Guest Post: Geithner’s Faustian bargain, the general interest, Jean-Jacques Rousseau and Uncle Sam’s lost inner compass

Submitted by Swedish Lex, who helped unwind Sweden’s imploded banks in the 1990s:

The U.S. Secretary of the Treasury appears to be close to proposing a Faustian bargain that, seemingly, will involve considerable Government subsidies towards a limited number of economic operators. In return for the sacrifice – the creation of massive moral hazard – Geithner would be able to sustain the mirage of the financial system’s strength.

This guest post will provide a few, brief, observations on the present situation and, in particular, on some of the underlying differences between Europe and the U.S. that are shaping the respective responses to the crisis.

Congress’s financial watchdog, the Congressional Oversight Panel, on 19 March organised a hearing “Learning from the Past — Lessons from the Banking Crises of the 20th Century” (video soon available). Tim Geithner declined the COP’s invitation but if he had attended, he would have had an opportunity to listen to Bo Lundgren, Director General of the Swedish National Debt Office and Former Swedish Minister of Financial and Fiscal Affairs, laying out his conclusions from the Swedish bank bailout in the early 90s.

One is tempted to think that the U.S. could have been spared a lot if only Geithner had found a slot in his agenda to attend the COP hearing. From Lundgren’s testimony:

The other main conclusions that I believe you can draw from my experiences of the Swedish banking crisis are that:

Government intervention is unavoidable if you are facing a systemic crisis.

Prompt action is important. A comprehensive approach is better than a piecemeal strategy.

Transparency enhances confidence and promotes the public legitimacy of the measures that have to be taken.

Broad political consensus and resolute political actions taken by the political system are probably more important than any of the technical aspects on how to deal with the crisis. This also enhances confidence, not least internationally, in our ability to deal with the crisis.

In order to limit moral hazard and get public support, it is important to have a stronger approach and deal with the banks firmly, enforcing the principle that losses are to be covered in the first place by the capital provided by the shareholders. If that means that banks must be nationalised, then so be it. They can be privatised again at a later stage.

Lundgren’s conclusions are intended to be of general nature and are not only applicable to lilliputian Sweden. The Swedish approach, as summarised by Lundgren, leaves no room for Faustian bargains à la Geithner. The Swedish Government during the financial crisis intervened comprehensively, not to socialise, but to solve the problem while avoiding moral hazard. All in the general interest. This point was reinforced during the Q/A session at the COP hearing when Lundgren was asked how the Swedish Government managed to avoid corrupt management of nationalised banks and of the other financial institutions that effectively were under Government tutelage for a certain period. The response was in essence that it was obvious, and never in doubt, that the Government, and its appointed agents, would act to protect the general interest.

Lundgren also said that Sweden had no qualms about diluting the holdings of incompetent owners of failing financial institutions and throwing out their equally incompetent management. On the contrary, it was a prerequisite to make Government intervention legitimate in the eyes of citizens.

Lundgren’s response to the COP’s question revealed a degree of mutual incomprehension that may express a major cultural divide. That virtual barrier may render the Swedish bailout solution inapplicable to the U.S., despite its substantive merits.

Furthermore, the notion of the general interest is enshrined in EU Law and guides the actions of the EU and its institutions, including when addressing the financial crisis. The EU Treaty stipulates that “The Commission [the EU’s executive] shall promote the general interest of the Union and take appropriate initiatives to that end”. The roots of the notion of the general interest can be traced from Jean-Jacques Rousseau (“the general will”) through the French Revolution to our times where it thus constitutes integral part of the EU’s political and legal arsenal.

So, how does a fuzzy principle with roots dating from the Enlightenment impact the Realpolitik of the current financial crisis? Well, consider the recent and unilateral decision by France to subsidise its car manufacturing Industry, provided however that the state funds would “protect” French jobs and not those in other European states. Sarkozy’s blatant protectionism enraged European partners but no peer pressure, including from Germany, could however make de Gaulle’s political heir change his mind. What the French however forgot (yet again) was that the EU Treaty forbids state subsidies within the EU that distort competition. The EU Commission has to vet, and approve, any measure by the Member States that risk tilting the EU playing field that is (supposedly) level.

A couple of days ago, the Financial Times reported that the French Government was backing down from its initial proposal in order to make it compatible with the conditions imposed by the EU Commission as required by the EU Treaty. The French know that by ignoring the EU bureaucrats in Brussels, they would eventually have been defeated in the European Court of Justice. A handful of EU career bureaucrats in Brussels thus wield more power when they act to uphold the general interest than the combined EU Governments, minus France.

The EU Institutions and the Member States are currently working on a major overhaul of all financial regulation, the guiding principle being that of the general interest.

Jean-Jacques Rousseau is quoted among the philosophers that influenced what would become the U.S. Constitution. The U.S. Constitution states in its preamble that one of its purposes is to “promote the general welfare” (see “general will” according to Rousseau). The preamble however seems to be of limited nature and practical influence (readers’ comments welcomed). Consequently, where the EU (and Sweden) puts the general interest at the core of its action, the U.S. Institutions appear to lack a similar principle to protect against special interests and to promote sensible policies.

