, banks. Don’t lend starting now.  You already have?  Huh.  Most banks in the DC area are advertising that they are not holding subprime mortgage-based assets and open for business to make loans.

If the banks won’t lend and there is money to be made lending, someone else will lend, like the banks that are advertising.  That’s the free market, and the creative destruction should start now. If things are so bad that banks won’t lend, the Taxpayers would be stupid to do so without the substantial potential for profit that the better plan provides.  Paulson’s plan provides only certainty, the certainty of losses.  Why would anyone buy high for the certainty of selling low?

Hidden in the courts is another problem.  The banks own securities. The value of the securities is based on subprime mortgages.  The banks do not hold the subprime mortgages, or the notes secured by the subprime mortgages; they hold securities.  A trustee for the issuer or the underwriter holds the notes and the equitable interest in the mortgages.  Independent trustees hold the legal interest in the mortgages and the power to foreclose. The mortgages for any particular issue of securities were assembled — without much forethought — from all over the country.  How many mortgages were bundled to offer one issue of the securities?  Lots.  Securitizing a whole bunch of mortgages at once reduced the relative amount of the soft costs necessary to pay the lawyers, underwriters, accountants and auditors necessary for the issue of the securities. There are many different issues of subprime mortgaged-based securities.

So for each issue of subprime mortgage-based securities, here’s the cast of characters and their problems:  the banks (from all over the country) holding a particular issue of securities, the issuer and the underwriter in say, NY, the issuer’s or underwriter’s trustee in say, DE, and the numerous trustees on the individual mortgages (from all around the country where the individual mortgaged properties are located) are difficult to assemble anywhere, and if assembled might fill the Yale Bowl, especially if the meeting is open to the homeowners.  Many of the trustees for the issuers and underwriters did not receive the original notes at closing, and many of the original notes can’t be found.  Banks have attempted to foreclose on the mortgages and sue homeowners for deficiencies after foreclosure, only to be turned away by the courts for lack of standing because they don’t hold the mortgages and cannot produce the original mortgage notes in court.  The trustees won’t act for lack of clear authority from anyone to tell them what to do.  Courts, banks, issuers, underwriters, holders, trustees, homeowner-mortgagors and mortgagees, oh my.

Paulson’s plan, with Taxpayers’ money, makes a fool’s bet, “Heads you win tales I lose,” with no upside for the foolish Taxpayers.  No one is guaranteeing that any recovery can be made on the subprime mortgage-based assets (in excess of the cost of collection), no one is guaranteeing that the banks will lend after a bailout, and nobody is even suggesting that this bailout, the one currently proposed, is the only one that will be necessary.  The precedent for others will be set by this one.  What about the securitized commercial mortgages of say, shopping centers in neighborhoods decimated by foreclosures?  What about the securitized asset-based lending of say, department stores’ inventories that can’t be sold because consumers are paying their variable rate mortgages instead of buying new washing machines?  What about the securitized credit cards that consumers are not paying to pay their mortgages instead, after maxing out their credit cards to pay the mortgage? Tune into call-in shows on radio or TV and hear the financial experts tell consumers to not pay credit cards and mortgages in order to feed their families.  I have.  The owners of securitized variable rate secured debt in any form (guess who?) are all out there, awaiting the denouement of the current drama and preparing their own play for the same treatment.  The banks will be back again for more bailouts after this one.  By definition, Paulson’s plan creates a moral hazard, and the speculative trading of the subprime mortgage-based assets and securitized variable rate secured debt has already begun.

The better plan calls for the Taxpayers to receive a first priority lien on fairly appraised collateral, along with an equity kicker.  After the Taxpayers receive the preferred stock interest valued at their investment, the subprime mortgage-based assets could be the collateral at their appraised value for the loan.   The value of the subprime mortgage-based assets as collateral is their appraised value, which may be ten or twenty times the total balances remaining on the underlying mortgages and is not likely to be the value of the assets carried on the bank’s books.   Understand that the loan and the investment are the same money in the better plan, and if the bank is able to repay the loan, the Taxpayers could double their money because they will still own the equity kicker. If the bank can’t repay the loan, Taxpayers recover on their collateral and share, as the most favored shareholder, in the liquidating dividend.  BTW, where are the government’s bank examiners requiring the write-down of the value of the banks’ books of the subprime mortgage-based assets? I think they work for Paulson.  Seriously, I do.

