Legitimacy Dwindles

      Zounds! Public sentiment toward the accelerating economic fiasco has shifted, seemingly overnight, from a mood of nauseated amazement to one of panicked grievance as the United States moves closer to an apparent comprehensive collapse -- and so ill-timed, wouldn't you know it, to coincide with the annual rigors of Santa Claus. The tipping point seems to be the Bernie Madoff $50 billion Ponzi scandal, which represents the grossest failure of authority and hence legitimacy in finance to date in as much as Mr. Madoff was a former chairman of the NASDAQ, for godsake. It's like discovering that Ben Bernanke is running a meth lab inside the Federal Reserve. And out in the heartland, of course, there is the spectacle of Illinois governor Rod Blagojevich trying to desperately dodge a racketeering rap behind an implausible hairdo.
     What seems to spook people now is the possibility that everybody in charge of everything is a fraud or a crook. Legitimacy has left the system. Not even the the legions of Obama are immune as his reliance on Wall Street capos Robert Rubin, Tim Geithner, and Larry Summers seem tainted by the same reckless thinking that brought on the fiasco. His pick last week for chief of the SEC, Mary Shapiro, is already being dissed as a shill for the Big Bank status quo. In a few days we'll discover what kind of bonuses are being ladled out by the remaining Wall Street banks with TARP money and a new chorus of howls will ring out.
     This is very dangerous territory. In dollar terms, the numbers being applied to the various problems are so colossal -- trillions! -- that the death of our currency seems assured. And in defiance of congress's express intentions, none of the TARP "money" has been applied to its targeted purpose of buying up "toxic" (i.e. fraudulent) securities hidden in the vaults of banks, pension funds, and municipal portfolios.
     George W, Bush's personal bailout of General Motors and Chrysler is designed solely to postpone their bankruptcy and mass job layoffs until after the holidays. Otherwise, the $17.4 billion will probably be used by the companies to underwrite the extensive legal work required for the moment they must declare bankruptcy -- when Mr. Obama is in the White House. Meanwhile, the President-elect has ramped up his job-creation target overnight from two to three million, and some observers are catching a whiff of Soviet-style economic engineering ("...we pretend to work and they pretend to pay us....").
     The years since Jimmy Carter have produced an astoundingly flaccid public, sunk in various addictions and distractions, but this is about to change. The darkling mood of political protest and violent activism that saturated my own young adult years is scudding up again on the horizon. Mr. Obama's pick for attorney general, the mild-looking Eric Holder, may be the key figure in the early months of the new government. If he doesn't commence some aggressive investigations and prosecutions -- beginning with Henry Paulson for insider trading when he was in charge of Goldman Sachs and shorting his own company's mortgage-backed securities -- then the whole Obama enterprise could fall under suspicion of illegitimacy. The bums who ran the US banking sector into a ditch have to account for their turpitudes. They can't be allowed to hide under a TARP.
      Unfortunately, the legal system, and probably the legislative system, will be so buried in procedural bullshit from the unwind of countless enterprises and institutions, and the sorting out of the remnants, that it remains to be seen whether this generation of people-in-charge can even embark on a fresh start of anything connected to real everyday life in America. All this is starting to alarm the tattered residue of the middle classes, and from here it's a very short path to them being really pissed off.
     When legitimacy erodes, anything goes. Nothing is respected including rules and personalities. The center doesn't hold and the new vacuum there is a tumultuous place. The same crisis of authority and legitimacy is spreading from nation to nation now. Soon, China will contend with a discontented army of the unemployed. Greece has been in an uproar for two weeks. Belgium's government just collapsed. Trade barriers are going up. Exports are falling away. The world's energy markets are not immune to these disorders. I would expect problems with the currently seamless supply lines that bring America two-thirds of the oil we use. Even a mild disruption of oil supplies could attach an anvil to the ankle of an economy already falling off a cliff.
     Right now, the overwhelming sentiment is to get this country back to where we were, say, ten years ago, when everything was humming nicely: Clinton nostalgia. We're definitely not gong back there, though. It's an idle wish. And any set of policies designed to lead in that direction will prove very disappointing. Our destination is a land of much smaller-scaled local economies. We could retain our federal ties if the federal government can scale back appropriately from the bloated, feckless enterprise it has become. Otherwise, it might only get in the way and make matters worse, and the public in one region or another of North America might reach a decision that they are better off without it. That would be what's called a revolution.
____________________________________
My new novel of the post-oil future, World Made By Hand, is available at all booksellers. 

Comments

[DanW]

Here's a piece I wrote on the 15th. It echoes your sentiments quite accurately.