Naked Capitalism has been one of the most efficient and fastest forums for analysis and critical scrutiny of governments’ handling of the financial crisis. Otherwise insightful NC commentators however often seem disarmed when confronted with the invisible concrete wall of special interests that stands in the way of devising appropriate policy responses.

To conclude, Geithner’s new plan will be closely scrutinized in capitals across the globe and will influence stakeholders’ view on the capacity, or inability, of the U.S. to address the financial crisis and to reform its institutions. The world is much in demand for competent leadership after a year of costly, improvised and inefficient bailouts. If Geithner’s plan receives a hostile welcome domestically, the ambition of the U.S. to lead again internationally, beginning at G 20, will suffer an instant blow. If the Obama Administration and Congress are unable to govern in the general interest at home, their influence abroad will thus dwindle accordingly.

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  1. Anonymous

    THANK YOU. Finally a voice of experience illustrating the difference between concrete and contrived “confidence.”

    This is what Wall St (or any insulated competitive group) can’t see. The US financial industry grew out of international confidence in the security of our ‘system.’ Then that became twisted into confidence in our “earning power.”

    The markets have tanked and no one really believes we’ll be at 30% returns again (it was all imaginary wealth afterall — mark-to-market, phony rated CDOs, ridiculous leveraging.) So the jig is up. Lucky for the US, the world is hurting too, so we don’t have an immediate party to replace us. We can’t be a “service” economy, but we can restore confidence by showing the world that we have the insight and the tenacity to shake reality into the deluded financial world. A strong show of political will and keen insight is the only tool left in our box. Barring that, what confidence can the world really have in the U.S.?

    Keep up the good work Yves. And guest posts from these types of folks are a sharp choice.

  2. K Ackermann

    Why would the G-20 care if the US imposed withering liabilities on the public if it gets the economy moving again?

    Is public interest different than general interest in Europe?

    It is here.

  3. tyaresun

    While I am not an expert on the political history of the US, as an Asian immigrant, I can see the respect for “the general welfare” in action in my everyday life. The respect for general welfare pervades all the grass roots organizations. It is when one looks at the higher level political organizations that one sees the respect general welfare disappearing, particularly so in the decade.

    I was hoping that this respect for general welfare will come back with Obama, that is the change I voted for. I am willing to give him more time. I hope I am not disappointed.

  4. Anonymous

    I thought I saw Obama lie tonight. It was when he was asked about Geithner being secure in his job. I can only hope at this point that this was a lie.

    The general interest of the united states and the world is a good banking system. That does not include anyone in front of a TV camera in the past year. We need confidence, not more of the same.

    Still my one last hope is that Obama has a team in the background working to completely overhaul the system, starting with a month long bank holiday. I fear that is the only hope.

  5. Winans

    In contrast to tyaresun, I have been politically aware since the late 1970s and my family has been in the US for over 370 years. And in my perspective our respect for the General Welfare has been under heavy assault since the mid-80s and steadily eroding since the late-60s.

    “Market-based Solutions” and “Personal Responsibility” are code words for policies and public attitudes which promote private profit at the expense of the general welfare. Personal Responsibility has come to mean that anyone in need deserves to be needy because they did not work hard enough. And Market-based Solutions are a declaration of the right of private profit in maintaining the general welfare.

    I believe we owe ourselves a critical analysis of these attitudes and policies in light of the failure of the finance and banking policies which evolved in parallel and were promoted by the same parties.

  6. Anonymous

    U.S. Treasury Secretary Timothy Geithner said on Sunday that help from the private sector was critical to get toxic assets off banks’ balance sheets and help resolve a credit crisis.

    Turotax Timmy need Wall Streets help shifting the toxic crap on the banks balance sheet to the governments balance sheet and looks like Obama is going to throw the bonus tax out the window. The greatest fleecing in history runs unabated and encourage by the leaders of this country.

  7. Anonymous

    I’ve started to have the suspicion that Obama doesn’t care as much about the financial crisis, or at least the problems of the banks, as perhaps he should. I think that’s part of why he’s been delegating so much of the solution to Geithner and why we’re in such a horrible mess.

    But what could Obama care about more than the financial crisis? A clue is found in examining the quality of his cabinet and staff appointments. Where has there been a concentration of truly excellent talent? Certainly not at the Treasury, Geithner has been uniformly awful.

    Hillary Clinton has been good at State, Hilda Solis was an inspired pick for Labor, but for a concentration of talent we must turn elsewhere. We can turn to the Secretary of Energy, a Nobel Prize-winning physicist. We turn to the national science advisor, a globally recognized activist on climate change. We turn to the directors of the NOAA and the EPA, strongly credentialed advocates for environmental policy and scientific research of all stripes.

    So there it is: the true talent in Obama’s administration is concentrated in his energy and environmental policy chiefs. This indicates an intensity of focus on that particular area of policy, most specifically on the issue of climate change. Obama’s speech before business leaders about his cap-and-trade emissions control policy indicates his familiarity with this issue and the seriousness with which he regards it.

    In short, I think Obama cares more about climate change than he cares about the financial crisis, or at least more than he cares about the credit crisis. That’s the issue that he’s chosen to concentrate top administrative talent on.

  8. Anonymous

    Excellent posting. As with other commenters I will try and be additive.

    A line in a Tom Waits song just caught my attention; “Two dead ends but you still got to choose”.

