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PAULSON’S LILLIPUTIAN MOMENT

Posted by Gilmour Poincaree on November 17, 2008

Nov 14, 2008

by Julian Delasantellis (*)

In Jonathan’s Swift’s 1726 novel Gulliver’s Travels, explorer Lemuel Gulliver is shipwrecked off an unknown island; he swims ashore, falls asleep, then awakens, most surprisingly, to find himself tied up by the residents of the Kingdom of Lilliput.

“When I awakened, it was just Day-light. I attempted to rise, but was not able to stir: For as I happen’d to lye on my Back, I found my Arms and Legs were strongly fastened on each Side to the Ground; and my Hair, which was long and thick, tied down in the same Manner. I likewise felt several slender Ligatures across my Body, from my Armpits to my Thighs.”

Who were his captors, the Lilliputians? Not much individually, but acting in unison they had managed to temporarily detain poor Gulliver.

“In a little time I felt something alive moving on my left Leg, which advancing gently forward over my Breast, came almost up to my Chin; when bending my Eyes downwards as much as I could, I perceived it to be a human Creature not six Inches [15 cm] high, with a Bow and Arrow in his hands, and a Quiver at his Back. In the meantime, I felt at least Forty more of the same Kind (as I conjectured) following the first. I was in the utmost Astonishment, and roared so loud, that they all ran back in a Fright; and some of them, as I was afterwards told, were hurt with the Falls they got by leaping from my Sides upon the Ground.”

Beware, Barack Obama. Upon your arrival in Washington on January 20, beings of essentially similar stature (little people in intellectual if not physical stature) will most likely attempt to bind the new president to the inanities of the past. The success, or lack of success, of Obama’s presidency will depend on his ability to cast off the ropes and make his own way in a very strange land.

As Obama promises his daughters a new puppy, and, as a result, luxuriates in the absolute adoration of the American masses, the search on the rightward side of the political spectrum for scapegoats for last week’s electoral catastrophe gathers pace. As usual, the beginning of the search is marked by the formation of a circular firing squad.

Many in the quickly forming “Palin in 2012” avalanche contend that the US Republican Party’s recent dire fortunes were the result of the party, both under George W Bush and John McCain, being insufficiently conservative; an argument similar to that put forward by those who believe Britain lost the Revolutionary War with America because taxes on tea were too low.

Of course, the counter-argument states that the electoral defeats were inevitable once the United States stumbled and fell into the yawning chasm that was the world financial train wreck which followed upon the failure of the Lehman Brothers’ investment banking house on September 15 (see Silences say it all, Asia Times Online, September 16, 2008)

Only now do we recognize what we did not see in the immediate hours following Lehman’s downfall – that the unknown quantity and ownership of the credit default swaps (CDSs) that were activated upon Lehman’s bankruptcy filing cast such a dark pall of default risk over the entirety of private world finance that everybody with a financial stake in the system greater than just a few coins in their pockets started looking for the exits, and the exits just weren’t big enough to handle the stampeding horde.

In the 19 trading days between Lehman’s fall and the lows on October 10, the US Dow Jones Industrial Average lost more than 3,000 points, almost 32% of its value. Foreign stock markets, for those Americans who fell victim to the brokerage houses’ siren song that overseas diversification equaled safety, fared even worse, with Japan’s Nikkei 225 average down 42% from Lehman’s filing to its lows on October 28. Not Joe the Plumber, had he been in possession of an actual plumber’s license, could have snaked out the pipes that the McCain campaign then fell into and remained in right through to election day.

In a long article in the Washington Post the day after the election, reporter Anne Kornbluth provided an inside look on how those two weeks irrevocably transformed both the campaign, and John McCain’s prospects.

Sen Barack Obama, so steady in public, did not hide his vexation when he summoned his top advisers to meet with him in Chicago on September 14.

His general-election campaign had gone stale. For weeks, he had watched Sen John McCain suction up the oxygen in the race, driving the news coverage after the boisterous Republican convention in St Paul, Minnesota, and suddenly drawing huge crowds with his new running mate, Alaska Governor Sarah Palin. … And then, the next morning, a global earthquake hit: Lehman Brothers, the giant investment firm, filed for bankruptcy, triggering the biggest corporate collapse in US history and an international financial meltdown, and transforming the presidential race. It was a moment neither the senator from Illinois nor his advisers had anticipated, but one for which they were uniquely prepared.

In the days that followed, the newly chastised Obama team became more aggressive, with a message they had refined over the summer. The candidate himself, criticized as too cool, too cerebral and too detached, suddenly had the opportunity to show those qualities to be reassuring and presidential. For McCain, already struggling with the economic issue, the Wall Street meltdown became part of a much different narrative. By the time the senator from Arizona made the surprise announcement on September 24 that he would suspend his campaign, a powerful image had been framed: of an ‘erratic’, older Republican who could not be trusted to handle a crisis, economic or otherwise. In a race that had been thought to be even, the polls showed Obama to be pulling ahead, a lead that he would not relinquish through three debates and the election’s closing weeks.

