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Wednesday, October 15, 2008


dictatorship of the treasury

following on earlier commentary -- i have been sadly observing the decline of the rule of law in the united states since the opening statements of this blog. the bush administration has been an unmitigated disaster in this respect (and others), representing such an affront to both legalism and normative law as has not tested this nation's constitution and traditions previously -- outdistancing in radicalism even the abhorred nixonian regime, which of course fostered the two most aggressive political tumors that metastasized in this administration, vice president dick cheney and former defense secretary donald rumsfeld.

but the jacobin culture of authoritarianism casts a long shadow over the whole of the administration, and it unfortunately is clearly guiding the reckless behavior of secretary paulson as he attempts to manage the great unwind from a seat of power. see today's article in the new york times, via yves smith, on how capital injections via the TARP were dictated to the banks at little better than the point of a gun.

The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry M. Paulson Jr. said they must sign it before they left. ...

“It was a take it or take it offer,” said one person who was briefed on the meeting, speaking on condition of anonymity because the discussions were private. “Everyone knew there was only one answer.”

the point here is not whether some banks needed capital or didn't, nor is it the generosity or frugality of the terms, or even whether or not preventative capital raising is wise. rather it is that treasury is dispensing ultimata to the banks, to be complied to without reflection or question, having foregone anything like a cooperative arrangement or even an informed deliberation.

if this is the case, one wonders why treasury has not nationalized the banking system outright. it now already stands behind a ridiculous amount of bank liabilities; it clearly wants total control over bank balance sheets and credit apportioning.

in this light, it seems that the refusal to nationalize the system is less a well-considered step than lip service to an empty doctrine having to do with "free markets" -- which is more and more clearly now, as the panic of 2008 gradually reveals, merely an enabling myth of a republican party which fosters the ideological support of uncritical simpleminds beneath a leadership truly amenable to something more closely approximating fascism.

my opinion at this time is that this round of capital injection is likely to do little to reinvigorate the banks to lend either domestically or even to each other -- capital is now best held in anticipation of losses, and for so long as cheap fed liquidity is unlimited there is no sane reason is borrow from any other bank. nationalization -- which would give paulson the mandate to command banks to lend regardless of danger -- would be the only solution short of prolonged liquidation and depression if that proves a correct anticipation.

paulson is already operating with such a lack of tact as to seem highly compatible to nationalization. his cursory three-page "bill" as presented to congress to create the TARP was an example of the dictatorial mentality; this latest ultimatum on capital injections another. can the shedding of the excruciatingly thin veil of "free markets" be far behind?

mythology is far more powerful than its detractors, ever-present since the advent of the age of reason, can give it credit for being. but as events proceed the naked dictatorship of the treasury may be forthcoming. no one will be able to say that the precursors were not there.

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