    I think this sentiment is appropriate because we are indeed faced with two dead ends. The path that the prior administration initiated and is being continued by the current administration is a dead end and it is one that continues to exacerbate the underlying problems…throwing good money after bad. This is an attempt to keep the past fascist capitalism meme alive. Most of us reading and contributing here believe this is a foolish and at best temporary fix to the problems that are causing the systemic meltdown. It is possible that they can create another bubble which I would call a dollar bubble but it can’t help but be very short lived because the international sentiment is not there to support it. So in the end (at best 2-4 years out) all the legs will come out from under the table supporting the house of cards and there will be even worse hell to pay than what I consider to be the better “dead end”.

    The better dead end for the US to take at this time is to directly confront the mistakes that got us here, admit their stupidity, prosecute the worst offenders of the fascist capitalist meme (both government and corporate) and then clean up the resulting mess with the help and agreement of the rest of the world. The pain associated with this approcah will produce better results, cost less for us pond scum and leave the world financial industry in a much better position going forward….like maybe even less wars, what a concept.

    I will be holding up my NO BAILOUT sign above Interstate 5 in Portland OR tomorrow morning and encourge others to do what they can to change the direction of the current fascist/anti-general interest movement.


  9. Anonymous

    its all about trust.

    Do the Chinese trust the Janpanse?
    Do the Italians trust the Swedes?
    Do the Australians trust the Thais?
    Do the Russians trust the Saudis?

    The US cant get the Lowrey’s to trust the McCoy’s?

    How many dollars is a “Brazillion”?

  10. locust

    I think Obama cares more about climate change than he cares about the financial crisis…

    Interesting observation. Is he hoping to inflate a new more sustainable bubble to replace the old deflating bubble?

  11. General Glut

    The “general interest” is a plausible ideological construct only under conditions of elite legitimacy.

    What makes the current outrage over the AIG bonuses so important is that it shows for the first time in this crisis that American political elites are both hopelessly clueless AND highly vulnerable to a political revolt from below. Their political legitimacy — Democrats and Republicans, neoliberals both — is becoming precarious.

    The grand test comes when Obama asks the Congress for the next installment on the Great Bank Bailout Billions.

    Get your class war on!!

  12. Avl Guy

    Good guest post; good reader comments.

    I think the likelihood of bringing this shape-shifting global crisis to any neat well-defined closure may never have existed…regardless; it does not seem to now. We will not have ‘swede-like’ closure.

    Deflation and debt unwind had been on a predictable course with clear intersects with the banking crisis; now things have been muddled by $11 Trillion in bailouts, purchases, guarantees, and obligations.
    Our human psyches may need to prepare for lengthy wonderings across plateaus and ledges before our oft-interrupted downward economic trajectory delivers to us similar sojourns, at different times for different sectors, across a bumpy tilted crater floor. Our salvation will be if we can keep some focus on what ‘new economy’, we’d like to create and how to launch such a beast while tethered globally. If it is financially sustainable and environmentally-sound, it may make this experience worth the multi-year ride.

  13. bebe rebozo

    I’ve been looking for a price tag on Geithner’s plan and tonight two estimates came in … two to four trillion. Obviously there will be a difference of opinions. Can’t imagine the threats and coercion it will take to pass this in Congress. Can you say battle royale!

  14. Gloppie

    “question revealed a degree of mutual incomprehension that may express a major cultural divide”

    I can only concur, being a 10 year immigrant in the US, originally from Europe. Too many people on this side of the pond equate “Land of the Free” with Land of the selfish. The ruthless competition that permeates everything here is a bit overwhelming at times.
    It definitely IS a cultural thing.

  15. John

    What percentage of the American peasantry understands ANY of the “general welfare” stuff anymore(except how the majority ethnic group “suspects” it applies to “THOSE WELFARE QUEENS” – you figure it out).

    So, all the talk about “the constitution” is meanless. The teaming masses care about grabbing all they can before the next guy does – which, btw, is all the people at the top did; WHICH is why the team-masses aren’t really all that pissed-off about the people at the top ripping-off the country as they’d to it themselves is they had the brains. (But those “welfare queens”, look OUT…)

  16. joebhed

    First, I thought it was a given here that the Swedish model has zero relevance to us.

    Second, some of us see no sense in the basic purpose that has been given for all of this, which is NOT to ease the pain as you might imagine (general welfare), but rather to preserve the private banking system in this country.

    I know its often difficult to get financially-astute, political- economist bloggers on this page to think REALLY outside the box, but…

    What they really are saying is that – no matter WHAT – they MUST preserve the DEBT-MONEY system of the private federal reserve bankers at all costs.

    That involves borrowing and guaranteeing and “counter-partying” MANY $Trillions of new debt-money each quarter, as we unwind the crap from the last debt-money financed bubble.

    The real answer is the removal of moral hazard from the equation.
    It can be separated from the banking system through Milton Friedman’s monetary plan as laid out in his short treatise on “A Financial and Monetary Framework for Economic Stability”.

    We can either do THAT, or we can repower the debt-money system of the federal reserve.

    Greenbacks !

