Green the Bailout By THOMAS L. FRIEDMAN

Published: September 27, 2008

Many things make me weep about the current economic crisis, but none more than this brief economic history: In the 19th century, America had a railroad boom, bubble and bust. Some people made money; many lost money. But even when that bubble burst, it left America with an infrastructure of railroads that made transcontinental travel and shipping dramatically easier and cheaper.


The late 20th century saw an Internet boom, bubble and bust. Some people made money; many people lost money, but that dot-com bubble left us with an Internet highway system that helped Microsoft, I.B.M. and Google to spearhead the I.T. revolution.

The early 21st century saw a boom, bubble and now a bust around financial services. But I fear all it will leave behind are a bunch of empty Florida condos that never should have been built, used private jets that the wealthy can no longer afford and dead derivative contracts that no one can understand.

Worse, we borrowed the money for this bubble from China, and now we have to pay it back — with interest and without any lasting benefit.

Yes, this bailout is necessary. This is a credit crisis, and credit crises involve a breakdown in confidence that leads to no one lending to anyone. You don’t fool around with a credit crisis. You have to overwhelm it with capital. Unfortunately, some people who don’t deserve it will be rescued. But, more importantly, those who had nothing to do with it will be spared devastation. You have to save the system.

But that is not the point of this column. The point is, we don’t just need a bailout. We need a buildup. We need to get back to making stuff, based on real engineering not just financial engineering. We need to get back to a world where people are able to realize the American Dream — a house with a yard — because they have built something with their hands, not because they got a “liar loan” from an underregulated bank with no money down and nothing to pay for two years. The American Dream is an aspiration, not an entitlement.

When I need reminding of the real foundations of the American Dream, I talk to my Indian-American immigrant friends who have come here to start new companies — friends like K.R. Sridhar, the founder of Bloom Energy. He e-mailed me a pep talk in the midst of this financial crisis — a note about the difference between surviving and thriving.

“Infants and the elderly who are disabled obsess about survival,” said Sridhar. “As a nation, if we just focus on survival, the demise of our leadership is imminent. We are thrivers. Thrivers are constantly looking for new opportunities to seize and lead and be No. 1.” That is what America is about.

But we have lost focus on that. Our economy is like a car, added Sridhar, and the financial institutions are the transmission system that keeps the wheels turning and the car moving forward. Real production of goods that create absolute value and jobs, though, are the engine.

“I cannot help but ponder about how quickly we are ready to act on fixing the transmission, by pumping in almost one trillion dollars in a fortnight,” said Sridhar. “On the other hand, the engine, which is slowly dying, is not even getting an oil change or a tuneup with the same urgency, let alone a trillion dollars to get ourselves a new engine. Just imagine what a trillion-dollar investment would return to the economy, including the ‘transmission,’ if we committed at that level to green jobs and technologies.”

Indeed, when this bailout is over, we need the next president — this one is wasted — to launch an E.T., energy technology, revolution with the same urgency as this bailout. Otherwise, all we will have done is bought ourselves a respite, but not a future. The exciting thing about the energy technology revolution is that it spans the whole economy — from green-collar construction jobs to high-tech solar panel designing jobs. It could lift so many boats.

In a green economy, we would rely less on credit from foreigners “and more on creativity from Americans,” argued Van Jones, president of Green for All, and author of the forthcoming “The Green Collar Economy.” “It’s time to stop borrowing and start building. America’s No. 1 resource is not oil or mortgages. Our No. 1 resource is our people. Let’s put people back to work — retrofitting and repowering America. ... You can’t base a national economy on credit cards. But you can base it on solar panels, wind turbines, smart biofuels and a massive program to weatherize every building and home in America.”

The Bush team says that if this bailout is done right, it should make the government money. Great. Let’s hope so, and let’s commit right now that any bailout profits will be invested in infrastructure — smart transmission grids or mass transit — for a green revolution. Let’s “green the bailout,” as Jones says, and help ensure that the American Dream doesn’t ever shrink back to just that — a dream.

Tragedy of the Commons and Economies of "Scales"from CARPE DIEM by Mark J. Perry

THE ECONOMIST -- Like most other fisheries in the world, Alaska’s halibut fishery was overexploited—despite efforts of managers. Across the oceans, fishermen are caught up in a “race to fish” their quotas, a race that has had tragic, and environmentally disastrous, consequences over many decades. But in 1995 Alaska’s halibut fishermen decided to privatize their fishery by dividing up the annual quota into “catch shares” that were owned, in perpetuity, by each fisherman. It changed everything.

In the halibut fishery the change in incentives that came from ownership led to a dramatic shift in behaviour. Today the halibut season lasts eight months and fishermen can make more by landing fish when the price is high. Where mariners’ only thought was once to catch fish before the next man, they now want to catch fewer fish than they are allowed to—because conservation increases the value of the fishery and their share in it. The combined value of their quota has increased by 67%, to $492m.

By giving fishermen a long-term interest in the health of the fishery, individual transferable quotas (ITQs) have transformed fishermen from rapacious predators into stewards and policemen of the resource. The tragedy of the commons is resolved when individuals own a defined and guaranteed share of a resource, a share that they can trade. This means that they can increase the amount of fish they catch not by using brute strength and fishing effort, but by buying additional shares or improving the fishery’s health and hence increasing its overall size.

Sadly, most of the rest of the world’s fisheries are still embroiled in a damaging race for fish that is robbing the seas of their wealth. Overfished populations are small, and so they yield a small catch or even go extinct.

For example, consider the situation of collapsing blue crab industry in Maryland, which was so bad this year that the "federal government is bailing out hard-pressed watermen with a disaster declaration."

Maryland lawmakers had sought the declaration by the Commerce Department since May, after Virginia posted a record-low harvest for the delectable crustaceans and Maryland had its lowest catch since 1945. Crabs remained the last thriving fishing industry in the Chesapeake until the 1990s, when pollution and overfishing finally took their toll. The stock is down by about 65% since 1990, according to Virginia and Maryland officials.

MP: Instead of another federal bailout for the blue crab industry ("too tasty to fail"?), maybe lawmakers should consider ITQs instead?

THE DOCTOR'S BILL BY THE ECONOMIST

THE DOCTORS' BILL
Sep 25th 2008


The chairman of the Federal Reserve and the treasury secretary give
Congress a gloomy prognosis for the economy, and propose a drastic
remedy

AMERICAN congressmen are used to hyperbole, but they were left
speechless by the dire scenario Ben Bernanke, the chairman of the
Federal Reserve, painted for them on the night of September 18th. He
"told us that our American economy's arteries, our financial system, is
clogged, and if we don't act, the patient will surely suffer a heart
attack, maybe next week, maybe in six months, but it will happen,"
according to Charles Schumer, a Democratic senator from New York. Mr
Schumer's interpretation: failure to act would cause "a depression".

Mr Bernanke and Hank Paulson, the treasury secretary, had met
congressional leaders to argue that ad hoc responses to the continuing
financial crisis like that week's bail-out of American International
Group (AIG), a huge insurer, were no longer sufficient. By the weekend
Mr Paulson had asked for authority to own up to $700 billion in
mortgage-related assets. By the time THE ECONOMIST went to press,
Congress and Mr Paulson appeared to have agreed on the broad outlines
of what is being called the Troubled Asset Relief Programme, or TARP.

However, passage was not assured as rank-and-file congressmen, in
particular Republicans, balked. Uncertainty over the outcome rattled
credit markets: three-month interbank rates jumped and Treasury yields
fell on September 24th. In a prime-time address that evening to rally
support, George Bush warned of bank failures, plummeting house values
and millions of lost jobs if Congress did not act.

Both the crisis and the authorities' response have been called the most
sweeping since the Depression. Yet the differences from that era are
more notable than the similarities to it. From the stockmarket crash of
1929 to the federally declared bank holiday that marked its bottom,
three and a half years elapsed, and unemployment reached 25%. This
crisis has been under way for a little over a year and unemployment is
just over 6%, lower even than in the wake of the last, mild recession.
More than 4% of mortgages are now seriously delinquent (see chart 1),
but the figure topped 40% in 1934.

The scale of the American authorities' response reflects both the
violence with which this crisis has spread, and the determination of
the American authorities, most importantly Mr Bernanke, to learn from
the mistakes that made the Depression so deep and long.

In responding with such speed and vigour, they run several risks. One
is that they overdo it, paying far too much for assets, sending the
deficit into the stratosphere and triggering a run on the dollar. The
risk of underdoing it may be even greater. Politicians, determined not
to be seen as doing favours for Wall Street, might blunt the
programme's effect in the name of protecting the taxpayer. Then there's
the logistical nightmare of fixing a market whose very complexity is
central to the crisis.

Experience, at home and abroad, is a poor guide. In past episodes
authorities have typically not committed public money to their
financial systems until bank failures and insolvency have become
widespread. The first wave of savings-and-loan failures came in the
early 1980s; the Resolution Trust Corporation was not created to
dispose of their assets until 1989. Japan's banks began to fail in
1991, but a mechanism for taking over large, insolvent banks was not
set up until 1998. Mr Paulson and Mr Bernanke are attempting to prevent
the crisis from reaching that stage. "The firms we're dealing with now
are not necessarily failing, but they are contracting, they are
deleveraging," Mr Bernanke told Congress. They are unable to raise
capital and are refusing to lend, and that, he said, is squeezing the
economy.

One risk with such a pre-emptive bail-out is that to congressmen the
benefits are hypothetical whereas the fiscal and political costs, five
weeks before an election, are all too real. In polls voters waver
between opposition and support depending on how the question is asked.

In spite of these risks, the odds seem to be in favour of both
political passage and success. America has owned up to its mistakes
with exceptional speed, and pulled out the stops to correct them.

