WHY THE BIG DITHER.

WHEN FRIENDSHIP TRUMPS WORLD PEACE.

The following was posted in New York Times, March 6, 2009. It is my comment on Krugman's "The Big Dither", his editorial in the NYT the same day. To understand my post, it is important to quote Krugman extensively: "When it comes to dealing with banks, the Obama administration is dithering. And the result could be an economy that sputters along for a very long time... Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again." Krugman then hits the nail: "Why do officials keep offering plans that nobody else finds credible?" Well, here is my answer. It's highly unpleasant, but sometimes, so is reality.

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Where does the tremendous leverage of hedge funds come from? Very simple, from the bank holding companies. AIG also provided coverage for Summers' "Credit Default Swaps", with very insufficient provisions, in other words, tremendous leverage.

Now, at some point the total "value" of derivatives was above 600 trillion dollars (yes, 600,000 billion dollars). Is this what Bernanke, Summers and Geithner and company want to recover with taxpayer's money? Why? Because their friends would be sad otherwise? They could not buy islands (like Paulson) or jet planes? Summers and his cohort are destroying the economy of the USA, and that of the world, and risking a third world war because their friends are unwilling to relinquishing their dishonestly earned powers?

The fundamental civilizing mission of a bank is to save people money, and, using it, provide credit. Doing so it creates money (because it lends ten times more than its capital). All these activities that Bernanke, Summers and Geithner are trying to save have nothing to do with the civilizing, fiduciary mission of a bank.

All this for what, fundamentally constituted unregulated, across state lines betting with the public's money? And which is turning now, under our unbelieving eyes, as the greatest transfer of riches from the public to the wealthiest in the history of mankind? This is the greatest heist that ever was, and all Obama can say to justify it is that the USA has "different cultures and traditions". Yes, like what? Slavery and stealing all the land of the Native Americans, so we may as well keep on keeping on? Except now the mighty may as well enslave and plunder nearly everybody?

Obama is so little informed that he suggested, at some point that, in a "month or two" the "troubled assets" will have recovered. What he should have said was "in a decade or two". Well, civilization does not have a decade or two. As Benjamin Netanyahu just said, he became prime minister at 46, "young in age and young in experience", without having been in government before this (although he was US ambassador), and "I would not recommend this to anyone".

What we are facing is tremendous inexperience, and a hubristic inability to face reality. Reality is that the four largest banks in the USA have two-third of the market, and have to be yanked from the derivatives, their bad management, and the plutocracy, and then recapitalized (with the people money, but a few hundred billions of recapitalization would solve the problem completely and definitively). Reality is that the day after his election, Obama went to work at a hedge fund. OK, maybe just hanging out with old friends.

Patrice Ayme
http://patriceayme.wordpress.com/