  17. Anonymous

    “A handful of EU career bureaucrats in Brussels thus wield more power when they act to uphold the general interest than the combined EU Governments, minus France.”
    I think it’s more accurate to characterize the supposedly super powerful EU bureaucrats as useful cover for unpopular decisions. Basically Sarkozy once again talked faster than he thinks, and realized he had angered the rest of Europe. He doesn’t want to cause a rift but won’t back down because of nationalist grand standing. So what to do? Retract and blame the EU.

    I was rather fascinated by the question of potential corruption of government agents. Something of a curveball for a Northern European like me. Though I’m sure an Italian would view it as a perfectly sensible question.

  18. Anonymous

    Just as a side note. “general welfare” is not found only in the preamble to the constitution.

    Article I Section 8.
    The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States;

    While an overly broad interpretation of powers granted by this phrase would be undesirable. Overreach by the *legislative* branch is not a problem we face in this day and age. :)


  19. Anonymous

    Swedish Lex,

    Interesting post – thank you.

    However, I believe the EU is in denial about the extend to which this crisis is affecting Europe. I was in Vienna the other day, and all those cafes in the tourist spots were completely empty. The hotels were empty. I saw at least 20 or 30 shops that have gone out of business in the Staphansplatz area (central Vienna). The situation in Spain is worse, with countless abandoned construction projects now miring the landscape. The credit problem about to explode in Eastern Europe is likely worse than the U.S. subprime problem. Europe is in denial, and I doubt the Swedish approach will it.

    Regarding references to Enlightenment… Well, Europe is perhaps the continent that has the least claim to having had “reason as the legitimate source of power” during the past 200 years (which is the core of Enlightenment). While for the past 60 years Europe was peaceful, might I point out the obvious fact that it was so simply because half of Europe was occupied by the Soviet Union, while the other half was occupied by the United States? European forms of government have changed so much and so frequently during the past 100 year alone, you can hardly claim any continuity to original Enlightenment thought. It is, in fact, the U.S. that can claim that continuity, given that most of the signers of the Declaration of Independence and the United States Bill of Rights were motivated by Enlightenment principles. The U.S. has used the same Constitution for over 200 years, while European nations change theirs every time bellbottoms and sideburns go out of style.

    I also have issues with holding up the EU as the paragon of virtue we all need to follow. As I stated here before, I was born in the EU, but spent much of my life in the U.S. I travel frequently between the two, and I engage in business in both places. The EU reality is far – very far – from the image the European Commission tries to project around the world (and which sadly is believed by many EU citizens).

    While EU law was an attempt at exhaustive legalese that may have merit in a world inhabited by saints, its application across the various EU members is a joke. Perhaps in Sweden things are different, but as soon as you approach the Mediterranean, you quickly slip into a Middle Eastern/North African frame of mind that holds much of this EU law in contempt. And, by the way, France is a Mediterranean country. Protectionism, discrimination, nationalism, and even fascism are the order of the day in those nations. Sometimes it is covert, but often it is overt. Nations like Spain or Italy really have no business being in union with Sweden, since they have more in common with Morocco. To me the EU is little more than demagoguery and hypocrisy, and a failed exercise at melting clay with bronze hoping to get gold.

    Regarding Sarkoszy. As a psychiatrist, I suggest putting the guy on some adult ADHT medication, because his symptoms are evident, and I’m highly skeptical mentally ill individuals of any nationality are fit to run countries. His impulsivity and lack of self-control make me uneasy knowing he’s running a nation armed with nuclear weapons. The man is very sick, and needs to be home in the loving care of his beautiful Carla Bruni (this will also lower his mobile phone bill, as he won’t have to spend half of his time sending her SMS messages…LOL)

    Finally, regarding the possibility that the U.S. government and the politicians would approach this crisis with honesty and with the interests of the people in mind… The U.S. government in general and the politicians in particular are just too corrupt and too addicted to kickbacks, bribes, and all sorts of ill-gotten profits to change just because the banks are in crisis (they too would be comfortable in a union with Morocco). No, these bastards won’t stop until We The People rise up and dust off the guillotine. They are all little more than Blagojeviches, incurable antisocial criminals.

    The American people are very patient – if we weren’t, we would not have put up with the previous war criminal administration for 8 years. But I am confident true change (“change you can believe in”) is coming to the Land of the Free. However, when the Americans will rise up it will be a true revolution, not some wretched European style peasant uprising. We won’t have to resort to pitchforks and shovels, which are the only weapons EU governments have allowed their citizens. Our Constitution allows us to have real weapons, because our founding fathers foresaw this day coming — and that, my friends, is what I’d call “enlightened.”

    Vinny Goldberg

  20. john bougearel

    I am particularly struck with the concluding statement to this post:

    Namely, that if the Obama admin and Congress are unable to govern [forcefully] in the general interest at home, their influence abroad will thus dwindle accordingly.

    Hopefully, The Bama will heed this word to the wise.

    Another thing that struck me about this post, I have always taken much of my Philo 101 for granted, this included Rousseau, Locke, and others. This post made poignantly clear that their precepts, from the Enlightenment era are quite valid. we ignore these lessons from the Enlightenment at our own peril. I would hate to have our won ignorance of these general principles to cast us back to the dark ages. But hey, think about it for a moment, who doesn’t already feel like we have been subjugated to serfdom since this crisis arose?