After the crisis first broke in August last year, the Fed pursued a
two-pronged strategy. The first element was to lower interest rates to
cushion the economy. The second was to use its balance sheet to help
commercial and investment banks finance their holdings of hard-to-value
securities and avoid fire-sales of assets. Behind this approach lay the
belief that the economy and the financial system were basically solid.
Yes, too many houses had been built and prices were too high, but a
return to more normal levels would be manageable if stretched over a
few years. And banks in aggregate had entered the crisis in good shape,
with much more capital this June than in 1990. The Fed saw their
problem essentially as illiquidity, not insolvency. The Bush
administration broadly shared this diagnosis--and an aversion to using
public money to help overextended borrowers.

The intensification of the crisis came not from the banks but the
"shadow banking system": the finance companies, investment banks,
off-balance-sheet vehicles, government-sponsored enterprises and hedge
funds that fuelled the credit boom, aided by less regulation and more
leverage than commercial banks. As home prices fell and loan losses
mounted, more of the shadow system became insolvent.

Insolvency cannot be cured with more loans, no matter how easy the
terms. It requires more capital, which in deep crises only the
government can provide. Mr Bernanke's groundbreaking paper on the
Depression, published in 1983, noted that recovery began in 1933 with
large infusions of federal cash into institutions, through the
Reconstruction Finance Corporation, and households, through the Home
Owners' Loan Corporation. They were, he wrote, "the only major New Deal
programme which successfully promoted economic recovery."

A month ago Mr Bernanke and his closest aides began to think something
similar might now be needed. The Fed and the Treasury had already drawn
up contingency plans, thinking it would be months before a need arose.
Then the financial hurricane blew up over the weekend of September 13th
and 14th. That is when Mr Paulson, Mr Bernanke and Tim Geithner,
president of the Federal Reserve Bank of New York, decided not to
commit any public money to a bail-out of Lehman Brothers. They
reasoned, wrongly, that the financial system was adequately prepared.
The company's failure, coupled with the near-bankruptcy of AIG, threw
the safety of all financial institutions into doubt, causing their
stocks to plunge and borrowing costs to soar.

Several money-market funds that held Lehman debt reported negative
returns, sparking a flight of cash to the safety of Treasury bills that
briefly pushed their yields close to zero. On September 18th companies
could no longer issue commercial paper. Banks, anticipating huge
demands from companies seeking funds, began hoarding cash, sending the
federal funds rate as high as 6%. That week, no investment-grade bonds
were issued, for the first time (holidays aside) since 1981.

Conceivably, the Fed could have contained the damage by supplying lots
of cash. But that would have meant ever greater and more creative use
of its balance sheet. By September 17th it had grown to $1 trillion, up
by 10% in a fortnight, with most of it tied up in loans to banks,
investment banks, foreign central banks, AIG and Bear Stearns (see
chart 2). It was becoming the lender of first resort, not last.

Such steps were also courting political risk. After the rescue of AIG,
Nancy Pelosi, speaker of the House of Representatives, demanded, "Why
does one person have the right to grant $85 billion in a bail-out [to
AIG] without the scrutiny and transparency the American people
deserve?" Mr Bernanke later acknowledged that the Fed wanted to get out
of crisis management, for which it lacked authority and broad support.
"We prefer to get back to monetary policy, which is our function, our
key mission," he told Congress this week.

The Fed chairman told Mr Paulson on September 17th that the time had
come to call for a big injection of public money. By the next day Mr
Paulson was in agreement and the two men, after getting Mr Bush's
approval, approached Capitol Hill.

Mr Paulson's first proposal left Democrats cold: it would give the
Treasury virtually unchecked authority for two years to spend up to
$700 billion on mortgage assets or anything else necessary to stabilise
the system. It looked like a power-grab. Democrats countered with
several conditions: troubled mortgages would be modified where possible
to keep homeowners in their homes; an oversight board would watch over
the programme; taxpayers would share any gains for participating
companies via shares or warrants; and executives' compensation would be
capped. By September 24th, Mr Paulson seemed to be bending to all these
conditions. For its part, the finance industry is ready to yield to all
of these conditions in order to get something done. "It was a
gargantuan abyss that we faced last week," says Steve Bartlett,
chairman of the Financial Services Roundtable, which represents about
100 big financial firms.

Assuming it comes into existence, there are still numerous risks
surrounding the TARP. The first is that it does too much. At $700
billion, the amount allocated to it easily exceeds the Federal Deposit
Insurance Corporation's (FDIC) estimate of roughly $500 billion of
residential mortgages seriously delinquent in June, out of a total of
$10.6 trillion, though that figure will rise. The Treasury has sought
broad authority to buy not just mortgage securities but anything
related to them, such as credit derivatives, and if necessary equity in
companies weakened by their bad loans.

THE ARITHMETIC OF CRISIS
When the loans to AIG and Bear Stearns assets are added in, the gross
public backing so far approaches 6% of GDP, well above the 3.7% of the
savings-and-loan bail-out in the late 1980s and early 1990s (see chart
3). That would still be much less than the average cost of resolving
banking crises around the world in the past three decades, which a
study by Luc Laeven and Fabian Valencia, of the IMF, puts at 16%. One
reason why bail-outs, especially in emerging markets, have been so
costly is inadequate safeguards against abuse, says Gerard Caprio, an
economist at Williams College. "There was a lot of outright looting
going on."

The Congressional Budget Office had pegged next year's federal budget
deficit at more than $400 billion, or 3% of GDP. Private estimates top
$600 billion. Tack on $700 billion and various other crisis-related
outlays and the total could reach 10% of GDP, notes JPMorgan Chase, a
level last seen in the second world war. On September 22nd the euro
made its largest-ever advance against the dollar on worries that
America might one day inflate its way out of those debts. Such fears
are compounded by the expansion of the Fed's balance sheet. Some even
think that the burden of repairing a broken financial system could
place the dollar's status as the world's leading reserve currency in
jeopardy.

The consequences will probably not be so far-reaching. The true cost to
taxpayers is unlikely to be anywhere near $700 billion, because many of
the acquired mortgages will be repaid. The expansion of the Fed's
balance sheet reflects a fear-induced demand for cash, which drove the
federal funds rate above the 2% target.

It is more likely that the programme will not go far enough. Conscious
of the public's deep antipathy to anything that smacks of favours for
Wall Street, politicians from both parties have insisted that the
protection of the taxpayer be paramount. Yet the point of bail-outs is
to socialise losses that are clogging the financial system. If
taxpayers are completely insulated from losses, the bail-out will
probably be ineffective. "The ultimate taxpayer protection will be the
market stability provided," Mr Paulson argues.

This is especially critical in deciding how the government will set the
price for the assets it purchases. An impaired mortgage security might
yield 65 cents on the dollar if held to maturity. But because the
market is so illiquid and suspicion about mortgage values so high, it
might fetch just 35 cents in the market today. Recapitalising banks
would mean paying as close to 65 cents as possible. Those that valued
them at less on their books could mark them up, boosting their capital.
On the other hand, minimising taxpayer losses would dictate that the
government seek to pay only 35 cents. But this would provide little
benefit to the selling banks, and those that carried them at higher
values on their books could see their capital further impaired.

To some, that would be fine. "If they choose to fail rather than sell
their debt at its real market value and record the loss on the books,
they should be free to take that option," said Michael Enzi, a
Republican senator from Wyoming. The failure of smaller regional banks
may be tolerable. The FDIC offers a proven system for coping with
failed entities (although it too may need a loan from the taxpayer) and
other banks are keen to snap up their deposits. But the final result of
big-bank failures would be a deeper crisis and a bigger cost in lost
economic output.

Similarly, requiring participating banks to give the government
warrants or cap their executives' salaries might make them less willing
to take part. Veterans of the emerging-markets crises of the 1990s say
their effectiveness would have been crippled had their ability
instantly to deploy cash as they saw fit been compromised. "There is
far more risk that the authorities will have too little
flexibility...than there is risk that they will have too much
authority," says Lawrence Summers, a former treasury secretary.

A more serious criticism is that buying assets is an inefficient way to
recapitalise the banking system. Better, many argue, to inject cash
directly into weakened banks. A dollar of new equity could support $10
in assets, reducing the pressure to deleverage. Moreover, since the
price of banks' shares are less arbitrary and more homogeneous than
those of illiquid mortgage securities, the process would be far more
transparent, says Doug Elmendorf of the Brookings Institution. But
banks might not volunteer to sell equity to the government before they
reach death's door; and the prospect of share dilution could discourage
private investors. In any event, the Treasury plan could be flexible
enough to permit such capital injections.

BUT WILL IT WORK?
There have been several false dawns since the crisis began in August of
last year. This could be another. The TARP may address the root cause,
namely house prices and mortgage defaults, but the crisis has long
since mutated. "The same underlying phenomenon that we saw in housing
we're seeing in auto loans, in credit-card loans and student loans,"
says Eric Mindich, head of Eton Park Capital Management, a hedge fund.
The crisis could claim another institution before the TARP's effect is
felt.

The TARP could conceivably slow the resolution of the crisis by
stopping property prices and home ownership falling to sustainable
levels. Some homeowners who are up-to-date with payments but whose home
is worth less than their mortgage may stop paying, betting the federal
government will be a more forgiving creditor. The Treasury is
considering using the TARP to write down mortgages to levels that
squeezed homeowners can afford. But in the meantime, buyers might be
reluctant to step in while a big inventory of government-owned property
hangs over the market. That's one reason Japan's many efforts to bail
out its banks failed to revitalise its economy: the institutions that
took over the loans were hesitant to dispose of them for fear of
pushing insolvent borrowers into bankruptcy, says Takeo Hoshi of the
University of California at San Diego.

All the same, the TARP is likely to mark a turning-point. "It promises
to break the vicious circle of deleveraging in the mortgage market,"
predicts Jan Hatzius, an economist at Goldman Sachs. This does not mean
the economy will soon rebound, but it does suggest the worst scenarios
will be averted. If the TARP helps banks and investors establish
reliable prices for mortgage securities, it could restart lending and
help bring the housing crisis to an end.