No more private profit at Taxpayers’ risk.  Under Paulson’s plan, we are about to nationalize the almost certain losses incurred in running the banks badly, and at the same time we leave the banks, without their losses, with more money, in the hands of the folks who ran them badly.  The only thing we have socialized in this country, after the bailout, will be the (mostly) unrecoverable losses of banks, acquired for cash at book value.  Somebody else already got the profit and the fees from making the subprime mortgage loans and from issuing the securities.  After the bailout, the banks will have shed their private losses, and received a premium of public cash for doing so. Private profit, public losses, all around.

A bank seeking the Taxpayers’ loan is not an admitting bankruptcy; the terms are merely a recognition of the risk in the loan that requires a private equity kicker to attract the lender (us).  Private equity is not bankruptcy.  The terms would be appropriate, for example, if I approached you to purchase an apartment building, me being broke.  You would put up the money for a first trust and a preferred ownership position for receipt of income, get paid in full first with interest, and end up with 50% of the apartment building and its appreciation, all your money paid back with interest, and half the income stream.  I would have 50% of the apartment building and its appreciation and share in the income stream once you are paid off in full with interest.  I have represented clients in similar leveraged deals where the financier (you, in my example) gets first payout on cash loaned (not contributed) and 50% of the equity in the deal.

For example, the financier in one deal (which involved a third party 80% first mortgage for the purchase of a real estate portfolio appraised at $70M) put up $14M, was paid back in full with interest in five (5) years, and retained a 50% interest in a real estate portfolio and its appreciation and income stream.  14M up, 14M with interest back plus 35M with appreciation and half the income stream off 70M.  At ten percent interest on the loan and a market appreciation of 1% on the portfolio, my client’s deal paid the financier, on a $14M loan (in simplistic terms), $1.4M per year in interest, $350K per year in appreciation, and $14M on the fifth anniversary, a total payout of $22,750,000 in five years, with an equity kicker of a $35M interest in a real estate portfolio, the income stream it creates and its appreciation.    The bank does not have to borrow from the Taxpayers if they don’t like our terms.

Buffett is not paying book value in cash for subprime mortgage-based assets, with no equity kicker or even a loan structure.  Buffett is buying into value.  Goldman Sachs has an international name with the best talent to run a highly leveraged portfolio and assets to match his buy-in twelve times over.  GS is poised to convert to a money center bank, among other options open to it, and would likely survive were there no bailout and no Buffett.  Buffett is not buying subprime mortgage-based assets, or even lending money. He is buying a preferred class of stock issued for him, which has first priority above all other owners.  In other words, Buffett is secured by all of GS assets, including the money he is paying in, if anything goes wrong, before any other owner gets paid.  If things go right, he receives a 10% annual dividend before anyone else on the equity side gets paid plus the value of his preferred stock. If the Taxpayers have a chance to take Buffett’s deal with Goldman Sachs they should take it.  Investing in Goldman Sachs preferred stock is not the same as investing in or lending to a bank with subprime mortgage based assets, much less buying the subprime mortgage-based assets at book value without an interest in the bank or a note from the bank to pay the money back.

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Two Pakistan experts discussed Pakistan’s nuclear weapons in a forum sponsored by the Financial Times last February.  STEPHEN COHEN: “The nuclear assets are perhaps still vulnerable, one scenario for Pakistan would be a falling out among the military, or perhaps a politician trying to divide the military - in these cases, short of total state failure, nuclear assets could be important in a power struggle, and who knows what would happen to them. This is, of course, a distant possibility, and Ali is correct in emphasising the unity of the armed forces. However, there’s a lot of concern that under stress unpredictable things could happen, and Pakistan’s earlier record as the wholesaler of nuclear technology to other states does not inspire confidence.” TARIQ ALI: “Cohen is right to say that a split in the army could have catastrophic results, but this is unlikely unless the US decided to invade and occupy the country.”