  21. Anonymous

    Gloppie: “I can only concur, being a 10 year immigrant in the US, originally from Europe. Too many people on this side of the pond equate “Land of the Free” with Land of the selfish. The ruthless competition that permeates everything here is a bit overwhelming at times. It definitely IS a cultural thing.”

    You must live in New York City… :)
    Well, I too am an immigrant to the US, having lived there for almost 30 years, and I also came from Europe. But I think you underestimate the levels of selfishness currently running rampant through Europe. Some parts of it border Social Darwinism. No, my friend, Europe is no longer what you left behind. It is now a selfish, greedy, nationalistic, and overpriced place. While in the US you can still enjoy free wi-fi in a café, free refills in restaurants, or free parking, in Europe you will pay for the Internet (an American invention, btw), you will pay for the refills, and you will pay through your nose for parking. Also, Europeans have to put up with governments taking more than half their earnings through taxes.

    Furthermore, there is no sense of community in Europe. It’s all about clans, class, and nationalism. Look at England, for instance, where the nation’s entire real estate is ran and owned by feudal lords.

    Sometimes I wonder how Europeans manage to survive, considering how ridiculously inflated prices are here (I am in Europe at the moment), and how low European salaries are in comparison to U.S. salaries. I tell you how: by having 10 people spanning three generations share a one bedroom tiny apartment, by almost never eating out, by riding scooters instead of cars. It’s a life of misery. But then again, Europe has been a continent of misery for thousands of years now, so people are used to it. Nonetheless, their leaders (and the EU) keep telling them how great they have it, and now they actually believe the lies. Yes, Big Brother won. Europeans sing in unison: “We love you, Big Brother.”

    The Europe you left behind is long gone, my friend. Forget it. Better yet, don’t forget it. However, I don’t recommend you visit Europe again, as its harsh reality will likely destroy the beautiful memories you have of it…

    Vinny Goldberg

  22. Edwardo

    Someone wrote:

    “I think Obama cares more about climate change than he cares about the financial crisis…”

    Absolutely correct, but the care for the one is based on the absolute lack of sophistication about the other. When it comes to finance, the average politician is an ignoramus. Rarely do legislators have any experience with business or finance, let alone investing in markets. Obama is no exception.

    But even this is perhaps beside the point, because In general, I maintain that Obama is simply out of his depth as Commander in Chief. He certainly is out of his depth in a crisis such as this. However, Presidents who are out of their depth is par for the course in the U.S. most of the time as U.S. leaders tend to be either rubes, i.e. Bush 2, or rogues, like Clinton. Obama is neither, but neither is he up to the job. And in the meantime he has, to quote the most recent occupant of the Oval Office, badly “misunderestimated” the importance and meaning of the banking crisis.

  23. Edwardo

    A bit of clarification:

    What I meant to say was that the vastly greater level of care Obama demonstrates for climate and energy, for example, benefits as a result of his absolute lack of sophistication about finance and economy.

    The President’s apparent lack of sophistication likely works to mitigate the necessary concern about the severity of the problem the nation is facing. He may juxtapose The Great Depression with the present situation, but I believe that is more rhetoric than a firm understanding about the nature of things as they stand presently.

    If Obama had a decent understood of finance and economy, if he had a real affinity for these areas, he would no doubt care deeply about the present predicament and would be “hands on” with respect to attacking the problem. But the PTB don’t want the one person who can sign enforceable emergency decrees to have any real understanding about their financial (and other) perversions for obvious reasons.

  24. Anonymous

    Lets all agree to stop calling this a sub-prime crisis. This is the bankers trying to cover what is left of their asses.

    This is a banking crisis, call it what it is.

  25. brushes9


    I, too, believe that the EU is in denial about their banks and the bets that they have made on emerging economies. That grief is nearing. Your comments provide an opinion on European culture for me in Tennessee, of course, we are all struggling here, but thanks.


  26. Anonymous

    I agree on the point that the US is the oldest country out there.

    I tired to explain this to a brit once, she couldn’t believe I would question the authority of the Queen.

    The queen is broke, the only thing that keeps her in castles is the subsidy from taxpayers. Is it worth it? Really, in this time of shared sacrifice, how is the queen kicking in?

    Small potatoes in the grand scheme, but worth a look.

  27. HoosierDaddy

    I’m losing hope that Team Obama is going to change course on bank bailouts before it’s too late. If Obama came in with a credible plan within a month of taking office there would have been screms from the losers but he would have carried the day pretty handily. The Bush plan of bailouts was pretty discredited and Obama had bags of Political Capital stashed in the basement of the White House. If Timmy had presented a decent plan instead of a vague outline pretty close to the alpha version of TARP, Team Obama could have carried the day with a bit of work. At this point, it’s going to take a full court press to get any more money even for a great plan. A few months more of “dumb and dumber” and they’d better have some really interesting photos of Congressmen.

    The stink is already beginning to stick to Obama. The other team is discredited. Most people are willing to give him time. But that will not last forever. Another 6 months of this and I wonder if Michael Bloomberg is going to start seeing Ross Perot in the mirror.

  28. Christopher

    “Lundgren’s response to the COP’s question revealed a degree of mutual incomprehension that may express a major cultural divide. “

    I don’t see a cultural divide. I see cowardice on the part of the Obama administration. The Swedish model is the one to follow, what Geitner is trying to foist on us is laughable.