This will not come without a price. The unprecedented intrusion of the
federal government into the capital markets seems certain to be
accompanied by a heavier regulatory hand, something on which both
Barack Obama and John McCain now agree.

Even without new rules, more of the system will be regulated because so
much of it has been absorbed by banks, which are closely overseen.
Sheila Bair, chairman of the FDIC, thinks this is a good thing. Banks
were relative pillars of stability because of their insured deposits
and the regulation that accompanied it. Although some banks have
failed, she notes that other banks, not taxpayers, will pay the
clean-up costs. Now that institutions like money-market funds are
caught by the federal safety net even though that was never intended,
they can expect to pay for it.

Yet predictions of a sea change towards more invasive government are
premature. The Depression witnessed a pervasive expansion of the
federal government into numerous walks of life, from trucking and
railways to farming, out of a broadly shared belief that capitalism had
failed utterly. If Mr Paulson and Mr Bernanke have prevented a
Depression-like collapse in economic output with their actions these
past two weeks, then they may also have prevented a Depression-like
backlash against the free market.

How Main Street Will Profit by Bill Gross

How Main Street Will Profit

By William H. Gross
Wednesday, September 24, 2008; A23



Capitalism is a delicate balance between production and finance. Today, our seemingly guaranteed living standard is threatened, much like it has been in previous recessions or, some would say, the Depression. Finance has run amok because of oversecuritization, poor regulation and the excessively exuberant spirits of investors; the delicate balance has once again been disrupted; production, and with it jobs and our national standard of living, is declining.

If this were a textbook recession, policy prescriptions would recommend two aspirin and bed rest -- a healthy dose of interest rate cuts and a fiscal package that mildly expanded the deficit. That, of course, has been the attempted remedy over the past 12 months. But recent events have made it apparent that this downturn differs from recessions past. Today's housing bubble, unlike that of the stock market's before it, was financed with excessive and poorly regulated mortgage debt, and as housing prices began to tumble from the peak, the delinquencies and foreclosures have led to a downward spiral of debt liquidation that in turn led to even lower prices and more foreclosures.

And so, instead of mild medication and rest, it became apparent that quadruple bypass surgery is necessary. The extreme measures are extended government guarantees and the formation of an RTC-like holding company housed within the Treasury. Critics call this a bailout of Wall Street; in fact, it is anything but. I estimate the average price of distressed mortgages that pass from "troubled financial institutions" to the Treasury at auction will be 65 cents on the dollar, representing a loss of one-third of the original purchase price to the seller, and a prospective yield of 10 to 15 percent to the Treasury. Financed at 3 to 4 percent via the sale of Treasury bonds, the Treasury will therefore be in a position to earn a positive carry or yield spread of at least 7 to 8 percent. Calls for appropriate oversight of this auction process are more than justified. There are disinterested firms, some not even based on Wall Street, with the expertise to evaluate these complicated pools of mortgages and other assets to assure taxpayers that their money is being wisely invested. My estimate of double-digit returns assumes lengthy ownership of the assets and is in turn dependent on the level of home foreclosures, but this program is, in fact, directed to prevent just that.

In effect, the Treasury will have the fate of the American taxpayer in its hands. The Resolution Trust Corp., created in the late 1980s to deal with the savings and loan crisis, dealt with previously purchased real estate, which was flushed into government hands with a "best efforts" future liquidation. Today, the purchase of junk mortgages, securitized credit card receivables and even student loans will be bought at prices significantly below "par" or cost, and prospectively at levels allowing for capital gains. This is a Wall Street-friendly package only to the extent that it frees up funds for future loans and economic growth. Politicians afraid of parallels to legislation that enabled the Iraq war are raising concerns about a rush to judgment, but the need for speed is clear. In this case, there really are weapons of mass destruction -- financial derivatives -- that threaten to destroy our system from within. Move quickly, Washington, with appropriate safeguards.

The Treasury proposal will not be a bailout of Wall Street but a rescue of Main Street, as lending capacity and confidence is restored to our banks and the delicate balance between production and finance is given a chance to work its magic. Democratic Party earmarks mandating forbearance on home mortgage foreclosures will be critical as well. If this program is successful, however, it is obvious that the free market and Wild West capitalism of recent decades will be forever changed. Future economic textbooks are likely to teach that while capitalism is the most dynamic and productive system ever conceived, it is most efficient over the long term when there is another delicate balance -- between private incentive and government oversight.

14 Questions for Paulson & Bernanke by Michael Mandel

14 Questions for Paulson & Bernanke
Tuesday, September 23, 2008 | 07:16 AM
in Bailouts | Credit | Derivatives | Politics | Taxes and Policy
Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke are scheduled to testify today before Congress on their massive bailout program.

Here are some questions I would like to hear asked:

1. You two gentlemen have been wrong about the Housing crisis, missed the leverage problem, and understated the derivative issue. Recall the overuse of the word "Contained." Indeed, you two have been wrong about nearly everything financially related since this crisis began years ago.


Question: Why should we trust your judgment on the largest bailout in American history?

2. How are you pricing the purchase of these damaged assets? Is the taxpayer paying 22 cents on the dollar? 5.5 cents? If there is no market price for this junk paper, how are you going to determine a purchase price?


3. Are you now, or have you ever been a short seller? Do you think short selling ban is a smart move? What does this mean to our concept of free trading markets?

4. In the nationalization of AIG, the US taxpayer received 80% of the company. What is the taxpayer getting for their money in this $700B bailout?

5. You have said that "The Housing correction is the root cause of market stability." What about leverage -- how significant was that as a root cause?

6. Your initial estimates for the cost of this were $700 billion dollars. Yet you also asked for a blank check, an unlimited ability to spend more "as needed." What is your worst case scenario for the total costs of this bailout?

7. The original version of this bailout package requested no judicial, administrative, or budgetary review of the spending of this bailout, What was the thought process behind that extraordinary, extra-constitutional request?


8. In 2004, your former firm, Goldman Sachs, along with 4 other brokers, received a waiver of the net capitalization rules, allowing these firms to dramatically exceed the 12-to-1 leverage rules. How much was this waiver responsible for the current situation?

9. Its just cost the taxpayer $50 billion to bail out money market funds, which are clearly non-insured, risk instruments. Why did we do that?

10. The Securities and Exchange Commission has been AWOL during much of the problems we now face. What do you think is the proper role for the SEC in terms of supervising or regulating securities markets? Doesn't your plan usurp SEC authority and move it to the Treasury?


11. How significant are derivatives and credit default swaps to the current crisis? Why weren't they regulated the way other insurance products are?

12. The current proposal has the US bailing out foreign banks. Has the USA become the insurer of the worlds financial assets?

13. What other financial firms and funds are likely to need a bailout in the near future? Are there other banks, brokers, insures that are at risk?

14. If we make this inordinate grant of unlimited cash, how can we rein in the budget in the future? How can we as a Congress say no to expensive budget items such as Nationalized Health Care, or Infrastructure repair programs or fill in the blank on the grounds they are "too expensive?"

Bonus comedy question: Are you now, or have you ever been, a Socialist? Do you know, or associate, with other Socialists?

If you have any other suggestions for questions, use the comments. I will get them in front of the right people . . .

Why Paulson is Wrong by Luigi Zingales

Why Paulson is Wrong
Luigi Zingales
Robert C. Mc Cormack Professor of Entrepreneurship and Finance
University of Chicago -GSB

