Mr. Moderate

Let me begin by quoting the final words of my previous blog post:

The Republican kleptocrats have probably stolen over $1 trillion this time around, and the United States is hovering ever closer to bankruptcy as a consequence. How much more taxpayer wealth are we going to allow them to suck out of the Treasury before we decide that deregulation is the real source of this fiasco? I don’t know, but it sure seems to me that the American voters just don’t get it (yet)!

In a fine above-the-fold article in USA Today, David Lynch notes that the seeds of the recent meltdown on Wall Street were sewn back in 1999 with the repeal of key provisions of the Glass-Steagall Act of 1933:

By the time of the 1990s boom, the financial services industry was campaigning to repeal Glass-Steagall, arguing that foreign rivals were hobbled by no similar restraints. In 1999, Congress assented.

“The pressure was so great that Congress really couldn’t resist it,” says economist Peter Bernstein. “Nothing really bad had happened since 1982, and those bad things that did happen were transitory.”

If important financial institutions failed, market participants and lawmakers alike felt that market forces could restore order on their own, with only minimal government aid.

Maybe they were wrong.

It isn’t just that they were wrong. This isn’t a case of bad judgment. This is a case of deliberate theft where these large financial institutions effectively socialized their risks while privatizing their profits, as many commentators have noted, among them Professor Nouriel Roubini in his recent blog post. Roubini is referenced in the Lynch article:

Former White House economist Nouriel Roubini, who forecast the current financial storm two years ago, has a harsher verdict. He says the USA is turning into “the United Socialist State Republic of America.”

Those may seem like harsh words to use on alleged “conservative” politicians. However, as I’ve noted in a previous blog post, there is actually very little overall difference between communism and fascism, so it isn’t surprising that a fascist Republican Party would act to socialize those business entities they feel they need to preserve in order to continue ruling the nation.

As I said in that previous blog post, written before the current meltdown on Wall Street:

I agree with John Duckitt who “suggests a link between authoritarianism and collectivism, asserting that both are in opposition to individualism. Duckitt writes that both authoritarianism and collectivism submerge individual rights and goals to group goals, expectations and conformities.” Collectivism is today is sometimes taken as a more-generic descriptive term for what was traditionally called Communism. In the old Soviet Union, for example, farm workers were assigned to “collectives” (or “communes,” if you are calling it “communism”) where they were expected to labor together for the group goal of raising agricultural products. During the early years of the Soviet Union, all labor was organized into “communes” or “collectives” of one sort or another, and individual economic initiative was suppressed. While fascism characterizes itself as strongly opposed to Communism, we can see from the Mussolini quote, above, that fascism too embraces the idea of collectivism. The difference between fascist and communist systems in this regard is totally with respect to how the government treats the ownership of business enterprises. In a communist system, private businesses (at least, the largest, wealthiest, and/or most visible businesses) are “nationalized” and placed under direct control of the State. In a fascist system, private business enterprises are maintained under private ownership by the wealthy, but all individuals and businesses are required to subordinate their individual wishes to any superseding commands issued by the State (”authority”). Thus, fascists put business under the direction of the State while communists absorb business ownership into the structure of the State government. In either case, however, the leader of the State has effective control over all individuals and business interests existing or operating within the State.

The US Federal Reserve has been tossing around eye-popping quantities of money without the benefit of much oversight from Congress or anybody else. Back in my July 20 blog post, I had this description of the last major meltdown:

The end result of the above process was the S&L crisis, referred to above. While it ultimately cost taxpayers only about $125 billion (see HERE), that was a large percentage (about 32%) of the $394 billion value of failed S&Ls that were taken over by the government and turned over to the Resolution Trust Corporation (RTC) for liquidation. That percentage clearly indicates that the money being lent out on bad loans wasn’t anywhere near limited to the risk capital of the institution, but the managers were taking large risks with the federally-guaranteed deposits of ordinary people in order to pad their own bank accounts with commissions and bonuses. What isn’t even tracked in these statistics is the large number of institutions which were sold to or merged into larger institutions because they were about to fall into the category of S&Ls that would be taken over by the RTC. News articles printed at the time the legislation creating the RTC was working its way through Congress indicated that the total size of the S&Ls that needed to be resolved, one way or another, was well over $1 trillion.

Now, its deja vu all over again, but with much bigger numbers than two decades ago. The fed has tossed out $800 billion in loan guarantees just to calm the markets down. Lehman Brothers was allowed to file for bankruptcy (we can wonder why), but the rest of Wall Street has so far been merged into bigger companies who were willing to grow even bigger, thus making themselves “too big to fail” to an even greater degree. For instance, Merrill Lynch runs to the shelter of the Bank of America (who has already taken over Countrywide Financial, one of the chief causes of the subprime mortgage crisis), making the Bank of America another institution which is “too big to fail.” No matter what is wrong on the books of the Bank of America, we can rest assured that the Bank of America doesn’t need to accumulate reserves to cover those potential losses as the Bank of America is clearly “too big to fail.” This is what is meant by “socializing risks and privatizing profits.” So long as the Bank of America can continue to report profits, the shareholders and executives of the Bank of America can continue to draw fat salaries, bonuses, and dividends. But they don’t need “adequate reserves” against hidden or unexpected loan losses since they are now “too big to fail.”

With this in mind, lets look again at what Professor Roubini had to say:

With the nationalisation of Fannie and Freddie, comrades Bush, Paulson and Bernanke started transforming the US into the USSRA (United Socialist State Republic of America).

This transformation of the US into a country where there is socialism for the rich, the well-connected and Wall Street (ie, where profits are privatised and losses are socialised) continues today with the nationalisation of AIG.

…

This is the biggest and most socialist government intervention in economic affairs since the formation of the Soviet Union and Communist China. So foreign investors are now welcome to the USSRA (the United Socialist State Republic of America) where they can earn fat spreads relative to Treasuries on agency debt and never face any credit risks (not even the subordinated debt-holders who made a fortune yesterday as those claims were also made whole).

Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or found to be perverts, these Bush hypocrites who spewed for years the glory of unfettered Wild West laissez-faire jungle capitalism allowed the biggest debt bubble ever to fester without any control, and have caused the biggest financial crisis since the Great Depression.

Notice from the above description by Professor Roubini (a former White House economic advisor) that it is the wealthy private individuals who make out like bandits from these “socialist” actions by the allegedly “conservative” Bush administration. Is this really socialism? Or, instead, is this actually fascism? I believe the latest round in this financial crisis has crossed the line I drew in my previous blog post:

Also, we have to consider the strong entanglement between the Republican Party and “big business.” We are still in the realm where “big business” largely controls the government, not the other way around. So, in that sense at least, we are not yet at the point where we can legitimately claim that the United States has “gone fascist.” But how much change will it take before the same folks from “big business,” placed into positions of power by the Republican Party, then take it upon themselves to begin issuing commands to their old business fiefdoms from their positions of power within the government?

Secretary Paulson, formerly of Goldman Sachs, has now engineered the virtual nationalization of the home mortgage market and a huge chunk of the insurance market. These two finance areas impact on virtually all people (housing and insurance both) and businesses (insurance). A government takeover of those two industries now allows me to say that we have crossed the Rubicon and the US is now clearly under a fascist dictatorship. All we need to complete the revolution will be for John McCain to steal the election from Barack Obama. If that happens, you can rest assured that modern-day brownshirts will be looking after anybody who dares to dissent from the economic fascism we are already living in!