A Brand New DIS-Belief System Is Born

The U.S. is, in the best case scenario, entering an economic depression that will be far worse than both the Great Depression of the 1930s and the Panic of 1873. At worst, the USA will collapse altogether. Here's Why:

Belief in any system---and in this case we are discussing the concept of belief in the US economic system---is like oil to a combustion engine. Without belief in the credibility of the system, the economy seizes up and dies. It’s that simple. If a system lacks credibility, if people don’t believe in it, than they will not participate in that system (Unless of course they are compelled to at gunpoint, but we’re not there quite yet) Now in some cases, if things haven’t gone too far, trust can be reestablished and with that trust a belief in the system might grow---and the engine can be saved. But once trust has eroded beyond the point of repair, there is no chance of resuscitation. Either the system has to be thrown out and a new system has to take its place, or the citizens of the system have to be compelled by force and repression to accept the old way of doing things. This is where we stand today. Belief in the credibility of our economy has been summarily destroyed.

We hear a lot these days from the likes of Ben Bernanke and Henry Paulson and Barney Frank and Chris Dodd and George Bush. Each says essentially the same thing: Once the credit markets unfreeze, and once banks start lending again and people start borrowing again, once confidence in the system is restored then we’ll be on the road to recovery. Each of these men, and millions who echo their sentiments, predict that this “recession” will ease soon because the FED is taking aggressive action to stimulate lending and to thaw the still-frozen credit markets and to lower mortgage rates and to stimulate employment and production, etc.. They are wrong. The credit markets will never thaw and banks will never start lending again because belief in the system has died. And because of this, the old regime and era of Fractional Reserve Banking and "money as debt" is also dying, albeit a violent and protracted death. And at the very heart of the crisis exists the foundational dynamic created by the decade-long DERIVATIVES experiment:

Virtually every bank, every financial institution, every nation, has a secret vault in which it is hiding its bad assets. And no one really knows who holds what. And some of these bad assets are part of bundles of securitized instruments that are so complex and so difficult to detangle, that it would take decades just to unravel them all and actually discover what all of the assets are really worth---if anything. And we're talking upward of 500 TRILLION dollars worth of these hidden, secretive, worthless assets. And the depth of mistrust that exists has become so powerful that it has, in a most extraordinary moment in history, actually given birth to an entirely new belief system! And what makes this new belief system so cataclysmic is this new belief system bases its spiritual and intellectual foundations upon the idea of disbelief! The leaders of the world---both political and financial---have, through their decades of theft and duplicity and lies, given birth to a new paradigm: the paradigm of disbelief. And it is this new paradigm, this new DIS-belief system if you will, that makes trust in the old way of doing things totally impossible.

Now, many of our self-proclaimed leaders continue to argue that this crisis will abate once “confidence” in the economy has been restored. These folks would argue that disbelief and confidence are, for all intent and purpose, synonymous. They are wrong. And underestimation of the power of disbelief keeps them from acknowledging the magnitude of our plight.

Let’s take a brief look at a few examples of how disbelief in the system---rather than simply a lack of confidence in the system---will lead ultimately to the TOTAL collapse of the United States’ economy.

1. Banks won’t lend to other banks---regardless of the declining LIBOR, falling interest rates, etc.---because every bank assumes that all of the other banks are insolvent.

2. Banks won’t lend to individuals because banks currently assume that these loans will not be repaid.

3. Individuals refuse to take out loans from banks because banks have proven themselves to be dishonest, usurious institutions. In addition, people are coming to the realization that suffocating under a regime of debt servitude to banks is not the way they want to live out their days.

4. People have lost all faith in our federal government. Congress, the President, the folks who have promoted their economic Friedmanite agenda for decades---all of these institutions lack any sort of credibility. Hatred for and a lack of belief in our politicians and financial leaders is omni-partisan.

5. Shipping of commodities has come to a virtual standstill because commercial paper (short term promissory notes) are no longer trustworthy instruments of commerce.

6. Credit card companies are viewed with such contempt that the old regime of living with credit is slowly collapsing. Those in debt are defaulting by choice, refusing to pay the usurious issuers of these instruments of indenture.

7. Scandals like the Madoff affair are cementing for citizens the fact that the entire system, from the Hedge Fund managers to the accountants to the SEC overseers, is rotten to the core.

8. The scandalous decision to allow institutions to valuate their own assets in what can only be called a mark-to-bullshit model of valuation is not lost on the ever-growing number of people who believe that they are being royally screwed by the US kleptocracy.

9. Eight years of a Bush regime that demonstrated total disregard for the idea of law---including the apparent duplicity regarding the reasons for going to war in Iraq and the Katrina scandal---have further solidified citizens’ disbelief in the current paradigm.