When a profitable company is hit by a very large liability, as was the case in 1985 when
Texaco lost a $12 billion court case against Pennzoil, the solution is not to have the
government buy its assets at inflated prices: the solution is Chapter 11. In Chapter 11,
companies with a solid underlying business generally swap debt for equity: the old equity
holders are wiped out and the old debt claims are transformed into equity claims in the
new entity which continues operating with a new capital structure. Alternatively, the
debtholders can agree to cut down the face value of debt, in exchange for some warrants.
Even before Chapter 11, these procedures were the solutions adopted to deal with the
large railroad bankruptcies at the turn of the twentieth century. So why is this wellestablished
approach not used to solve the financial sectors current problems?
The obvious answer is that we do not have time; Chapter 11 procedures are generally
long and complex, and the crisis has reached a point where time is of the essence. If left
to the negotiations of the parties involved this process will take months and we do not
have this luxury. However, we are in extraordinary times and the government has taken
and is prepared to take unprecedented measures. As if rescuing AIG and prohibiting all
short-selling of financial stocks was not enough, now Treasury Secretary Paulson
proposes a sort of Resolution Trust Corporation (RTC) that will buy out (with taxpayers’
money) the distressed assets of the financial sector. But, at what price?
If banks and financial institutions find it difficult to recapitalize (i.e., issue new equity) it
is because the private sector is uncertain about the value of the assets they have in their
portfolio and does not want to overpay. Would the government be better in valuing those
assets? No. In a negotiation between a government official and banker with a bonus at
risk, who will have more clout in determining the price? The Paulson RTC will buy toxic
assets at inflated prices thereby creating a charitable institution that provides welfare to
the rich—at the taxpayers’ expense. If this subsidy is large enough, it will succeed in
stopping the crisis. But, again, at what price? The answer: Billions of dollars in taxpayer
money and, even worse, the violation of the fundamental capitalist principle that she who
reaps the gains also bears the losses. Remember that in the Savings and Loan crisis, the
government had to bail out those institutions because the deposits were federally insured.
But in this case the government does not have do bail out the debtholders of Bear Sterns,
AIG, or any of the other financial institutions that will benefit from the Paulson RTC.
Since we do not have time for a Chapter 11 and we do not want to bail out all the
creditors, the lesser evil is to do what judges do in contentious and overextended
bankruptcy processes: to cram down a restructuring plan on creditors, where part of the
debt is forgiven in exchange for some equity or some warrants. And there is a precedent
for such a bold move. During the Great Depression, many debt contracts were indexed to
gold. So when the dollar convertibility into gold was suspended, the value of that debt
soared, threatening the survival of many institutions. The Roosevelt Administration
declared the clause invalid, de facto forcing debt forgiveness. Furthermore, the Supreme
Court maintained this decision. My colleague and current Fed Governor Randall Koszner
studied this episode and showed that not only stock prices, but bond prices as well,
soared after the Supreme Court upheld the decision. How is that possible? As corporate
finance experts have been saying for the last thirty years, there are real costs from having
too much debt and too little equity in the capital structure, and a reduction in the face
value of debt can benefit not only the equityholders, but also the debtholders.
If debt forgiveness benefits both equity and debtholders, why do debtholders not
voluntarily agree to it? First of all, there is a coordination problem. Even if each
individual debtholder benefits from a reduction in the face value of debt, she will benefit
even more if everybody else cuts the face value of their debt and she does not. Hence,
everybody waits for the other to move first, creating obvious delay. Secondly, from a
debtholder point of view, a government bail-out is better. Thus, any talk of a government
bail-out reduces the debtholders’ incentives to act, making the government bail-out more
necessary.
As during the Great Depression and in many debt restructurings, it makes sense in the
current contingency to mandate a partial debt forgiveness or a debt-for-equity swap in the
financial sector. It has the benefit of being a well-tested strategy in the private sector and
it leaves the taxpayers out of the picture. But if it is so simple, why no expert has
mentioned it?
The major players in the financial sector do not like it. It is much more appealing for the
financial industry to be bailed out at taxpayers’ expense than to bear their share of pain.
Forcing a debt-for-equity swap or a debt forgiveness would be no greater a violation of
private property rights than a massive bailout, but it faces much stronger political
opposition. The appeal of the Paulson solution is that it taxes the many and benefits the
few. Since the many (we, the taxpayers) are dispersed, we cannot put up a good fight in
Capitol Hill; while the financial industry is well represented at all the levels. It is enough
to say that for 6 of the last 13 years, the Secretary of Treasury was a Goldman Sachs
alumnus. But, as financial experts, this silence is also our responsibility. Just as it is
difficult to find a doctor willing to testify against another doctor in a malpractice suit, no
matter how egregious the case, finance experts in both political parties are too friendly to
the industry they study and work in.
The decisions that will be made this weekend matter not just to the prospects of the U.S.
economy in the year to come; they will shape the type of capitalism we will live in for the
next fifty years. Do we want to live in a system where profits are private, but losses are
socialized? Where taxpayer money is used to prop up failed firms? Or do we want to live
in a system where people are held responsible for their decisions, where imprudent
behavior is penalized and prudent behavior rewarded? For somebody like me who
believes strongly in the free market system, the most serious risk of the current situation
is that the interest of few financiers will undermine the fundamental workings of the
capitalist system. The time has come to save capitalism from the capitalists.

The Nation That Lost Its Jobs, But Got Them Back by Gene Callahan

Daily Article by Gene Callahan | Posted on 11/20/2003

Once upon a time, there were two hippies, Jerry and Sarah. Tired of the rat race of modern life, they found a deserted valley in a remote region of the world. They moved there, with their four children. They declared that the area was now the independent kingdom of Lost Valley and seceded from the surrounding nation. Amazingly, it let them go.

The family lived a harsh life at the margin of subsistence. Everything that they needed, besides the few tools and amenities they brought in with them, they had to produce themselves. Having shovels, rakes, wheelbarrows, quality seeds, and so on made their life a good bit easier than it would have been otherwise, but it was hardly comfortable. Things did ease a bit as the children grew and did more work.

One winter, their youngest son fell sick. Unable to leave Lost Valley on foot or to bring treatment for him into the valley, they watched in sorrow as he died of a treatable illness.

Yet they stayed in the valley, wanting to make a go of the life they had chosen. And their life did have its pleasures. The valley was wild and beautiful. The family members were all very close to each other. And though they had little spare time, they enjoyed what leisure they had. For example, when work was done for the day, Jerry would spend the evening making charming little woodcarvings. As the years passed he became quite skilled at doing this.

A Visitor to the Valley

After the family had been in Lost Valley for many years, a hiker happened by. Jerry was sitting outside his cabin carving when the hiker emerged from the woods. He introduced himself as David. After an exchange of pleasantries, David remarked on how much he admired Jerry's woodwork. He asked Jerry if he had any similar carvings.

Jerry took him into the cabin and showed him a shelf with several hundred of the little pieces. David asked if he could buy a dozen of them. He offered a good price, but Jerry and Sarah had no use for money. So David suggested he simply leave them some as a sign of his good faith, promising to return later with other goods that they could use.

When David returned in a month, he had two more fellows with him. They were all carrying heavy packs filled with seeds, new tools, medicine kits, silverware, clothing, soap, and other household goods. The man told Jerry he'd like to take one hundred more of the carvings.

Jerry was happy to sell his carvings to David. The new goods made his family's life significantly easier. Employing them to boost their productivity, the rest of Jerry's family could raise enough food for all of them, leaving him more time to work on his art. The more he specialized in that one task the more his skill improved.

David and his two friends returned in the winter, riding three snowmobiles that were full of goods. Besides staples, they also brought a computer and a satellite dish. They taught Jerry how to retrieve e-mail, and told him they would send him custom orders.

In the spring they arrived again. Jerry's carvings were a fantastic success. David asked Jerry if they could cut a road in to his cabin, to facilitate their trade. He noted that since Lost Valley was Jerry and Sarah's sovereign country, they would have complete control over who could use the road.

Jerry said yes, and soon he was making monthly deliveries, in exchange for more supplies. The family now had enough free time that the children could concentrate on their education. David and his friends had brought another computer, and the kids used it to surf the Internet, learning more about the outside world. Soon, they created a website advertising Jerry's statues.

Orders flooded in. The next time David arrived, Jerry told him he wanted to set up his own company, using David as his distributor and as a marketing consultant. David was happy to oblige. Sarah became interested in the details of fulfilling orders. She also began keeping books for the company, an activity that made sense now that they were using money.

Within a few years, there was a thriving business in the woodcarvings located just over the mountains from Jerry and Sarah's valley. It included sales, marketing, and distribution departments. There was also a manufacturing division producing copies of Jerry's work, since many people liked it but could not afford originals. Sarah was the CEO of the company, traveling out of the valley three days a week to work on site. The children, who no longer had to work, were thinking of heading off to college soon. The oldest, Jerry Jr., seemed to have his father's artistic streak, and was showing tremendous promise as a painter.

The original rustic cabin had been expanded several times. The family now had three wood stoves, which they fed with logs split with their gas-powered wood splitter, an electric generator, a hot tub, and a deck with a view of the mountains. Everyone had his own bedroom. If someone in the family got sick, they could afford to have a doctor flown in to treat him.

Disaster Narrowly Averted

However, they were altogether too complacent. Unbeknownst to them, Lost Valley was on the verge of disaster. Luckily another hiker was about to wander into it.

His name was Professor Mercantilio, and he taught labor studies at a major university. When Jerry met him on a trail near the cabin, he was immediately impressed by the man's erudition and his concern for the well-being of his fellow man. He invited the professor back to the cabin for lunch.

While they ate, Jerry told Mercantilio the story of his family's sojourn in the woods. As he described the events of the last few years, his guest's countenance darkened, although more in sorrow than in anger. When Jerry had finished, Mercantilio looked at him gravely and said, "I've just arrived in the nick of time."

"How's that?" Jerry asked him, puzzled.

"Don't you understand? Your country's economy is on the verge of collapse. You've been exporting all of your jobs to other nations!"

"Huh? What do you mean?"

"Just think back to before you met this David and the other foreigners who beguiled you into shipping your nation's jobs overseas."

Jerry nodded slowly, but, frankly, he still did not quite getting the professor's drift. Mercantilio sensed this and explained further.

"Didn't you once have dozens of different jobs performed in this valley? Farmer, weaver, carpenter, soap maker, cook, lumberjack, butter manufacturer, herder, shoemaker, hunter, fisherman, butcher, and more?"

"Well . . . sure. We sure did."

"And where have those jobs gone?"

This was a perplexing question. Just where had they gone, Jerry wondered.

The professor told him:

"To foreigners! They're all still being done, just not within this valley any more. Why today, you are down to your last two jobs—company director and sculptor. Tell me, how can an economy thrive with only two jobs in it, without any manufacturing or agricultural base?"

Jerry said, "Gee, I don't know. But we seem to be doing OK!"

"Trust me, that's just an illusion. Your economy is being hollowed out. Your percentage of your agricultural consumption that you import has soared from 0% to 98% over the last five years. Your imports of manufactured products have gone from 2% to 99% of total consumption over the same time period. Apparel imports have gone from 1% to 97%. Obviously, this trend can't continue. Without any production, how will you pay for your imports? Your economic role as consumers is undermining your role as producers."

Jerry thought these remarks over. It was strange to think that his family's newfound prosperity was merely an illusion. But he knew little about economics, and, after all, this was the area Professor Mercantilio had studied for many years. He must know what he was talking about.

"Well," Jerry asked, "how do we fix the problem?"

"It's not going to be easy," the professor confessed. "Initially, it will require some sacrifice: your level of consumption will have to drop for a while. But better some sacrifice now than a complete economic collapse later. In the long run, your economy will be much healthier for it."

The Professor's Program

Over the next several days, Professor Mercantilio developed some sophisticated mathematical models of Lost Valley's economy, and worked out a program of import substitution that would get it back on its feet again. The labor and manufacturing sectors, the heart of any flourishing economy, would be revitalized. It would mean less attention to management and design activities, but these, after all, are only the icing on the economic cake.

