Rescue Main Street if you want to rescue Wall Street

In my last post on the topic of the current fiscal crisis, I wrote,

Our political leadership realizes this, which is why politicians are up in arms about the irresponsibility, gullibility, and sometimes outright cynicism of Wall Street, but dare not breathe a word about the irresponsibility, gullibility, and sometimes outright cynicism of Main Street.  After all, someone had to sign all those subprime mortgages, and let’s face it, he wasn’t a shortsheller and Warren Buffet: he was you and me, J.Q. Public.

This statement in retrospect caused me a lot of ethical concern about myself, for not only is unfair, but also unwise.  You see, like everyone, I’ve been bothered by a double-edged reservation concerning the bail-out which was just rejected.  On the one hand, I am nervous about the direction in which the proposed plan might take our country; my friend Mike Gallen, after the manner of Noam Chomsky, has called it corporate socialism, but I have been arguing that really it’s just the same old crony capitalism utilizing an old Keynsian device (“the lender of last resort”); as such, it does not represent real oversight and regulation.  On the other hand, I am concerned about the effect a lack of a bail-out will have upon our future, as well.  Yet, although the bill had included some basic safeguards, I notice it lacked something critical: help for the home-owners who are being kicked to the curb by bankruptcy.

And here is the crux of the matter: while it is true that the world is suffering for the short-sighted decisions of a few million CEOs, accountants, and homeowners, can we really blame the latter?  Surely the CEOs and accountants knew what they were getting our economy into; in a sense, they were behaving like drug pushers, preying upon the hopes and gullibility of everyday joes who wanted a piece of the American dream pie (which raises the other question, namely, that ultimately what is really the cause of our woes is the particularly materialistic way in which what it means to be American has been construed since the Reagan era).  From a moral perspective, the bail-out plan is very disgusting, for essentially we’re rescuing the drug dealers and leaving the junkies out on Skid Row.

Here’s my logic: the recession is originating from foreclosures; therefore, bail-out homeowners, not (just) their banks.  The two bail-out plans provided for no assistance to J.Q. Public, and for this reason, I’m leaning
toward the “no bail-out” side.  Perhaps the firms do need to be saved for macroeconomic liquidity, but without addressing the fundamental systemic problem — the epidemic of foreclosures — saving Wall Street from its excesses may only delay the inevitable.

The World University Project

Last week I mentioned the World University Project (WUP), a very interesting endeavor headed up J. Nathan Matias.  Here’s their introduction:

“The World University Project will take a team of young academics to universities around the world to give workshops in their fields, connect students with their peers elsewhere, and create a digital documentary on the role of universities in the era of globalisation.

“With recent growth in international academic programs and increased emphasis on higher education in economic development, demand is growing for academics to teach and research outside their home country. In this dynamic environment of differing university settings and objectives, rising academics and administrators need to be prepared for the challenges of a career abroad, made aware of opportunities, and informed on the varied cultures, structures, and resources which define such a career.

“The global economy increasingly requires international awareness and cooperation. University life provides a common reference for students to consider each others’ unique lives. This project will make that connection possible.  By teaching workshops, the team will provide a service to participating institutions while working directly with students. The resulting digital documentary will then combine the stories of students, analyses from experts, and the team’s observations into a rich interactive resource.”

The project is in need of volunteers.  If you’re interested in helping, please contact it at worlduniversity [at] gmail [dot] com.

Re: “The Power of Money”

My friend Mike Gallen has written a strong response to my post from yesterday. He raises an excellent point: fundamentally, in any borrowing situation, the power in the relationship really resides with the lender.  After all, they are the ones putting up the cash; to paraphrase the Bible, he that giveth may also taketh away.  However, my sense is that lending grants leverage only when there is also a will to back it up.