The question then becomes, if it was then Lehman chief executive Richard Fuld’s destiny to essentially don a suicide bomber’s vest and go blow up Republican chances in the election, why wasn’t Lehman saved? After all, US Treasury Secretary Henry Paulson had already engineered the rescue of Bear Stearns in March (see A risk-free revolution, Asia Times Online, April 2, 2008) and set the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac down the road towards an inevitable de facto full government ownership in mid-summer. Why wasn’t the rescue of Lehman the third-time charm?

Paulson couldn’t rescue Lehman. He had been tied up by the Lilliputians.

What a sad destiny it must be to be a teacher of history in America, a place that despises the very concept of history, a land where it is well believed that the history of the past can and should be regularly altered in order to serve the necessities of the present.

To a certain extent, being a teacher, or even someone who respects and cherishes history in this circumstance is like being the proprietor of an ice-cream fountain in a city wholly populated by the lactose intolerant, for it seems that Americans have the same reaction to accepting the lessons of history, even recent history, as the bodies of the people who can’t metabolize the key ingredient of a milkshake.

Those who say that Lehman should have been saved have already forgotten the history of the late summer. Beginning with the rescue of Bear Stearns in March, but especially gaining force with the pre-rescue (when the government’s commitment to their solvency was made just a bit more explicit than previously, leading up to the receiving an pledge of full government backing in early September) of the GSEs in mid-July, a bellowing bedlam, caterwauling cacophony was heard from America’s well-cosseted chattering classes that there was something wrong with all these interventions.

It was all supposedly so un-American, they bleated on their blogs, and on cable news shows. Where was the great tradition of rugged American individualism, of the nation where the failures of some cleared away the underbrush for the glorious successes promised by God for the entrepreneurial class of the chosen people on John Winthrop’s Shining City on a Hill-blah-blah-blah?

In what was still the bitterly polarized America of the pre-Obama age (that obviously no longer exists – this is now apparently a country of 300 million souls all in mad, squealing, passionate love with each other), the government rescues inevitably got sucked into the mire.

A movement developed around Tennessee Republican Senator Jim Bunning, then spread to the editorial pages of the Wall Street Journal and beyond, trumpeting the supposedly pure, unfettered capitalism of a fantasy bygone age. This movement saw the ideological combat that would attend the autumn’s election contest, searched desperately for a weapon to hold on to in the trenches, even if it was just imaginary. For the Democrats and liberals, this was all just schadenfreude, the joy they got from the right’s misfortune.

If Paulson had had any sense, or if Bush had still been able to summon up but one last measure of the steely-eyed/brook-no-dissent determination that led America into its catastrophic Iraq quagmire, all this palaver would have meant little. Neither was the case. Whoever was in charge of the US executive branch in late summer, they attended to the dopey din and rather explicitly let the message slip that the cupboard was bare for all future rescues.

I noted this determination to let the free markets do their damnest without the prospect of government assistance in late August (see Tough love’s fatal attraction, Asia Times Online, August 27, 2008); by the time the GSE’s were brought fully under the Federal Reserve’s wing on the weekend of September 6-7, the resolve was even stronger.

Thus, when the great captains of American finance capital were summoned to the fortress-like redoubt of the New York Federal Reserve Bank the following weekend, the private-sector bankers were stunned to learn that it was the government’s plan, very unlike the case of Bear Stearns in March, to have them, not the public sector, rescue Lehman. This they were not willing to do;
government and the bankers bickered all weekend; when it became clear that neither side was going to turn away from their positions at the last minute, this adolescent-like game of chicken ended with Lehman filing for bankruptcy and the whole world crashing.

What cautionary tale does this provide Obama?

Living on America’s west coast gives one a unique perspective to the current concept of what political consultants call the “24-hour news cycle” – throwing up for grabs each day a new, separate, discreet contest for the political actors to win or lose. Thus, as the radio political talk shows here are signing off at midnight, on the east coast it’s 3am, and the newspapers that will define the next day’s contests are starting to roll off the presses; 5am east coast time sees the cable news networks open their sleepy eyes; at 7am comes the national morning broadcast network chat shows, and with that the battle for that day is fully joined.

Who are the contestants which take the field of battle? Well, now America essentially has six network news operations, with CNN, FOX and MSNBC supplanting the three traditional networks (MSNBC and NBC News operate independently, well at least sometimes they do) and many fewer newspapers and newspaper journalists than previously.

What is new is the whole new population of Internet-generated and delivered content, whose material goes a long way towards determining who will win or lose the day’s debate. You have news sites operated by the traditional networks, which regularly produce content that never makes it onto the air; news blogs, opinion blogs, combinations of the two; many times all are cross-pollinating their existence by their perpetrators appearing on the afternoon shows on the cable news networks.