Jerry and Sarah agreed to implement the professor's program. Mercantilio returned to his university, and the residents of Lost Valley returned to jobs they had neglected for too long. They weeded and tilled the vegetable garden, cleaned their hunting rifles, and took the old sewing machine out of the attic. The children's study time was cut and they resumed many of their old chores. Sarah had much less time to devote to running their company, and Jerry could not spend as much time creating carvings, but Mercantilio had convinced them it would be worth it.

On his summer vacation a year later, Mercantilio came back to Lost Valley. The nation had become more self-sufficient, producing a far greater percentage of its own food and manufactured goods. But there was a serious difficulty: the kids were still buying the better-quality, imported food, clothing, and cosmetics. As a result, much of the domestic production was going to waste.

Mercantilio analyzed the situation for Jerry. "You see," he said, "it's low-wage foreign workers that are your problem. You and Sarah have each been making several hundred thousand dollars a year. How can you expect to compete with farm workers paid a mere $12 an hour? They have an unfair advantage."

"So what should we do?"

"If you can't get foreign governments to sign trade pacts guaranteeing their nation's workers incomes of at least several hundred thousand dollars per year, you'll just have to impose a tariff, raising the price of their products to the level of yours. That will ensure trade that is not only free, but fair as well."

So Jerry and Sarah imposed high tariffs on most foreign goods. Left with little choice, the kids turned to the domestic products they had previously disdained. With fewer imported tools to aid the family members in their work, it took more and more time for them to produce the necessities of life.

A year later, the company selling Jerry's woodcarvings went into bankruptcy and was purchased for a song by Warren Buffett. Soon enough, the money Jerry and Sarah had received from the sale was gone. The road into Lost Valley gradually became impassable. Jerry and Sarah's SUV broke down, and they had no idea how to repair it. Over time, the house began to fall apart, the hot tub stopped working, and the computers became useless. The children abandoned their plans to attend college. Jerry Jr. stopped painting, as he had no time for it. Anyway, the family could no longer afford paint or canvas for him. One day, while cutting wood, Jerry Sr. lopped off a finger from his right hand with an errant axe blow. He could no longer carve wood as he used to, and he lost his interest in the art.

Eventually, the medicine kits were empty. Doctors could no longer reach Lost Valley by road and Jerry and Sarah could not afford to fly them in. When their daughter caught pneumonia, there was little they could do but watch in sorrow as her condition worsened and she eventually died.

The above information, up to the time of Professor Mercantilio's second visit to the valley, is largely drawn from his groundbreaking paper, "The Disappearance of Work in the Late Capitalist Economy: The Case of Lost Valley," published in Sociological Perspectives on Labor Rights, Vol. XII, No. 3. Just last year, Professor Mercantilio returned to the valley to perform some econometric studies to help determine the success of his program. Unfortunately, we can't report on the outcome of this most recent visit, as he has not been heard from since.

Aristotle

"For the things we have to learn before we can do them, we learn by doing them."

A problem of regulation?from Mises Economics Blog by Mark Thornton

The financial panic that has engulfed the planet is considered by politicians, bureaucrats, journalists and mainstream economists to be a problem of regulation. I find myself in the uncomfortable position of having to agree with this gang of opinion makers, but it is not a problem of insufficient regulation, inadequate regulation, unenforced regulation, out-dated regulation, or anything of the kind.

The problem is with regulation itself. With regard to financial markets, government regulates everything. There is the Federal Reserve that regulates the money supply, interest rates and everything else. There is the Treasury with its array of regulatory powers.

There is the Comptroller of the Currency, the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, and the Federal Home Loan Bank Board. Government has multiple layers of regulators concerning mortgages, financial institutions, and stock markets.

I have taught money and banking and was formerly the Assistant Superintendent of Banking in the state of Alabama and I can not think of a single thing related to this financial crisis that is not regulated.

Government regulation is the problem. Since going off the gold standard in 1971 we have experienced a series of bubble and bust cycles in the economy and each time the crisis has been dealt with bailouts, more regulations, and loosening of gold standard era constraints. The money supply as measured by M2 had long been just a couple of hundred billion and is now approaching $8 trillion dollars and we supposedly are still suffering from a lack of liquidity!

The American public once again finds itself playing 3 Card Monty with a dealer who insists we play and tells us that we cannot lose. We will put our bailout money down on the table, we will be reassured that we cannot lose (with more government regulation and "oversight"), the Fed will inject more fiat money and when the cups are turned we will all have our wealth ripped off.

What the American public needs to be told is that the crisis is actually the market trying to reestablish some rational order in the economy beset by regulation. It is the market that is tearing down these mega financial firms and disposing of the crazy financial products that they created. It is the market that is punishing those who grew rich on paper money schemes, derivatives, sub prime mortgages, and hedge funds. These are the same people the taxpayer is being asked to bail out--Wall Street fat cats.

What the American public needs to hear is that regulation is the problem and that the "unfettered market" is the only way to break out of the business cycle. All that is required is a gold coin system of money and for the rule of law to be applied to banking whereby demand deposits are held as reserves in the bank. The economics of gold would regulate the money supply and the interest rate would regulate the amount of demand and time deposits as well as borrowing and lending. No government regulation is required. There is no systemic or macroeconomic risk and the market eliminates the business cycle.

The only requirement is the legal recognition of the statement in the US Constitution that gold and silver are money. The market can handle everything else.

Gross Domestic Product and Corporate Profits: Second Quarter 2008 (Preliminary)

Gross Domestic Product and Corporate Profits: Second Quarter 2008 (Preliminary)
from U.S. Bureau of Economic Analysis
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.3 percent in the second quarter of 2008, (that is, from the first quarter to the second quarter), according to preliminary estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.9 percent.

U.S. household net worth

According to the Federal Reserve, U.S. household net worth fell by $2 trillion over the last year, from $58 trillion in the second quarter of 2007 to about $56 trillion in the second quarter of 2008 (see chart above). But compared to 2002, U.S. household net worth has increased by almost $17 trillion, or by almost 43% in the last six years.

As Ryan Ellis at American Shareholders Association reminds us, let's "keep it in perspective."

O mal-estar dos "progressistas" by Reinaldo Azevedo

O mal-estar dos "progressistas"

"É preciso que não se faça do laicismo e do "progressismo" uma
nova religião. Nas democracias, não existe "o" Salvador: nem
o que vem em nome de Deus nem o que vem em nome das Luzes"

A exemplo de todo mundo e do mundo todo, considero Barack Obama o favorito nas eleições presidenciais americanas – desconfio que até o republicano John McCain pense o mesmo. Com o tsunami que colheu a economia, a todos parece impensável, e a mim também, que o democrata perca a disputa. Até o dia em que escrevo este artigo, as pesquisas indicam, no entanto, um empate técnico entre ambos. Na contagem dos delegados, dada a tendência dos estados, McCain leva ligeira vantagem. O chamado "pensamento progressista" tem reagido de modo um tanto estranho aos fatos – especialmente depois da indicação de Sarah Palin para vice na chapa republicana.

O mal-estar dos "progressistas" com o persistente McCain chega a relativizar o valor da própria democracia – que só provará a sua força se Obama vencer. As virtudes e fraquezas dos postulantes deixam de ser debatidas na terra. O confronto é transferido para uma esfera abstrata, que o poeta Bruno Tolentino (1940-2007) chamava de "o mundo como idéia" – título de um formidável livro seu. Nesse lugar-nenhum, dá-se, então, o choque entre o velho e o novo, a mudança e a reação, os modernos e os reacionários. Como um dos lados da disputa advoga uma natural e intrínseca superioridade moral, resta evidente que uma eventual vitória de McCain poria em dúvida as virtudes do próprio sistema.

Há dias, um articulista do jornal inglês The Guardianescreveu que, por enquanto, considera injusto o antiamericanismo presente em boa parte do mundo. Mas, alertou, se Obama não for eleito, ele começará a achar que o ódio faz sentido. E aqui lhes deixo uma dica do que eu chamaria "modo de ler": percebam como o candidato democrata, com alguma freqüência, é apresentado como a chance que os americanos têm de se redimir perante a história, de se desculpar por todos os seus malfeitos, de fazer um ato de contrição. Bem, eu não creio que eles devam desculpas a ninguém.

Esse "mundo como idéia" pode, eventualmente, recorrer à trapaça e mesmo à mentira em nome do futuro. No dia 11 de setembro, Sarah concedeu uma entrevista a Charlie Gibson, da ABC News (disponível no site abcnews.go.com), e foi indagada sobre o que poderia acontecer se a Geórgia, uma vez integrante da Otan – aliança militar integrada por países ocidentais, liderados pelos EUA –, sofresse um ataque da Rússia. Gibson fez uma pergunta indutiva: "A gente não teria de partir para a guerra?". E Sarah respondeu o óbvio: um tratado supõe a proteção mútua dos países que o integram. Noto: ela já havia dispensado generosas palavras de paz à Rússia, que chamou de "vizinho de porta" – afinal, ela governa o Alasca. Inútil. Foi tratada como uma cretina beligerante, para quem uma guerra com os russos é uma trivialidade – além de ser favorável à exploração do petróleo e contra o aborto...

Jamais se deve duvidar da fé de Obama, a menos que o sujeito seja um porco reacionário e fundamentalista. Mas a de Sarah pode ser objeto de chicanas e chacotas as mais diversas. A sua firme posição contrária ao aborto – e convenham que boa parte da América está com ela – é apresentada como uma das mais claras evidências de seu atraso mental, suposta manifestação de um país que nega as conquistas do mundo contemporâneo. Na entrevista a que me referi, foi indagada: "Acredita que os EUA estão numa guerra santa?". A resposta foi boa. Ela citou o presidente Lincoln (1809-1865), um republicano: "Não devemos rezar para Deus estar ao nosso lado numa guerra ou em outra hora qualquer; devemos é rezar para estar ao lado de Deus". Mais: "Eu acredito que a luta contra o terrorismo islâmico é o lado certo (...). Eu odeio a guerra, e, hoje, Charlie, é o dia em que envio meu filho mais velho (...), com outros 4 000 mulheres e homens americanos admiráveis, para lutar pelo nosso país, pela democracia e por nossas liberdades". Sarah não é boba. E isso pode ser muito irritante.
Ed Andrieski/AP

Obama, o "berlinense"
Embora tudo esteja a seu favor, por que o democrata não dispara nas pesquisas?