Historically-speaking, lenders have always been in a peculiar position in that they need a strong state apparatus, replete with police and military forces, to recoup the money owed to them.  In other words, they must have the support of a currency-producing government that enjoys sufficient legitimacy and hard power to compel obedience from populations within (and frequently without) its borders. The great myopia of the laissez faire economics espoused by the Reagan, Clinton, and Bush administrations thus becomes clear: governments do not “get in the way” of markets, they provide the legal space and the physical means by which markets can even exist.  To the extent that the myth and dogma of deregulation can be said to be true, it is only in so far as we see a government restraining itself.  Erasing its influence altogether is an impossibility, and even if the government could accomplish such a feat, the market would be quickly replaced by low-level non-monetary bartering, as we have seen in Somalia.

At root is the issue of political will: the government has to be prepared to back up the lender, and until a few months ago, the United States government was indeed ready to do so.  But now consider the staggering rate at which middle-class Americans are simply walking away from their mortgages — and the total lack of repercussions for their action.  The scale of per capita debt in our country is so immense that were this the 18th Century the entire population would be sentenced to debtor’s prison.  Our political leadership realizes this, which is why politicians are up in arms about the irresponsibility, gullibility, and sometimes outright cynicism of Wall Street, but dare not breathe a word about the irresponsibility, gullibility, and sometimes outright cynicism of Main Street.  After all, someone had to sign all those subprime mortgages, and let’s face it, he wasn’t a shortsheller and Warren Buffet: he was you and me, J.Q. Public.

But just because the politicians are willing to offer up a fex execs to the guillotine doesn’t mean that in the long-run they are actually prepared to exert real regulatory muscle upon the market.  This is where my disagreement lies with Mike: they’ll give us blood, but in the end, that’s all we’ll get; real reform is radically unlikely.  All you need to do is look at the Treasury’s proposed plan to see that the Bush administration is not serious about reigning in Wall Street:

Re: “We are all socialists now”

In response to Mike Gallen’s post, “We are all socialists now,” here are some of my own thoughts.

The first is to question whether we are actually dealing with, as it were, “semi-socialism [i.e., for the rich]“: since its creation during the FDR administration, the Fed has always had the responsibility of being what’s called the “lender of last resort,” and it has performed this function several times, most notably during the savings and loans crisis twenty years ago. Theoretically at least, the Fed’s action is a capitalistic solution to a capitalistic problem, i.e., the boom-bust cycle and the Darwinian weeding out of faulty sectors of the market. Therefore, this is not even regulation per se, much less (semi-)socialism.

The only difference between the current action and its precedents is the sheer awesome scale of the lending — leading me to the second thought. At $700 billion, the bail-out equals the budget for the on-going Iraq War (cf. here and here as well).  That’s no small potatoes.  Can the American taxpayer really shoulder the looming multi-trillion dollar deficit?  Whoever becomes president of dire necessity will have to balance the budget and tackle the deficit, which probably means slashing social programs and raising taxes on all classes of society.  This isn’t an easy sell with the electorate, nor is it just or imaginative (do we really need more neoliberalism to fix what is essentially a neoliberal bungle?), but at least with Obama we can expect the rich to shell out this time, too.

In summary, then, Bush hasn’t gone socialist, just more capitalist.  Nevertheless, Noam Chomsky makes a very good point when he remarks that what we’ve been seeing since the Reagan administration has been a process of socializing cost and risk and privatizing profit (click on the image above).   The difference, however, lies in the fact that whereas in a socialist system the society shelled out via taxes, in a capitalist system it is shelled out via debt and taxes.

CyberChaikhana returns

“Success is 10% inspiration and 90% perspiration,” remarked Thomas Edison, the inventor of the electric light bulb and a man familiar with the challenges of the creative process.  It takes real struggle to birth something, be it a child, a contraption, or in our case, a book.  We’ve come a long way with CyberChaikhana, and after the late-summer interlude it’s now time to leap back into the struggle.

I will begin writing the complete rough draft manuscript, chapter by chapter.  It will take me a few months to finish; as I proceed, I will release material.  Additionally, I will return to my previous habit of publishing a post in this space at least once a week.  I invite everyone to join our Google group to receive automatic updates, and most of all to spread the word — Schwartz and CyberChaikhana are back!