10. The lies of Paulson and Kashkari regarding the use of the TARP funds, and the apparent decision of these men and their Congressional allies to save the rich whilst sacrificing the poor has further decimated systemic credibility.

11. The U.S. decision to ignore the world’s call for action on Climate Change vis-à-vis the Kyoto Accords, and the Bush Administrations decision to repeal emissions standards for industry, has eroded any belief that citizens of the country might have when their leaders speak of concern for the environment. Saying one thing and doing another creates disbelief. The same is true of the “Big 3” automakers, who claim a belief in stewardship of the environment while simultaneously suing states over toughening emissions standards for cars and trucks.

12. The story that won’t go away---that of the impending 500 Trillion dollar Credit Default Swap ponzi sceheme, which made CEOs of companies like Lehman and AIG multi-millionaires---continues to defy attempts by the government and financial leadership to sweep the story under the rug. When the defaults begin and the dominoes fall, disbelief in the system will reach new heights.

13. The Housing foreclosure disaster has left citizens without any trust for a system that created the subprime debacle. And despite all of the foreclosures and the implosion of the housing market, lenders continue to try and swindle people and trick people into refinancing or modifying their existing loans. Disbelief in this system is exploding at an exponential rate.

14. The creation of MBS, Mortgage Backed Securities, has further exacerbated the plummeting trust in the banking and lending sector. Now when a home-owner tries to contact his or her bank in a desperate attempt to save their home, the bank simply says that it no longer holds the loan. It sold the loan as part of a package of similar loans to someone else, who then re-packaged it and sold it to someone else, and so on---and no one knows where to find the loan anymore. Belief in the people who brokered these deals has disappeared.

15. Everyone’s getting laid off and people are having trouble making ends meet, and anger is mounting, and meanwhile, everyday on TV and on the Internet, people are bombarded with images of the manors and estates and wealth of the very men whose actions have destroyed their lives.

16. What was once touted as GDP growth is now being exposed as nothing more than DEBT growth, if you will. The lie of the schemers is coming into full view, and people are finding it harder and harder to believe that wealth was, in fact, created, when they are suffering under mountains of debt and lost income.

17. The power of the Internet as a source for disseminating information regarding the destruction of the US by the keptocrats is reaching tens of millions of angry people.

18. Outbreaks of E-Coli from spinach and cattle raised on city-sized mega-farms is sickening thousands: belief in the credibility of our system of food production and distribution is faltering.

I could go on. I have barely scraped the surface. But my point should be clear: We have moved beyond the point where swings in confidence in a system implicitly recognize that system as credible. We have moved to a regime of disbelief in the system, and this disbelief is growing by the hour, and there is nothing that can be done to stop its momentum. On some level we have reached a moment of crisis in our identity as a nation not entirely unlike that which we faced in the mid-19th century. We have reached a point where disbelief in the credibility of the current system will become a force that will tear us apart. How we will survive is a matter for the seers. But make no mistake about it: this is no Recession, and there will be no Recovery.

[Jynx]

Again Jim you nailed it. We're in a whole heap of trouble. Hyperinflation here we come!

Question for other CF's out there: what do you think about Paul Krugman? Is he the genious he's purported to be or does he also have his head up his ass?

Dido Thomas Friedman? I know Jim doesn't rate him, but I'm curious to know how others here regard him.

Happy Holidays all.

[marcus]

The country is too ignorant for revolution or any type of creative disruption. As long as the State (corporations) can keep them fed, entertained, and clothed the masses will obey.

[steve duncan]

Cheney is firing salvos, demanding everything Bushco did be considered perfectly legal. There will be no serious prosecutions for war crimes, torture, financial misdeeds or anything else, at least none suffered by anyone in the highest echelons of this administration or relevant industries. Just as in Abu Ghraib it will be small fish, underlings that get caught in the net. Those that Bush dosesn't pardon Obama will turn a blind eye to. Business as usual. They rob you or kill you (or both), over here or over there, and walk freely from their crimes.

[Nudge]

Fantastic post, Jim. Previous instances of 'authority losing all legitimacy' have not turned out very well. When the former middle class is now an idled, bankrupt, hungry, repo'd, shivering homeless class living under bridges, or in the ruins of former factories, or in the cold empty houses abandoned to the lending institutions, things have already gone past 'interesting' and moved on to 'dangerous'.

How long before Wall Street bankers get pulled from their Bentleys and given a taste of what life is like for the other 99% of us?