Obama é o favorito. Todos os analistas estão certos. Raramente as condições objetivas, para lembrar um fraseado antigo da teoria política, concorreram tanto a favor de um nome. Bush é o presidente mais impopular da história; os americanos rejeitam a guerra do Iraque; e já se sabe que a crise econômica está longe do fim – culpar a Casa Branca por ela requer certa torção da realidade, mas não importa. Governos arcam com o peso das crises e são beneficiados por ciclos virtuo-sos. Embora tudo esteja a seu favor, por que Obama não dispara nas intenções de voto? Vim respondendo a essa questão ao longo do texto.

No dia 7 de janeiro deste ano, escrevi no meu blog um pequeno artigo em que indagava: "Que diabo se passa com o Partido Democrata americano, que tem como favoritos uma mulher e um negro com sobrenome islâmico e nenhum homem branco para enfrentá-los?". Em tempos em que as pessoas preferem parecer justas a ser inteligentes, fui alvo de uma saraivada: "Machista!". "Racista!". "Machista e racista!".

Eu apenas tomava o par "homem branco" como "um apelo simbólico à tradição, à conservação de um modelo que, inegavelmente, deu certo e fez a maior, mais importante e mais rica democracia do mundo; que venceu, por exemplo, o embate civilizatório com o comunismo". É evidente que esse sistema só demonstra mais virtudes à medida que se deixa renovar. Mas essa evidência não respondia à minha curiosidade: "Quem encarna, no Partido Democrata, o elogio da tradição, da conservação?". A que chegava mais perto era Hillary Clinton. E foi fuzilada justamente por isso.
Robyn Beck/AFP/Getty Images

Republicanos persistentes
Sarah Palin não é boba, apesar de quererem pintá-la como tal, e McCain leva ligeira vantagem no número de delegados

A famosa frase "É a economia, idiota", com que um assessor de Bill Clinton definiu a estratégia para vencer George Bush, o pai, brutalizou um tanto a percepção política. Ela é verdadeira apenas quando não falha... Além das condições objetivas de um país, há as subjetivas, plasmadas em valores, em memórias histórica e afetiva, nas crenças, nas religiões. Elas dizem respeito ao "homem moral", não ao "homem econômico". A militância e o pensamento engajado quase nunca representam a média das opiniões – o corriqueiro é que haja um divórcio entre essas duas instâncias. A média das opiniões, aliás, pode ser visualizada no excelente site Real Clear Politics (www.realclearpolitics.com), que mantém atualizado um mapa com a situação eleitoral nos estados americanos: neles se elegem os delegados que escolherão o presidente.

Por enquanto, Obama lidera nos extremos "progressistas" do país, literalmente nas margens dos Estados Unidos. McCain está com o "meião". Se fosse para fazer literatura, diria que o democrata tem a parcela que olha para fora, e McCain, a que olha para dentro; Obama fica com a que quer ser influente em Berlim; McCain, com aquela cujas mães levam os filhos para o jogo de hóquei. Obama pode estar de frente para o mundo, onde transitam os personagens retratados pelo artista pop Andy Warhol (1928-1987), mas também de costas para as vastas dimensões que aparecem nos quadros de Edward Hopper (1882-1967). McCain tem resistido ao furacão Obama, a despeito de tantas crises, porque, nessa parte do país que alguns pretendem caracterizar como reacionária e racista, estão algumas das melhores virtudes da América. E isso inclui, ainda que pareça espantoso, a sua fé, de que Sarah passou a ser um símbolo – que resiste, por enquanto, até à quebradeira na economia.

O governo dos EUA, a exemplo de todos os países democráticos, é laico, não se deixa orientar oficialmente pela religião. E isso é bom. Mas é preciso que não se faça do laicismo e do "progressismo" uma nova religião, também ela com vocação missionária, eventualmente messiânica. Nas democracias, não existe "o" Salvador: nem o que vem em nome de Deus nem o que vem em nome das Luzes

The $1 Trillion Solution: Will It Work? by: Michael Mandel

The numbers have gone so high that they’ve become inconceivable. Now Paulson and Bernanke are proposing a government fund or funds to buy up failed securities and prop up the financial system. The size of the bail-out funds: Roughly $1 trillion, give or take a few hundred billion.

There’s going to be a lot of debate about the details of the funds. But here are the two real questions: Will this plan work? And will it avoid a deep recession? The short answers: Yes it will work, and no, a deep global recession is inevitable.

Here’s why. The root of the problem is that American consumers overspent and overborrowed by roughly $3 trillion over the past ten years (I’ve written about this multiple times, notably here, here, and here). We can argue to the cows come home about how this happened. Probably the blame is shared among greedy financial institutions, weak regulators, and profligate consumers (after all, nobody made Americans spend).

The subprime crisis started people realizing that part of this excess debt wasn’t going to be repaid. In fact, this $3 trillion in debt overhang is all going to have to be dealt with, in one way or another.


baddebt.jpg


The first step in the process: The global financial institutions holding the debt started taking losses. At first they were small amounts, and then they got bigger and bigger. I haven’t seen a recent number on the total size of the write-offs in the financial sector globally, but call it $1 trillion. Eventually the financial sector couldn’t handle any more, and the collapses started.

So that left $2 trillion in potential losses. In steps Bernanke and Paulson. At first they shoveled in $20 or $30 billion at a time for Bear Stearns. Then it was $80-100 billion for AIG. Now they are upping the ante to $1 trillion or so in the new funds.

So the second step in the process: The government takes $1 trillion worth of debt onto its own books. Where does the money come from? Borrowing from overseas, of course. More about that later

But that still leaves $1 trillion in excess debt. And in the end, that will be paid back by American consumers, as they tighten their belts and cut back on spending. Or more likely, if cutbacks are inflicted on them by tighter lending standards and lost jobs. The consumer crunch is here.

The depth of the recession will depend on how fast consumer have to cut back. That $1 trillion is worth roughly 7% or so of GDP. If those cutbacks are taken all at once, that’s a very short and deep recession. If they are spread out over several years, that leads to a shallower but still nasty downturn.

The real joker in that deck is the source of the $1 trillion in government funds. The U.S. government can’t raise it by taxes, so instead will have to borrow it from overseas. In effect, foreign investors will get a chance to make a bet on the future of the whole U.S. economy.

I think the rest of the world will be willing to invest in the funds, if only for their own self-preservation. Far better to invest in the economy as a whole, rather than individual financial companies. But the global economy is not out of the woods yet.

Crisis As Bad As Great Depression Or Worse?

Nobel-prize winner and former chief economist of the World Bank, Joseph Stiglitz has warned that the current financial crisis will continue for at least another eighteen months and in many ways represents a worse situation than the one faced by Americans during the Great Depression of the 1930s.

“This is clearly the most serious problem since the Great Depression and in some ways worse in terms of the financial institutions.” Stiglitz commented, referring to the fact that lenders are unwilling to take risks to finance each other because they no longer have complete access to their own undertakings let alone those of other institutions.

MP: The chart above shows average annual bank failures by decade back to the 1930s, illustrating a few points:

1. Put in context, the S&L crisis of the 1980s and early 1990s was relatively mild compared to the banking crisis of the 1930s, in terms of average bank failures per year.

2. The banking crisis of the 1930s was so severe that more banks failed (4,000) in a single year (1933) than the sum total of all bank failures in the period since 1934 (3,566).

3. Most of the bank failures in the 1930s were in 1930-1933 period, when bank failures averaged almost 2,300 annually. Once FDIC was put in place, the average number of bank failures dropped to about 50 per year.

4. Unless it gets a lot, lot worse, any comparison of today's financial crisis to the 1930s seems like quite an exaggeration.

Crise financeira e excessos by Ilan Goldfajn

Diz a máxima que, "quando se está vendo a luz no fim do túnel, é melhor certificar-se de que não é um trem na direção contrária". Pois é, a despeito de todo o esforço - diversos estímulos de liquidez, monetários e fiscais -, a crise financeira internacional avança desde julho do ano passado. Esta semana, um dos maiores bancos americanos, Lehman Brothers, declarou falência e outro, Merrill Lynch, teve de ser vendido. Na semana passada, Fannie Mae e Freddie Mac, duas grandes agências de financiamento hipotecário, foram resgatadas pelo governo americano. Este ano já tivemos o resgate do Bear Stearns. Alguns comparam a crise atual com a de 1930. Pode ser ainda exagero. Mas o período é certamente excepcional no sistema financeiro internacional. Quais são as lições da crise?

Ainda é cedo para reflexões completas sobre as lições da crise. Os custos da crise não devem ser cobrados das decisões contemporâneas (por exemplo, salvar ou deixar quebrar), mas das do passado. Faltaram serenidade e limites em várias dimensões nos últimos anos. Os investidores minimizaram o risco das suas aplicações, as agências de classificação corroboraram a idéia de que havia pouco com que se preocupar, os bancos estimularam os excessos vendendo ativos ruins em novas embalagens e novos veículos, os reguladores deixaram esses novos veículos não fazerem parte do balanço dos bancos (e, portanto, requereram menos capital do que o desejado) e os bancos centrais estimularam os excessos com juros baixos por tempo prolongado.