Nothing characterizes the last year of the Bush administration more than the break with the Neocon dominance of his administration.  The result of incapacity? (Was Bush in fact publicly drunk at the Olympics, as rumored?)  Or pique? (The split between the White House and the office of the vice-president may already be in place at the time of the Libby affair.)  In any case, Cheney’s easy use of Bush as an instrument (seen in the investigation the Washington Post had done but wouldn’t publish before the 2006 election) is no more. That means that the US government is largely back in the hands of a foreign policy establishment that brought us Clinton’s and Kennedy’s wars.  And their drive for “full spectrum dominance” — hegemony, not survival — may finally make them more dangerous than the murderous neocons. We should avoid what some psychologists call “splitting” (”Since the neocons are bad, the foreign policy establishment must be good”) — noticeable as it may be in, e.g., the presidential election.

Gates is perhaps the senior member of the foreign policy establishment currently in the administration. The neocons seem to been have rather roundly repulsed in the last year, and the foreign policy establishment is back in charge — the very people who’ll be in charge in an Obama administration: e.g., it’s been suggested that Obama will retain Gates (avid to kill people in Pakistan) at the Pentagon. (We forget that My Lai was not an aberration but the way that that war was fought; the FPE seems to lack imagination.)

[2. THEATRES OF US MIDEAST WAR] With Israel as its “local cop on the beat,” as the Nixon administration put it, the USG has conducted a generation-long war for the control of energy resources in a 1500-mile radius around the Persian Gulf — from the Mediterranean to the Indus valley, from the Horn of Africa to Central Asia. That war will continue in the coming administration, whoever is president.  Whether we call the resistance to US control “Al-Qaeda,” “Taliban,” “insurgents,” “militants” or “terrorists” — they are people who wants us out of their countries and off of their resources.  From the US POV, the war has several theatres:

[A. AFPAK]  Despite angry protests in Pakistan, Pentagon officials said U.S. cross-border commando missions may grow in coming months, the Los Angeles Times reports. [JFP 9/5]

U.S. troops claim to have killed 220 Taliban in south Afghanistan operation last week. [Reuters] The US military says that a winter “surge” is planned for Afghanistan.

[B. IRAN] US fears Russia will sell Iran S-300s. “If Tehran obtained the S-300, it would be a game-changer in military thinking for tackling Iran. That could be a catalyst for Israeli air attacks before it is operational,” said Dan Goure, a long-time Pentagon advisor. “This is a system that scares every Western air force,” he said. [PTV-IR]
Obama adopted the crass “game-changer” term for his scenery-chewing speech against Iran last Monday, as he continues to try to ingratiate himself with the Israel lobby and counter attacks on Biden’s (in fact obsequious) support for Israel.

[C. IRAQ] The U.S. military says that it returns control of western province of Anbar to Iraqi forces. [AP]

Thousands of Shi’ites protested Friday against the U.S. presence in Iraq, heeding orders from “anti-U.S. cleric” Moqtada al-Sadr for a peaceful show of force on the first Friday of the Muslim holy month of Ramadan.

Bob Woodward’s new book, The War Within: A Secret White House History, 2006-2008, says that the U.S. troop “surge” of 2007, in which President Bush sent nearly 30,000 additional U.S. combat forces and support troops to Iraq, was not the primary factor behind the steep drop in violence there during the past sixteen months.  Rather, Woodward reports, “groundbreaking” new covert techniques, beginning in 2007, enabled U.S. military and intelligence officials to locate, target and kill insurgent leaders. [These are the death-squad tactics pioneered by the Kennedy administration in Latin America and extended to Vietnam, where the CIA-run "Phoenix" program killed more than 20,000 people.]

On the contrary,  Barack Obama asserted that the troop surge in Iraq has been more successful than anyone could have imagined, in his first-ever interview on FOX News on Thursday … Obama acknowledged the 2007 increase in U.S. troops has benefited the Iraqi people. “I think that the surge has succeeded in ways that nobody anticipated,” Obama said while refusing to retract his initial opposition to the surge. “I’ve already said it’s succeeded beyond our wildest dreams.”