[Frank Gifford]

It has been my opinion that sytem wide pain would be necessary before meaningful change would be embraced. To quote Rumi, "increase thy need oh necessitous one". If enough of us can formulate and maintain a positive vision for the future, this period would then be a descent of grace. The path we were on was never sustainable, and would only lead to ruin and a highly compromised Earth for future generations. We now have the opportunity to begin to return to agrarian lifestyles that promote diversity, rather than our 500 year policy of converting diverse biomass to human biomass. The entire scheme of capitalism has now been proven, by the bailout attempts, to be illegitimate. Who wants a system that promotes sociopathy and psychopathy besides the sociopaths and psychopaths? Clear thinkers must maintain and offer calm assurance to those around us. If we can cultivate a strong positive (but realistic) vision of the future and the wisdom, courage, strength, and perseverance to work towards making our vision a reality, we can leave a reasonable Earth to the children of future generations. That is what our project, http://entropypawsed is about.

[Howard Effing Beale]

Time for a latter-day Appian Way lined with crucifixes from which the treacherous bastards can wheeze their last ill-gotten breath.

[Frank Gifford]

correction of link above
http://entropypawsed.org

[Nudge]

HFB, how many of those more clever Wall Street fraudsters are even now perfecting their J6P accents and dirtying their hair/clothes so that when push comes to shove, they can pretend to be innocent bystanders?

Oh, and if you charge $2/person for the tour down that latter-day Appian Way (with concession stands selling salted lemon juice to drip onto their many flesh wounds, for example) you'd raise a fortune in no time.

[montysano]

"It's like discovering that Ben Bernanke is running a meth lab inside the Federal Reserve."

That's some funny shit right there.

[Kris]

Just yesterday I went shopping at the MALL (bleh, bleh). Anyway, as I got out of the car I said...OK, let's not get shot in here (half jokingly).

While inside I received a call to see if I was OK. It seems there was a car jacking of a car just like mine--really close to the mall.

I really believe this is our last everything-is-normal Christmas.

Next year will be another story.

Kris
Working hard at http://www.sccworlds.com

[Howard Effing Beale]

Nudge,

"clever Wall Street fraudsters [...] pretend to be innocent bystanders?"

Proletariat affectations may have worked for Orwell, but hubris seeps from the pores as detritus from a wound. Even the dead can smell that.

[Nudge]

For all our pretensions at being a democratic, classless society in which anyone can reach the top of the pile, we've got some very real class warfare emerging here. No one who watched Rick Wagoner and his fellow jet-set ilk, during that first fly-to-DC-via-private-jet-to-beg-for-money event, can have possibly missed the fact that Mr Wagoner and his buddies have not a clue how the other 99% lives. Not only to these guys never do any grocery shopping, or clean their own toilets, but they also don't have to deal with any the “issues” the rest of us do, such as losing our jobs to the economic downturn, getting foreclosed out of our suburban McRoadsideShacks, and having to shovel out a parking space whenever the landlord's cousin forgets to plow the snow.

These guys don't just have lily-white soft hands and the airs of folks who never eat anywhere but the poshest restaurants or country clubs .. no, they have the same blinkered I'm-a-master-of-the-universe mindset as the Wall Street guys who are even now earning big bonuses (paid for by us and our next umpteen generations, of course) so they can continue to live extravagantly. Must be nice to be them .. ^sniff^. Oh yes, we reward them handsomely for running the economy off the rails. And Mr Wagoner? Why, he and probably a dozen other guys at GM, all earning a million dollars or more per year, no doubt felt their grand executive compensation was more important to the company's future than that new car they were planning to bring out in a few years (the Volt), for which construction of the new Volt engine plant was halted.

Paging Madame Lafarge .. stat .. your services are needed.

[Nudge]

HFB, this is exactly why I'm calling on all of our fellow countryfolks to remember well who was living high off the hog recently and who wasn't. That next-door neighbor of yours may have been a Wall Street bankster, sucking the next 2 generations worth of earned money from the taxpayer teat, all the while convincing themselves (and us) that their egregious compensation is “necessary”.

When the time comes, it will be important to remember which of those guys had a hand in creating this mess. Justice might be derailed or delayed, but like karma it never sleeps, and like nature it always bats last.

Pigmen beware.

