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Sunday, February 08, 2009


sinking in behind the scenes in washington

i expect that, for the glitterati of the central banking community in washington, the sheer scale of the financial disaster facing western civilization has already sunk in. federal reserve chairman ben bernanke has already run through virtually the entire arsenal of his depressionary thinking as laid out in his famed 2003 dissertation, once believed to be the citadel of the west from which to ward off the ravages of debt-deflation, and for his efforts has been seen off the pitch in the most ineffectual way imaginable. it may have surprised him and his compatriots initially, to see the sum of seventy years' of economic thought regarding monetary and fiscal policy smashed and tossed aside by the reality of a massive deflationary unwind; but i sincerely doubt he still denies the truth. for what its worth, bernanke has been a much less prominent figure since the failure of lehman brothers -- and i think that is not an accident. i suspect he understands all too well that depression is now as a freight train run out of control, and he would just as soon step aside and accept his fateful duty in the quietest possible manner until he is inevitably sacked in a week of vengeful sturm and drang that i imagine he already grimly anticipates.

this level of realization, though, probably still eludes the carnival of lawyers known as congress. anecdotal reporting from interested financial parties regarding the competence of our legislative body in this crisis has been uniformly appalling -- even the leadership on relevant banking committees apparently have utterly no understanding of what has actually happened, much less what is likely to happen or how it might be remedied. such cluelessness in combination with slavish devotion to deep-pocketed special interests has rendered congress all too easily manipulated by the agents of wall street, embodied first in hank paulson and now his successors larry summers and tim geithner. the result has been straight government handouts to the monied classes behind the banks with no prospect of a resolution to either the financial or the economic crises.

finally, however, we are perhaps seeing some of the more iconoclastic figures in washington both realize and acknowledge the extent of the disaster. it gives me little pleasure to point to newt gingrich, an architect of division and fraud if one has ever sat in the capitol, as he puts to record something like the truth.

"Well, the fact is, we're all going to go off a cliff. That's what's happening. This is a much more profound problem than people think," said Mr. Gingrich, a Republican from Georgia, during a breakfast with reporters and columnists organized by the Christian Science Monitor.

"I keep getting told there's another [$1.2 trillion] in losses coming down the road, minimum. Goldman Sachs, I think, said Friday, $4 trillion to finish bailing out the banks," he said, predicting another "three to five years, at a minimum, of working our way through this."

And Mr. Gingrich, who has earned a reputation for irascibility, slammed the Obama administration's current response.

"The continuity between the Bush bailout and the Obama bailout will be mildly amazing. This is not the change you can believe in. This is more of the same," he said, mocking one of Mr. Obama's campaign slogans.

Mr. Gingrich's harshest words were reserved for recently confirmed Treasury Secretary Timothy Geithner, whom he mentioned repeatedly as a symbol of the government and business class refusing to learn lessons.

"Geithner is fronting for the banks. Frankly, that's what I think Paulson ended up doing. Paulson ended up being a Wall Street deal-maker who was happy to take your money to bail out Wall Street deal-makers. That's not the purpose of the secretary of the Treasury. ...

"What we have to do is look at the very simple question: 'What is it going to take to succeed in the world market, how do we reset the American economy, how do we get rid of the wreckage, and how do we start growing a new generation of institutions?'" he said. "But if you watch, all these guys we are bailing out are laying people off. So you are giving money to Citibank, which I think dropped 53,000 people. And so all you're doing is cushioning, for the guys who are in charge, the degree of their own failure. And you don't learn lessons that way."

"We've been through three years of economic pain with almost no thought," he said. "The political class has panicked, largely goaded by the financial class, and the result has been like going to a doctor who said, 'I can't do a CAT scan, I can't do any lab work, but I've got tons of morphine,' as opposed to, 'What's gone wrong, how do you reset the system and how do you realistically expect this system to operate in the world market in the future?"

"Which is a much harder and much more painful conversation than any political figure's been wiling to have so far. I think that bodes badly."

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