In an interview with In These Times published on July 29th, Noam Chomsky summed up the success of the so-called surge of U.S. forces in Iraq as follows: “Most of the educated class [in Iraq] has either been killed or fled. The country is an array of militias, of warlords and gangs, of which the U.S. is just the biggest and most powerful militia. They call the Iraqi Army its sub-militia. We’ve just destroyed the country, and it may never recover. So that’s the way that the surge has succeeded.”

[D. INDIA] The U.S. gained key international backing Saturday for a bitterly contested plan to sell peaceful nuclear technology to India [which] has tested atomic weapons but has refused to sign global nonproliferation accords. Washington said the landmark deal, which still needs U.S. congressional approval, will place India’s nuclear program under closer scrutiny. But detractors warned it could set a dangerous precedent in efforts to rid the world of weapons of mass destruction … The 45-nation Nuclear Suppliers Group, … which governs the legal world trade in nuclear components and know-how, signed off on the deal after three days of contentious talks in Vienna and some concessions to countries insistent on holding India to its promises not to touch off a new nuclear arms race.
The approval represented a major foreign policy victory for President Bush, who had made the deal a centerpiece of a major 2005 overture to India.  Secretary of State Condoleezza Rice, on a trip to North Africa [?!], called the deal “landmark” and said final congressional approval would be “a huge step for the U.S.-India relationship.”
The trade waiver paves the way for a U.S. reversal of more than three decades of policy. India has been subject to a nuclear trade ban since it first tested an atomic weapon in 1974. The country conducted its most recent test blast in 1998…
The International Atomic Energy Agency signed off on the deal last month. Now, the Bush administration will have to scramble to get approval from Congress in the few weeks remaining before lawmakers adjourn for the rest of the year … “I certainly hope we can get it through,” Rice said.
Initially, more than a dozen nations including China and Japan sought to block approval by the nuclear group, which operates by consensus. But in negotiations that began Thursday, that bloc dwindled to three holdouts — Austria, Ireland and New Zealand — who expressed grave misgivings about bending the rules to accommodate U.S. sales to India…
John Rood, acting U.S. undersecretary of state for arms control issues [September 2003 to February 2005, Deputy Assistant Secretary for Forces Policy at the Department of Defense; before &n after at the NSC], told reporters in Vienna that the deal would help meet India’s growing energy needs while helping the developing country, a major polluter, cut back on harmful emissions contributing to global warming. [AP]

[3. EUROPE] NATO’s early-warning surveillance system has been plugged into Georgia’s air-defense network in the first evidence the US-led alliance is shoring up Georgia’s military, the London Times reports. Proposals were under discussion to fly NATO Awacs over the region; no decision had yet been taken. Such a development would be viewed as provocative by Russia. [JFP 9/5] Meanwhile it’s reported that Georgia admits to dropping cluster bombs during its attack on South Ossetia. [AP]

[4. RUSSIA] It’s surely a mistake to see the “geopolitical struggle between Moscow and Washington over the energy riches of the Caspian Sea basin” as the immediate cause of the Russian military action against Georgia in August, although it was surely a mediate cause (i.e., that’s why the US was arming and encouraging the Georgians). The immediate cause was the mad Saakashvili’s attack on civilians in his invasion of Tshkinvali (including the use of cluster bombs — an Israeli contribution?). And the Russian military seems largely to have confined itself to military targets in response.
We need to recall the Clinton administration’s machinations in Georgia in regard to oil, but we also need to recall the context:  the US attempt (almost successful) in the 1990s to reduce Russia to the status of a Third World country.  The reason that US policy makers are so hysterical about Putin is that he prevented it.  That’s why he has the highest approval rating at home of any world leader.
As Doug Henwood of the Left Business Observer put it, “[Putin's] resurgent Russia [has] made most Russians better off than they were during the 1990s, when they were run by Clinton, Harvard, and the IMF via Yeltsin — [now] it offers a counterweight to U.S. imperial power. The U.S. had it easy in the 1990s. Now with Russia — not to mention China — it can’t have its way anymore. Which is, on balance, a good thing.”
It’s quite wrong to see US policy (in the Clinton era or now) as “a calculated effort to enhance Western energy security”: that would be to ignore (a) how little  energy the US receives from the region; and (b) the real US motive, to secure by means of the control of ME oil what Zbigniew Brzezinski calls “indirect but politically critical leverage on the European and Asian economies that are also dependent on energy exports from the region.”
And that policy very much continues.  “From 1998 to 2000 alone, Georgia was awarded $302 million in U.S. military and economic aid — more than any other Caspian country…” But Cheney has just arrived in Tblisi with $1 billion more — putting little Georgia in the top rank of recipients of US “foreign aid” (after Israel and Egypt, of course) for the year.