No caso dos EUA (e na Europa também), as lições desta crise servirão para evitar uma próxima, pelo menos nos moldes da atual. Os reguladores deveriam atuar de forma contracíclica, exigindo mais prudência (leia-se capital, provisionamento, etc.) nos momentos de bonança. E nem pensar em deixar veículos de investimento fora dos balanços e da exigência de capital. As agências de classificação poderiam ter menos relevância para a decisão de crédito e avaliação de risco por parte dos bancos. Os bancos centrais também atuariam na contramão dos excessos, elevando os juros quando surgirem o que parecem ser bolhas, ou seja, excessos nos mercados de ativos. Os bancos, por sua vez, deveriam reforçar suas áreas de risco, de alguma forma tornando-as menos suscetíveis a pressões das áreas de investimentos e negócios e os seus modelos menos permeáveis a percepções otimistas quanto aos preços futuros (no auge da euforia, os modelos assumiam riscos de quedas menores).

Enfim, todos os envolvidos têm de colocar limites de velocidade automáticos para funcionarem no próximo ciclo de prosperidade e otimismo.

No Brasil, o momento deveria ser de reflexão. Até quando vai a crise? Qual é o melhor curso de ação?

Alguns analistas estão-se debruçando sobre essas questões. Mas outros - inclusive alguns ministros e ex-ministros, estimulados pelo clima na comemoração dos 200 anos do Ministério da Fazenda - rapidamente preferiram entrar em embates ideológicos ultrapassados. Os resgates nos EUA supostamente teriam demonstrado que o "neoliberalismo" (inimigo de fantoche favorito) e até o capitalismo estariam "enterrados". Afinal, os resgates promovidos pelo governo americano teriam mostrado a necessidade da intervenção do Estado. Fica a dúvida se já esta semana o "neoliberalismo" voltou a renascer, ao deixarem o Lehman Brothers falir. De qualquer forma, a crítica ideológica dirige-se a um "fantoche": a idéia de que o mercado (e, em última instância, o capitalismo) prescinde de regras, regulação e instituições fortes.

Em minha opinião, os erros que esta crise revela são anteriores às decisões de resgatar ou deixar falir instituições financeiras. Não há alternativa boa hoje. São os exageros cometidos no período de prosperidade - quando do boom da bolsa, do mercado imobiliário e outros ativos - que estão repercutindo hoje.

Seria triste se as lições tupiniquins sobre a crise se resumissem à visão equivocada sobre a necessidade de maior intervenção do Estado brasileiro na economia - leiam-se maiores gastos, contratações, etc. -, para além da que os 40% do produto interno bruto (PIB) em arrecadação tributária já hoje permitem.

A lição verdadeira é despender esforços para identificar e atuar sobre os excessos que ocorrem nos momentos de bonança. Nesse sentido podemos dizer que, se há excessos na economia brasileira, eles deveriam ser, hoje, combatidos de forma a manter a economia crescendo de maneira sustentada e evitar problemas futuros.

Numa dimensão, essa lição já vem sendo adotada. O Banco Central do Brasil (BC), já faz vários meses, identificou no contexto atual um crescimento da demanda (consumo, gastos do governo, investimento) que vai além da capacidade de suprimento da economia, o que coloca riscos inflacionários no sistema. Para combater esse excesso na economia o BC tem subido os juros de forma a promover uma desaceleração na economia (ainda não aparente). Em outras dimensões, os excessos ainda correm soltos. Os gastos do governo crescem a taxas que não são sustentáveis e que não serão facilmente reversíveis em momentos de dificuldade, em especial as contratações e os aumentos salariais concedidos ao funcionalismo. Outros exemplos existem. O crédito no Brasil cresceu 30% nos últimos 12 meses.

Em suma, a crise financeira internacional ainda não encontrou seu fim. As lições da crise mostram que é imperioso atuar nos momentos de bonança. Ideologias à parte, é imperioso questionar se estamos fazendo o suficiente para combater os excessos atuais. No Brasil, como foi no exterior, os custos dos excessos só poderão ser medidos e julgados quando o ciclo mudar, certamente não quando a economia cresce 6% e a popularidade está em alta.

A bubble is an economic disequilibrium

By definition, a bubble is an economic disequilibrium caused by the excessive creation of money in relation to the intrinsic value of the asset class to which the money is drawn. In long-run equilibrium, therefore, the money stock (and therefore asset prices) must return to their productively useful value in relation to the size of economic output, or the general price level must rise to restore the fundamental relationships between the marginal utilities of goods and their prices: Mises 101.

The American Empire is Another Bubble by Don A. Rich

The American Empire is Another Bubble
Daily Article by Don A. Rich | Posted on 9/12/2008


If Ludwig von Mises were to peruse today's newspapers, he would recognize the symptoms of a worldwide central-bank-generated credit bubble and its oncoming collapse.

What increasingly characterizes the global financial order, Mises would say, is an arrangement where regulators encourage a "heads I win, tails everyone else loses" mentality, backstopped by the willingness of quasi-governmental entities to print and borrow money without bound.

A gentle man by all accounts, Mises would resist the temptation to say, "I told you so," and focus on how to avoid a full-blown global economic and political catastrophe.

The announcement by the FDIC that it might have to "temporarily" borrow money from the Treasury, i.e., the taxpayers, is the latest squawking canary that the dollar-centric global-fiat-money and regulatory era in place since WWII is approaching a final ugly dénouement.

The FDIC now fails to meet its required statutory minimum of 1.15% of capital per insured dollar in deposits due to the ongoing mortgage and credit market carnage; hence the hint for the life preserver thrown out by the FDIC to the Treasury Department the last week of August 2008.

The FDIC, like Fannie and Freddie, says, "Of course we will pay this loan back when everything returns to normal." The accounting "profession" and "civil servants" at the CBO et al. are likely to give their seal of approval to an FDIC bailout with the assurance that "all is well" in the short run. In fact, the bailouts of Fannie, Freddie, and the FDIC in the long run by themselves are likely to be as effective as the Niedermeyer character from the movie Animal House was in attempting to stop the John Belushi–triggered stampeding crowd at the end, pitifully screaming, "Remain calm, all is well."


Mark Metcalf as Neidermeyer
in Animal House (1978)
As in the case of Fannie and Freddie, the FDIC promise to repay the taxpayers when things return to normal is worthless, because there was nothing normal about the real estate and associated credit bubble in the first place. The FDIC, Fannie and Freddie will assure everyone that "the public will receive its money back when the assets of failed banks, etc. … are sold." That is unhelpful nonsense.

By definition, a bubble is an economic disequilibrium caused by the excessive creation of money in relation to the intrinsic value of the asset class to which the money is drawn. In long-run equilibrium, therefore, the money stock (and therefore asset prices) must return to their productively useful value in relation to the size of economic output, or the general price level must rise to restore the fundamental relationships between the marginal utilities of goods and their prices: Mises 101.

In other words, in the case of the fallout from the real-estate and associated credit bubbles, either housing and bond prices must fall dramatically, or there must be a dramatic increase in inflation, or a (convex if you will) combination of the two. This is not rocket science, whatever the sophists of the political class would have us believe.

Without wishing to cause a panic, the situation is actually significantly worse than the mere bailout of Fannie, Freddie, and the FDIC would suggest, once one places the bailouts in their proper historical and political contexts.

For the last sixty years, the United States has provided military protection for the European and Asian capitalist powers, all possessing economies governed by regulatory apparatuses analogous in character to the apparatuses of the American postwar New Deal. These apparatuses, especially when coupled to fiat money, have in common the fundamental flaw that they create economic instability via moral hazard.

This provision of American military protection has been supported by the imperial tribute of the acceptance of paper dollars — dollars at first theoretically backed by gold. Of course, this charade, described by Robert Triffin in 1960, ended in 1971 with the collapse of the Breton Woods system, exposing holders of dollars to massive losses and causing the Great Inflation of the 1970s.

Through the 1970s and 1980s, the United States did not abandon the course of empire, or statist regulation, but instead expanded, especially the imperial side of the interventionist mentality and especially in the wake of the collapse of the Soviet Union. Whatever the deregulation of other sectors of the economy, the financial sector — due to its role in imperial finance — retained its peculiar regulatory privilege through its ability to generate unlimited losses at taxpayer or dollar-holder expense.

This expanded American empire was, for a time, bizarrely aided by the People's Republic of China as part of an industrialization policy in which the Chinese sterilized the purchase of dollars by massive domestic security sales to soak up excess liquidity. This is a strategy that is rapidly running out of steam and has created a dangerous inflation in Chinese real-estate and stock prices that is unlikely to end well.

Japan, capitalist-oriented East Asian and to a lesser degree Western central banks, the oil states, and Russia (yes, Russia) also purchased huge quantities of dollar-denominated assets from the 1990s onwards, with the effect of subsidizing the Pax Americana — probably because alternative security arrangements seemed more expensive.

Alas, that willingness to subsidize the United States would seem to be rapidly waning. Russia's recent assertiveness is a hint of things to come, as more and more foreigners are taking a hard look at their subsidization of an America living beyond its means. The stocktaking economic signal globally is the increasingly punishing foreign-credit-related losses caused by the Fed's last imperial bubble, a credit bubble that has infected the entire planet.

It was fun for the United States in the short and medium run, since, at least in the 1980s, the United States got to have its imperial cake and shopping-mart icing too. The United States thereby avoided having to deal with the fundamental disequilibrium between both the federal government's promised expenses versus expected revenues, as well as the associated disequilibrium between American living standards and economic productivity.

That era is coming to a close, with the increasing amplitude in the financial oscillations of the world economy at lower frequencies, demonstrating systemic instability dating, at the latest, to the Asian financial crisis of 1998.

In response to that crisis and to concerns over Y2K, and with especially intense initiation at the time of the LTCM fiasco (an event itself of course made possible by the intrinsic moral hazard of Greenspan and the postwar regulatory mentality), the Fed lowered rates, thereby pushing the tech-stock bubble into a final frenzy. Raising rates in 1999 to combat Fed-fiat-money generated inflation, the creature from Jekyll Island succeeded in crushing the NASDAQ et al., and, in the process, generating a global economic downturn.