  29. brushes9


    I don’t share your optimism regarding our forefather’s foresight, oh, how could they know.

    Technology involving gunpowder is no match for the systematic manipulation of language and the manipulation of “frames” of meaning that has been going on in the U.S. since the 1970’s (thanks to the conservative’s backlash for their defeat for “us” not letting them “win” the Vietnam War).

    No, any use of “arms” will be misdirected and easily beaten. Our language is corrupted. Our minds are corrupted. We depend on greed, because even “altruism” has been targeted for re-framing:
    “nice and kind is weak and bad,”

    Hey, man, now greed is all that we got.

    If it were not for this crises, the very young, the sick and the very old would be the only ones feeling the pain, today. They were the next on the hit list after the workers.

    This is why I believe that national trauma is now in order, and we will seek it until we find it.

    Trauma reorganizes the mind and can undue our Thinktankistan training in an instant. Alternative routes will end in political impasse, or economic paralysis. We know it. We want it.

    We have four dead police officers in California this weekend. The body count has begun, but it remains local, so far.

    So far, the crises remains frontal lobe; most citizens carry on life as usual believing that the propeller heads in gobermint will figure it out. We are only beginning to engage the amygdala..we need rock-bottom to fully engage and we seek it.

    Our right to bear arms will play a major role, but in unexpected ways.

  30. alex black

    I’m sorry; I was following this discussion with rapt attention, constructing points to add and enhance the conversation, but ever since someone mentioned Carla Bruni, I lost my ability to concentrate on what I was reading.

  31. Anonymous

    This is ridiculous. Sweden knows all. Then why the frigging hell are there banks in trouble again!!!???

    Lefties always act like they have the answers yet they have NEVER been right.

    Here is a novel idea. Let them frigging fail. Get rid of this bs mark to market religion and allow cash flow as an alternative.

    Cash flow on performing assets, mark to market on nonperforming.

    Then let the chips fall where they may. AIG goner. Banks/IBs, see you. They can fight for their bonuses with a U.S. Trustee.

    Has everyone forgotten this is how the world is supposed to work. The USA was here before Citicrap. We will be here after that monstrousity is long gone.

    I only hope going forward regulations are in place to prevent such leverage/insanity.

  32. MyLessThanPrimeBeef

    Anonymous 9:27PM.

    Interesting observation about Obama’s agenda. If there is one thing Englightenment liberals cared about, it was their concern about power concentration. For them, the concentration was in royal hands. Today, it’s concentrated in both the government and big business. And everything Obama has done so far, from preserving big banks to promoting green technologies, which will necesarily bring out the next big corporations and more concentration of wealth and power, when he should be promoting more sacrifice and less use, would, in my opinion, illict fierce opposition from Enlightenment Age liberals.

  33. Anonymous

    Anon 1:21
    The Swedes handled the actual crisis well, but didn’t lay the groundwork preventing a new crisis. Swedish officials readily admit they assumed the banks would have wizened up and that few new regulations were needed. Even so it’s noteworthy that it’s only Swedbank that is in serious trouble.

    In other words the Swedish experience is also an argument for pushing through regulations as part of a rescue package, or else it will happen again. Some banks will be run prudently but others will abuse the system to get ahead, and their initial success tempts others to follow. The gods of greed are very good at poohpoohing the Cassandras of this world.

  34. Anonymous

    For Vinny, although I think that his comments (and, therefeore this one, are a distraction from the original post), here is a post from a blog I follow, that qualifies your comments on Europe. Keep in mind that this is an ordinary American lady, married to a Portuguese (holder of a fancy, presumably American, MBA), that got caught right in the middle of this economic crisis in Detroit (he got an extremely well paid job there in 2005, they buy a house, have a child, he is laid off in 2008, they are totally underwater, they move to Portugal where his family gets her a job and a lof of support):

    “I have something I would like to discuss, but I probably can’t say it pretty right now.

    Here it is: now that we are in Portugal, we are living the American Dream. The real live American Dream–not the one that was bastardized by unlimited credit card debt and Cribs and The Real Housewives and My Super Sweet 16 and every home decor magazine ever.

    I think what we have here in Portugal is exactly what the American Dream started out as: a life that is safe, secure, comfortable, fulfilling in ways that can’t be bought. The scale we live on is different and so is the rewards system.

    My most fervent hope for Americans as we move out of this depression is that the necessary scaling back will allow us to realize how freeing and fulfilling this kind of life is. We’re living on solid footing.

    Portugal is like a personal finance halfway house. We have enough money to live comfortably but very little extra.

    We definitely do not have nearly enough money to ponder robot vacuum cleaners or giant flat screen televisions or gym memberships or designer baby bedding. But we do have a vacuum cleaner, an old skool with dandy picture, an elliptical, and blankies the child loves.

    The way the salaries vs. cost of living work here is that if you triple the price of everything, that’s the hit it will take on your salary in American earning terms. When I’m eating a $5 lunch in Portugal, it’s really a $15 lunch. When a shirt costs $12 in the store, it really costs $36 in damage.

    The salaries here are basically a third of American salaries. The cost of living is slightly less, but not much–not remotely close to 60-70% less it would need to be to even the playing field.