CHRIS DOSS. RIA Novosti reports that the crew of U.S. Coast Guard Cutter Dallas, which arrived on Monday morning at the Ukrainian port of Sevastopol where Russia has a naval base, has refused to go ashore amid anti-NATO protests, customs officers said. “Over 60% of the population of Ukraine as a whole is against NATO membership, and in the east it’s probably close to 90%. The thing is that the Ukrainian government is currently dominated by the western (largely rural) Galician region, which is extremely atypical for Ukraine.”

[5. ECONOMY]  Joblessness hit a five-year high in August, shedding 84,000 jobs to reach 6.1 percent. The new figures, which brought total job losses for the year to more than 600,000, were markedly worse than had been anticipated, dashing hopes that the economy would recover in the second half of 2008 and confirming that the country’s economic jitters have spread beyond the housing and financial sectors. “These are really ugly numbers,” said one economist. “Things are going to get worse before they get better.” Treasury Secretary Henry Paulson met with Fannie Mae and Freddie Mac officials late Friday to hash out the details of a bailout; the LAT reports that Paulson and Federal Reserve Chair Ben Bernanke were due to continue meeting with Fannie and Freddie executives through the weekend, in the hopes of unveiling a finalized rescue plan before financial markets open Monday morning. It’s thought the deal would see the companies put under conservatorship, leaving them at least temporarily under government control; common stock would likely be heavily devalued if not entirely wiped out. [And] new figures show foreclosures on the rise…

Oil prices fell on Wednesday as the US government released crude stocks from its strategic reserve after Hurricane Gustav halted energy production in the Gulf of Mexico … Oil prices were also weighed down by a strong dollar, which Wednesday struck an eight-month high against the euro. [AFP 9/3]

[6. POLICE]  Ramsey County [i.e., St. Paul MN] prosecutors have formally charged eight members of a prominent activist group with conspiracy to riot in furtherance of terrorism. The eight members of the RNC Welcoming Committee are believed to be the first persons ever charged under the 2002 Minnesota version of the federal PATRIOT Act. The activists face up to seven-and-a-half years in prison. [DN 9/4]

Police in St. Paul are being accused of continuing to intimidate a group of video makers that traveled to the Twin Cities to document police misconduct during the Republican National Convention. On Saturday, police raided a home where members of the I-Witness Video collective were staying. Members of the group were detained for over two hours. The building’s landlord forced the group to move out yesterday after police armed with batons and a battering ram entered their living space for a second time. [DN 9/4]

The Ramsey County Court has begun to slowly process and release some of the nearly 300 people detained over the past few days. [DN 9/4]

[7. ELECTION]  Everyone knows that the Republican establishment is belligerent and imperialist.  Not everyone (particularly in the anti-war movement) admits that the Democratic establishment is belligerent and imperialist, in part because the Democrats are disingenuous about it.
Regarding the serious policy questions facing the US today (mostly reducing to one: “Whom should  the US military kill?”), it’s necessary to realize that the presidential election is meant to be a distraction and that the pretense that the Democratic candidate is anti-war is a fraud.  In our America, policy is well-insulated from politics — we have at best a simulacrum of democracy — and a serious anti-war movement has to recognize that, if it’s not to be co-opted. Passionately preferring a candidate within the allowable limits of debate is a recipe for irrelevance. (That’s what they want you to do.)