Whatever the qualifications are to be included in this brood, it is obvious that to hew to the zeitgeist of the time by being an honest-to-God breathing, bleating pundit, knowing anything about what you are talking about in a specialized subject is not one of them. It is far more important to be able to fill up the dead air until the next commercial break with derogatory and incendiary rhetoric about your ideological opponent.

When this group, having no knowledge of the dire situation that the financial markets were in, and caring not a whit about that state of ignorance, made it a cause celebre to oppose all new “bailouts” as a betrayal of the people’s will, and when Paulson, seeing that he was losing these daily media engagements, listened to them, the die was cast for Lehman and the markets.

Paulson soon did a quick volte face and saved AIG, then just about everybody else in the markets who could get their fingers onto a federal check, but by then the dam had burst, and the world had flooded. (Paulson did another about-face on Wednesday, when, in response to the massive unpopularity of his Troubled Asset Relief Program, or TARP, he scrapped the program’s original focus on buying distressed mortgage securities from the banks in favor of the much more questionably effective action, but one in line with current thinking, of taking equity shares in banks.)

It might be a surprising argument for a pundit like me to argue that pundits should be ignored. Of course, with my finely honed pundit skills (don’t try this at home), I could cut the Gordian knot by arguing that only Asia Times Online pundits are worth taking seriously.

After the February 1, 2003 Columbia Space Shuttle tragedy, when the vehicle disintegrated during re-entry, killing all seven crew members, one pundit actually opined that this had made the obviously upcoming Iraq invasion by the US less likely, as it dimmed Americans’ faith in the promises of technology and, by extension, techno-war. Nothing was further from the truth; we now know (to me, it was pretty obvious then) that it was only blood that would quench the raging Oedipal fire consuming President George W Bush’s soul.

Still, the Bush that ignored the pundit class in 2003, and in doing so drove America off a cliff in Iraq in 2003, followed the same class to the letter in not rescuing Lehman in September, and, in doing so, proceeded to once again drive both the world economy and his party right off a precipice.

When, president-elect Obama must wonder, should the pundits be listened to, and when they should be ignored?

The answer lies in the mostly ignored issue of how the public at large views the punditry’s histrionics. Some react like fans of the exhibition that is American professional wrestling, fervently wishing that the pundit on their side break an aluminum folding chair over the head of their hated opponent. However, for most, these ideological spectacles are roughly equivalent to the roar of a huge bear when the circus trainer has him up on one leg on a stool and is taunting him with a whip and chair – it is for them pure escapist, mindless entertainment.

So the modern version of Machiavelli’s Prince should adhere to the people’s, as opposed to the pundits’, views? How? Through reading polls? That’s the last thing one should do. A public policy wholly designed around poll results would resemble that of a manic depressive simultaneously taking a full regimen of both tranquilizers and stimulants. Americans regularly report to pollsters wildly inconsistent and unreal beliefs, such as wanting both higher government spending and lower taxes, or that all of the country’s fiscal difficulties could be solved if only the foreign-aid budget that only benefits “all those foreigners” was slashed (at around US$30 billion, the foreign-aid budget is less than 1% of the Federal budget, as opposed to the current modest estimate of a nearly $500 billion deficit for fiscal year 2009).

No, what a great leader must do is to fire the pollsters and polemicists and find out where the people really want to be led. Conservatives think that a candidate advocating higher taxes is automatically taking a deep drink from a hemlock-filled chalice, but what the people really won’t accept is higher taxes disappearing into the miasma of the bureaucracy without seeing any benefit.

Currently, the punditocracy is working itself into its usual frothy lather over the pending rescue of General Motors that will soon emerge from the upcoming lame-duck session of the US Congress, claiming it as another bailout betraying free-market principles. The people, on the other hand, would see the possible million or more prompt job losses that would ripple through the auto industry and its suppliers in the event of total GM shutdown, and wonder why the politicians are waiting so long to act.

As the players enter Center Court at the All England Lawn Tennis and Croquet Club, more commonly known as Wimbledon, they are given advice in the form of a sign containing excerpts from If, the Rudyard Kipling poem written in 1895:

,blockquote>If you can meet with triumph and disaster

And treat these two imposters just the same …

Yours is the earth and everything that’s in it

And – which is more – you’ll be a man, my son.

And if Obama can meet and overcome the challenge of the legions of fatuous haranguing imposters, of both the right and left, who all day and night pollute the public square with their unending, ultimately pointless bloviations, he’ll be a great president.

(*) – Julian Delasantellis is a management consultant, private investor and educator in international business in the US state of Washington.

(Copyright 2008 Asia Times Online (Holdings) Ltd. All rights reserved.

CLICK HERE FOR THE ORIGINAL ARTICLE

PUBLISHED BY ‘ASIA TIMES’ (Hong Kong – China)

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