[Helen Highwater]

Interestingly enough, there aren't any women flying to Washington in their corporate jets to justify to Congress their ripping off of the American people. (Thanks, Dan W for using the word "men" in your comment.)I'm not sure whether it's because women couldn't reach those positions of power or because they didn't want to participate in the looting, but it definitely seems like it was the old boys club running this giant global scam. Re the question about Tom Friedman, here's a quote from one of his recent NY Times opinion pieces that pretty much sums up his lack of intelligence - "Now is when we need a president who has the skill, the vision and the courage to cut through this cacophony, pull us together as one nation and inspire and enable us to do the one thing we can and must do right now: Go shopping." Well, duh. Isn't that what Bushie said after 9/11? Didn't work then, won't work now. We're shopped out. Any other bright ideas, guys? For more on Friedman, see the excellent culturechange.org article entitled "Peak Tom Friedman" (lots of other good stuff there too). Krugman isn't much brighter (and he got a Nobel!)- just the old boy's club doing their usual propping up of the same old same old. But their credibility is rapidly disappearing.

[Flamsey]

The TV show Survivor might have to change locations early next year. Maybe to Levittown. It could make Gabon look like a cake walk. I am always amazed at how they can get those people to toss their values out the window for a million dollar prize. It will be really scary when all the money is gone.

[dale]

Probably JHK's most appropriate and timely post ever! Yes, the problem is confidence, and what we are seeing is pretty scary.

Prosecutions for the fraud of the last few years in absolutely necessary to restore that confidence, instead we are giving them bonuses.

[dale]

Gee Helen,....I guess you haven't been following the recent history of Carly Fiorina. Greed is a equal opportunity employer.

[Nudge]

Kris, yah, I went to the stores several times this past weekend to see what was happening there. The short answer is “not much”. In the Circuit City, at Staples, at Office Max, etc, the can-we-help-you staffers in the floor outnumbered the shoppers. The only relatively hopping place around here was the Barnes & Noble bookstore, though much of the activity was only window shopping, as evidenced by the number of people leaving without buying anything.

This Xmas shopping season has already crossed into uncharted realms of sales decline. By mid-spring, the waves of layoffs will be getting into the tens of thousands per week .. and by mid-summer 2009, so many of those former box stores will be closed. Will those companies even have the funds to do an orderly liquidation? I doubt it. In the past, there might have been some other business entity with deep pockets and the want to buy whole stores full of goods, but with no promise of future business activity left, no one's buying.

It's all good.™

[RealProblems]

I went to a gun show this weekend. It was packed with hardly enough room to walk around. A lot trading was going on. I drove past the mall and the parking was empty. A friend with a store in the mall has been forced to lay employees off and sales are down 40%. I went to Costco and it was crowded with people stocking up on more than Christmas presents. I think the public already knows what's coming even if Washington and the main stream media do not.

[Nudge]

Gang, let's indulge in a moment of sympathy for those master-of-the-universe types of speculators, bankers, investors, RE developers, etc, whose persistent actions over the course of many years ensured the current train-wreck outcome of our bloated economy.

This hour's 'Wall Street Pity Party' is dedicated to those poor, poor people in the Hamptons who haven't been able to live at quite the levels of luxury to which they were formerly accustomed. Please join me in wishing them a big, sincere “Boo hoo for you!” cheer when they complain about RE valuation losses at their little “weekend shacks” in the Hamptons:

http://www.theimproper.com/Template_Article.aspx?IssueId=9&ArticleId=2903
“Hamptons Real Estate Crashes with Wall Street”

[theroachman1]

Nudge

Do you have a good link for the Volt factory contruction halt?

[Nudge]

Here's a nice little piece about the pigs at the trough:

“Bailed Out Bank Execs Make Big Money”
http://scienceblogs.com/dispatches/2008/12/bailed_out_bank_execs_make_big.php

The Associated Press did a review of financial records and found that 116 banks that have received bailout money from the TARP fund paid huge salaries to their top executives last year even while declaring themselves poor and on the verge of collapse.
Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

Some highlights, like the CEO of Goldman Sachs, which has so far received $10 billion in taxpayer dollars this year:

Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year.

The company's top five executives received a total of $242 million.

[theroachman1]

ziggy

Krugman is a good man and his head is not up his ass. He is only confused by the fact there is no going back to the good old Clinton days. He like many people in this country want the old world to survive. They like him loved Christmas spending and SUVs in every garage. Totaly understandable. Those where great times. But they are over he has not come to grips with that fact.

As for Freiman there has never been a bigger dolt.

[Nudge]

Thanks Roach, my bad. Construction of the Volt engine plant has been delayed, not canceled. But the point about paying out millions in executive compensation while shooting their golden-egg project in the foot still remains.

http://www.autonews.com/article/20081219/ANA02/812199969/1197

GM recently announced it is delaying construction on an engine plant in Flint, Mich., to save money. That plant would produce the engines for the Chevrolet Cruze and Chevrolet Volt sedans. Those cars are not canceled and neither should be dramatically impacted by the construction delay, Henderson says.