MORT BRUSSEL. “There is a feeling that Obama and the Democrats have totally lost their electoral footing, self destructing — as in Obama on the O’Reilly show saying the ’surge’ was a great success.”

WILLIAM BLUM. “I’m sorry to say that I think that John McCain is going to be the next president of the United States. After the long night of Bush horror any Democrat should easily win, but the Dems are screwing it up and McCain has been running more-or-less even with Barack Obama in the polls [in part because ] the Democrat leadership is not on record as categorically opposing either conflict [Iraq or Iran]. [Nor do they consider it acceptable to question McCain] about accusations by his fellow American prisoners about his considerable collaboration with his Vietnamese captors. Nor a word about McCain’s highly possible role in the brutal Georgian invasion of South Ossetia on August 7 … Obama has lost much of the sizable liberal/progressive vote because of … his exposure as a center-rightist, and he now may have lost even his selling point of being more strongly against the war than McCain — if in fact he actually is — by appointing Joe Biden as his running mate. Biden has long been a hawk on Iraq (as well as the rest of US foreign policy), calling for an invasion as far back as 1998.”

FORMER SEN. MIKE GRAVEL ON PALIN: “Foreign policy experience? Thank god she has none beyond that of a normal citizen subject to the militarization of our culture over the past 50 years, particularly so in Alaska with its strong military presence. The three other would-be leaders have tons of experience among them. But whether liberal or conservative all three are committed to a policy of American imperialism with the self-appointed role of world policeman. This role of trying to influence the world with our military might sustains bloated defense budgets that profit the few and impoverish the social and economic needs of the many.” [CP 9/3]

MCCAIN CAMPAIGN MANAGER RICK DAVIS in a chat with Washington Post reporters and editors: “This election is not about issues. This election is about a composite view of what people take away from these candidates.” [THE NOTE]

…The governor [Palin] advocated for the admittance of Georgia and Ukraine into NATO. When Gibson said if under the NATO treaty, the United States would have to go to war if Russia again invaded Georgia, Palin responded: “Perhaps so. I mean, that is the agreement when you are a NATO ally, is if another country is attacked, you’re going to be expected to be called upon and help. “And we’ve got to keep an eye on Russia. For Russia to have exerted such pressure in terms of invading a smaller democratic country, unprovoked, is unacceptable,” she told Gibson.
“Let me speak specifically about a credential that I do bring to this table, Charlie, and that’s with the energy independence that I’ve been working on for these years as the governor of this state that produces nearly 20 percent of the U.S. domestic supply of energy, that I worked on as chairman of the Alaska Oil and Gas Conservation Commission, overseeing the oil and gas development in our state to produce more for the United States… but I want you to not lose sight of the fact that energy is a foundation of national security. It’s that important. It’s that significant,” she said.
Palin said that she believed a nuclear Iran presented a threat to “everyone in the world” and that if Israel’s existence was threatened by those weapons it had a right to defend itself.  “We have got to make sure that these weapons of mass destruction, that nuclear weapons are not given to those hands of [Iranian President Mahmoud] Ahmadinejad, not that he would use them, but that he would allow terrorists to be able to use them,” she said.  “Well, first, we are friends with Israel and I don’t think that we should second-guess the measures that Israel has to take to defend themselves and for their security.”
When asked whether the United States should be able to invade Pakistan in pursuit of terrorists along the Afghanistan border, Palin demured. “Is that a yes,” asked Gibson. “That you think we have the right to go across the border with or without the approval of the Pakistani government, to go after terrorists who are in the Waziristan area?” Palin responded, saying: “I believe that America has to exercise all options in order to stop the terrorists who are hell bent on destroying America and our allies. We have got to have all options out there on the table.”
“I would never presume to know God’s will or to speak God’s words. But what Abraham Lincoln had said, and that’s a repeat in my comments, was let us not pray that God is on our side in a war or any other time, but let us pray that we are on God’s side.”
“Charlie, if there is legitimate and enough intelligence that tells us that a strike is imminent against American people, we have every right to defend our country. In fact, the president has the obligation, the duty to defend…”

http://abclocal.go.com/kgo/story?section=news/politics&id=6385821