In 2002, now concerned about deflation, the Fed took rates to absurdly low levels, thereby generating the housing bubble. Worried about inflation in 2006, in which the housing bubble was the inevitable consequence of trying to maintain American asset prices and output valuation at nonequilibrium levels, Greenspan's fall guy Bernanke took rates up, killing the housing bubble, and then took rates down while revving up the printing presses to stave off a credit-market collapse. This leads us to the current juncture with Fannie, Freddie, and the FDIC, and what Mises would clearly identify as the "policy" trap.

Viewed in isolation, the Fed can take rates neither substantially up nor down. If it fights its own inflation by taking rates up, it sends the economy into a depression. If it fights a credit-contraction-generated recession with lower rates, it risks a hyperinflation and a run on the dollar. If the federal government were to try to use any more fiscal stimulus on the tax or spending side, the Ricardian equivalence theorem would apply to an entity with a present discounted budget deficit/solvency problem of $30 trillion dollars. That is, there will be minimal effect. A bump in second-quarter GDP changes nothing about the long-run picture, and in equilibrium actually means merely a shift of output from the future to the present; it is, however, popular with politicians under the electoral gun and Wall Street types looking for suckers.

In other words, Mises would point to the bailouts of Fannie, Freddie, and the FDIC as the hint that a general system event had arrived, in which we need a new policy mentality. Mises would clearly see the solution to the fiat-money-generated world disequilibrium as a global return to a commodity-money standard with 100% reserve banking as the only monetary policy rule and a banking order that avoids the disequilibria generated by the politically motivated manipulation of the money supply.

Although the author was trained in a very different mentality, he now sees an irreducible truth in the argument that, under the current discretionary monetary policy arrangements, we keep observing the same cycles in under and overextension of credit, because the political temptation to do so is overwhelming. In the long run, when monetary authorities around the globe play the same game — and especially when the use of that credit is so often indirectly used to finance war — the results of central-bank activities are likely to be so poor in terms of system risk that the seemingly radical step of a return to commodity-based money and a new reserve order for the banking system might well be the most responsible step to take, provided that the move is done in an orderly fashion.


Nation, State, and Economy:The original title was Imperialism, and one can only regret that the publisher didn't keep it, for that is its theme.
Given the need to avoid an implosion of the world political order, such a transition would probably have be created in conjunction with negotiations with our foreign creditors for a new gold-based monetary order to avoid a panicked run on the dollar, amid attempts to attack a grossly overextended American imperial position. In the regulatory field, what is needed at a minimum is the effective creation of an adults-only area where losses are credibly understood as not subject to a Greenspan-like put in order to permanently rid ourselves of the "heads I win tails you lose" financial-system externality that is getting increasingly expensive and disruptive.

Although this analysis of the meaning of the FDIC bailout in its broader consequences cannot be regarded as cheery — and, to some, may seem radical — human beings do poorly when imitating ostriches, and any of the alternatives available to policy makers are likely to be gratuitously destructive in character.

Ni yanquis ni chavistas, kirchneristas by Mariano Grondona

La palabra "neutral" proviene del latín neuter , que significa "ni uno ni otro". Pero rara vez en la historia un país neutral ha estado exactamente a igual distancia del "uno" y del "otro". Rara vez la neutralidad es simétrica. Casi siempre esconde un sesgo en favor del "uno" o del "otro".

Así fue como en la primera parte de la Segunda Guerra Mundial, de 1939 a 1941, cuando ésta era todavía un conflicto entre europeos, la neutralidad argentina era secretamente aplaudida por la Gran Bretaña de Churchill porque gracias a ella nuestros barcos podían venderle alimentos sin ser torpedeados por los submarinos alemanes que perforaban el Atlántico. Pero la situación cambió a fines de 1941, cuando Japón atacó a los Estados Unidos en Pearl Harbor, convirtiendo una guerra hasta ese momento europea en una guerra verdaderamente mundial.

Desde ese momento, la neutralidad argentina fue resistida por los Estados Unidos, que requirieron la solidaridad de todo el continente americano, y nada pudieron hacer ni siquiera los ingleses para impedir que los norteamericanos nos forzaran a romper con Alemania, pese a que ella contaba con la simpatía de una Argentina militar donde, desde 1943, ya dominaba el "germanófilo" coronel Perón.

De esta manera, la neutralidad argentina en la Segunda Guerra Mundial adquirió sucesivamente un sesgo pro británico y un sesgo pro germano hasta que fue anulada por la presión norteamericana. Pese a que nos declaramos neutrales desde el comienzo hasta casi el fin de la conflagración, nunca pudimos ubicarnos a una distancia simétricamente igual del "uno" y del "otro", debido al oleaje impiadoso de las circunstancias.

No bien estalló la Guerra Fría en 1945 entre los vencedores de la Segunda Guerra Mundial, los Estados Unidos y la Unión Soviética, Perón intentó por segunda vez la neutralidad detrás de su famoso lema "Ni yanquis ni marxistas, peronistas", pero tampoco dibujó una perfecta simetría entre el "uno" y el "otro". Es que Perón y el ejército argentino, como lo corroborarían los cruentos años setenta, eran profundamente anticomunistas. Y fue así cómo, mientras se mantenía a una considerable distancia de la Unión Soviética, su gobierno coqueteó con los Estados Unidos a un punto tal que, cuando fue derrocado en 1955, uno de los argumentos en su contra fue que le estaba entregando el petróleo de la Patagonia a una compañía nor- teamericana.

La tercera vez
La tercera ocasión para intentar la neutralidad se le presentó en 2003 al presidente Kirchner, cuando debió optar entre los Estados Unidos y Hugo Chávez. Otra vez, sin embargo, la perfecta neutralidad está probando ser elusiva. Quizás, en algún momento, los Kirchner soñaron restablecer el viejo eslogan de Perón bajo la nueva forma "Ni yanquis ni chavistas, kirchneristas", pero el fuerte oleaje de las circunstancias parece empujarlos cada vez más cerca de una orilla y más lejos de la otra.

En este tercer intento interviene, por lo pronto, una inclinación ideológica inversa a la que tenía Perón. Si éste era en el fondo más anticomunista que anticapitalista, con los Kirchner ocurre lo contrario con relación a Chávez. Ya desde el recordado encuentro de Mar del Plata, cuando el presidente Kirchner albergó a Chávez bajo las narices del presidente Bush, el kirchnerismo osciló en favor del chavismo. A la simpatía recíproca entre chavistas y kirchneristas, que se manifestaría una y otra vez en abundantes viajes presidenciales de y hacia Caracas, vino a sumarse casi de inmediato algo que Perón nunca había explorado con los soviéticos: la creciente dependencia financiera argentina de Venezuela, simultánea con el creciente aislamiento financiero argentino en los mercados occidentales.

Cuando asumió la presidencia la esposa de Kirchner, hubo algunos amagos de acercamiento con los Estados Unidos, pero ellos se frustraron rápidamente con el escándalo de la valija de Antonini Wilson, cuya sombría trayectoria se ventila ahora en los tribunales de la Florida. Después de haber declarado Cristina que el escándalo de la valija, que apunta cada día más al oscuro trámite de los apoyos financieros a su candidatura presidencial, era una "basura" cobijada por los servicios de inteligencia y el gobierno norteamericano, nuestro gobierno ya no sabe cómo contrarrestar las declaraciones de Antonini Wilson que, cuanto más se conocen, más lo comprometen.

Aleccionada por su propia manipulación del sistema judicial, lo que no parece admitir Cristina Kirchner es que el poder judicial en otros países puede ser efectivamente independiente, y por eso no puede ver en procesos judiciales como el de la Florida, que comprometen a su gestión, sino la acción política del Estado norteamericano. Por este camino, la presunta intención "neutral" del kirchnerismo entre Chávez y los Estados Unidos se vuelve cada día más improbable.

El chavismo
La preocupación de aquellos que querrían ver en gestos como la promesa de pago al Club de París indicios en sentido contrario, no deja de aumentar cuando advierten que Hugo Chávez no es simplemente otro antiimperialista más en la larga lista latinoamericana. Lo que hay en Chávez no es el simple rechazo del imperialismo norteamericano en América latina sino la negación de la identidad occidental de la región. Así se explica el acercamiento de Chávez a Irán, que es la verdadera usina del antioccidentalismo en el mundo. La tesis central de Chávez es, en tal sentido, que América latina no forma parte de Occidente.

Si bien la Rusia de Putin también desafía la influencia norteamericana, su hostilidad podría enmarcarse todavía en la lista de los conflictos "intraoccidentales" como el que mantuvieron y vienen de superar católicos, protestantes y judíos. La Rusia de Putin, que comulga con un capitalismo autoritario, aún está en el extremo de Occidente, pero podría instalarse en su centro no bien le devolvieran al menos en parte su pasado esplendor. Tal no es el caso de Irán y el fundamentalismo islámico, enemigo al mismo tiempo de Occidente y de la mayoría silenciosa y temerosa de los musulmanes moderados, cuya tímida convergencia con la tradición monoteísta judeocristiana ha comenzado.

A todo esto ha venido a sumarse el estallido interior de Bolivia. Después de viajar también a Irán y después de lanzar a Bolivia a una inminente guerra civil entre la cultura occidental y el indigenismo militante, Evo Morales encaja perfectamente en el esquema chavista. La exacerbación de las contradicciones en su atribulado país no podría hacer otra cosa que magnificar el poderoso oleaje que bloquea cada día más la posibilidad de una "tercera posición" kirchnerista entre Chávez y Occidente.

Como última resistencia contra la completa "chavización" del kirchnerismo cuenta, todavía, la postura antiiraní que sostiene la Argentina como consecuencia del trágico atentado contra la AMIA. Esta es la última defensa que le queda a nuestra política exterior contra su completa absorción dentro de las filas antioccidentales de una pequeña minoría de países latinoamericanos a cuya cabeza figura el chavismo, una minoría a la cual la Argentina, por sus profundas raíces europeas, judeocristianas y occidentales, nunca podría sumarse.