    This puts about 80% of everything that is for sale here in a cateogry called “too ridiculously expensive to even think about buying ever”. Of course some stuff, even factoring in the tripling in price, is still way, way cheaper than in the US–and it’s pretty good stuff: food (particularly fresh fruits, veggies and fish), wine, public transportation, coffee in a coffee shop, college education, health care, property tax, insurance of any kind.

    It is the absolute and categorical certainty that you really just don’t make enough to buy some things–not even enough to justify putting it on a credit card–that puts me most at ease. I don’t know if I would feel this way if we hadn’t arrived with the opportunity to have spent 30 years livin’ large in America, and if we had not brought along a lot of the artifacts of that life…particularly in the form of electronics that are way, way too expensive to buy here.

    There is also the matter of our very small living space. We used to have 3,000 square feet. We now have around 800. It might be different if we had more than one child, or even if we had a pet, but I like it this way. There are a lot of obvious advantages to living in a small space: you can afford to live centrally, you have less to clean, you really spend most of your at home time in your bed and on your couch anyway–the rest of the space is mostly for show.

    But, for me, the unexpected advantage has been that anything we could afford to buy wouldn’t fit in here anyway. Wanting stuff becomes a non-issue. You’ll find that if you were forced to put everything you owned on a bookshelf in your living room where you would have to stare at it every waking moment, you probably wouldn’t want to own a whole lot of stuff.

    My closet in the US was big enough to be used as a spare bedroom. My closet here fits about two weeks’ worth of clothing. Unless you are a pop icon or a drag queen or very prone to spilling stuff all over yourself, a wardrobe that gets you through two weeks is more than enough. And a small closet is a 100% effective means of preventing you from buying shirts just because they are on clearance.

    There is also the time factor. We live in a small house…too small to stay inside all weekend without going crazy. Plus the weather is good. Plus there is an ocean nearby. More time out means less time watching t.v., means less time to be enticed by all the stuff for sale. More time out means less time for shopping.

    I don’t really know how to describe it properly, but it was as though in the US we lived in a bottomless pit that we were constantly trying to fill–and we could constantly try to fill it because we had a big enough house and a big enough vehicle and either a big enough income or a big enough credit limit to do it. Nothing was out of reach. It was impossible to ever feel like we had enough. There was always someting on the horizon. In fact, I remember being overjoyed when I discovered the Nintendo DS around Christmas, because we owned seriously every electronic gadget imaginable and I had no idea what to buy my husband for Christmas. (For the record, he actually plays the thing every day.)

    Here we live in a normal sized container that we are constantly trying to ensure doesn’t get overcrowded. Nearly everything is so out of reach that it ceases to matter anymore that there is a whole lotta’ stuff we could not buy even if we wanted to.

    A sense of relief and freedom–not freedom from debt, because we still have plenty of that and will for a long time– passes over me frequently. I think it is a freedom from want. I have never felt this before when it comes to money.

    We had three credit cards in the US with a total of $70,000 in available credit. I’m pretty sure if we told any one that amount here they would have a heart attack.

    Once we are both gainfully employed, our household income will be somewhere between $3000-4000 a month. But, even if we made a bit less than that, or twice that, even three times that, our day-to-day life would look mostly the same. This country forces moderation. Our major expense every year will be our flights to the US to visit my family–something your average Portuguese person doesn’t have to shell out for unless they want to go to Disneyworld.

    What we have is a small, simple, manageable, happy, interesting life.

    When we were in the US, I was never happier than when we lived in Chicago. I suspect it is because our lifestyle there was very similar to what it is now.

    I feel stupid even saying all of this. Let’s face it. First off, I think a lot of this security has to do with having semi-loaded in-laws nearby who can, have and will support us whenever we need it and a lot of times when we don’t. Secondly, it’s not like we made an autonomous decision to come here. We failed at American Dream 2.0. I could be just trying to convince myself of all this to make myself feel better because I have no other choice, I don’t know. But I don’t think that’s the case becuase I am happy and content here like I have not been in a long time.

    More over, there are tons of people in this country who do not make remotely enough to live comfortably.

    I don’t know why exactly people earn so little here, but I do work for a Portuguese company, and based on my experiences here so far, I believe that Americans know what they’re doing in a major way when it comes to a lot of stuff: efficiency, technology, customer service, creativity and confidence. Here, people work super long hours but seem to accomplish much less, the office politics have the same effect on progress as trying to run with cinderblocks strapped to your extremities.

    I am 100% sure that it is not a conscious decision on behalf of the nation of Portugal to live simply, but I do think, inspite of their fate, a lot of people rightfully feel like they live a pretty good life.

    The Portuguese Man I Married promises me that any Portuguese person who lives at our income level is not satisfied with what the small amount of stuff that their hard-earned money gets them. That they would love to be able to afford a big house, a big car, frequent trips to the mall, far away vacations.

    There is a sense of security and freedom that goes along with living this way–even if you have no choice in the matter–that is one hundred times better to me than the security of knowing that Visa will subsidize your up to $70k before you need to find additional funding sources.

    This was meant to be more profound. And we’ll see if I still feel this way once my iPod breaks down, or we want a second kid or when our current child is no longer content to spend her days playing with cardboard boxes and chopsticks.”

  35. fresno dan

    The US will “bear any burden, fight any foe, make any sacrifice…”
    for the sake of credit!
    Why??? From what I’ve read, about 3/4 of the GDp of the last few years was due to the houseing bubble. Without credit and bubbles, we got nothin.

  36. Anonymous

    Mutual incomprehension, a very good point. In a touchy-feely sort of transparency exercise, a group was asked to sort themselves out by whether they thought corruption in general was a problem or not. As an American I wound up huddled with a Mexican and a guy from Eastern Europe, across the room from the Canadians and OECD folks. The reason was blindingly obvious – the three of us have lived under institutionalized corruption. If you don’t live in a corrupt country, you can’t understand how bad a disease it is. And Americans have seen this country slowly submerge in a cesspool of looting and officially-sanctioned graft. I listen to Geithner talk and all that comes across is blub blub blub and the smell of corrupt runny shit.

  37. Dan Duncan

    I like the idea of turning to Goethe’s Faust for illumination on this crisis.

    How about this as a headline of the times:

    Faust 2.0

    “Make wagers and sign contracts with Mephistopheles in a dynamic interactive social environment!”

    Personally, I’ve had enough of Keynes vs. Friedman. Enough with Socialism vs. Capitalism. At the point of singularity they all converge, anyways. The distinctions are moot.

    The following is a bit too melodramtic, I know, but it does resonate: The Process of Prosperity, which only a couple hundred years ago was nothing but a grand experiment performed by a few…has in our time become a life or death struggle for all. The Powers that Be have accumulated powers that have corrupted absolutely.

    Sweedish Lex is right to turn to Goethe.

    Yes, the notion that modern man is a tragic figure condemned to repeat an unsatisfying life is nothing new.

    But we’ve regressed from the 18 Century Faust. All the 18th century Faust did was to enter into a contract with the devil. [The wager was between God and Mephistphles.]

    The modern version of Faust, however, is not only stepping into God’s shoes and making the wagers, but he’s going the extra step and actually backing up those wagers with with CDO-styled contracts.

    Additionally, the 18 century Faust was at least wise enough to realize that the treadmill of experience and consumption that the Devil was about to show him was destined to be unsatisfying. In fact, that Faust was so confident, he was willing to stake his soul on this belief.

    Thus, like Mick Jaegger, Goethe’s Faust raced through the “satisfactions” and condemned by his own choice, he had to discard all of them. [I’m still waiting for the “can’t get no” double negative to be spewed in German to the rhythm of a Keith Richard’s riff.]

    The real tragedy of Faust, though, is not that he not that he could not experience life as a potential source of satisfaction—- but rather it was his inability to experience life as a matter of love, honor, loyalty or duty.

    It’s no coincidence that Faust was in fact the quintessential scientific empiricist, either.

    Empiricism as an end in but a dead end.

    Modern man…which includes Eurpoeans…googling on our I-phones, going to the trendiest restaurants in designer clothes in his luxury vehicle purchased with the help of a 2nd or 3rd mortgage….

    We’re Faust with a credit card.

  38. NC Jim

    The Founding Fathers were wrong.

    We now know that government is the problem not the means to “promote the general welfare”. Reagan is the new Founding Father to the ruling elite and Jefferson and Franklin would be call Communists if they were to talk their trash today. Of course Jesus would be a Socialist for all that nonsense about helping the poor – but that is another story.

    Don’t believe me? Ask Sean or Rush – they will set you straight.



  39. Eric L. Prentis

    Treasury Secretary Geithner’s moral hazard plan! Now we know what our brave young men and women fight for in foreign wars, i.e., the freedom for Wall Street financiers and their on-the-take politicians to screw Americans at home. What a great life for bailed-out bankers and their huge, unwarranted bonuses, and of course the taxpayers are told by the corporate media to sit and take it for the good of the country. Could the politicians, i.e., Obama/Schumer/Dodd/Frank/Geithner/Summers/Bernanke and the financial elite be any sleazier!

  40. PeeDee

    If I have this math right any institution with a dud asset can put 3% of the face value into an SIV, get 12% funding from the treasury and then 85% from the Fed and buy anything they like out of their portfolio at 100% of book value. So they walk away from any assets for a 3% loss, courtesy of the US taxpayer.

    Such a deal!

  41. Anonymous

    I’m a Brit living in Spain and I have to say the person who wrote about the people living in Portugal has a point. However my comment is that I’ve noticed over the last few weeks EVERYONE commenting is starting to sound really angry and fed up…, something’s about to go down and if Obama’s not careful he’s going to have big problems.

  42. Juan

    Anon @5:05 AM,

    Wonderful comment and right, it is not simply your imagination or rationalization but the experience of becoming less tied to what are really no more than fetishes, less alienated and more human.

    I would warn though that the condition is reversible.

  43. Anonymous

    I suppose I should have linked to the blog from where I extracted the comment on 5.05 AM. Credit where it’s due: this personal blog is a fascinating tale of the life of an ordinary American caught in the storm, thanks to her intelligence, honesty and insightfulness:

  44. Anonymous

    “Furthermore, there is no sense of community in Europe. It’s all about clans, class, and nationalism. Look at England, for instance, where the nation’s entire real estate is ran and owned by feudal lords.”

    I was struck by this anonymous comment–are we sure the US isn’t on its way there, as a product of this latest housing debacle?

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