February 08, 2010

Wile E. Updates His Dow Projections

Yes, yes, I know. It was my finest hour, when I predicted a Dow fall to 9,100 when the NYSE was cooking along at about 14,000. Yet Krugman got the Nobel for Economics. Go figure. What's he ever been right about? Well, I won the Nobel Prize of My Mind, which, unfortunately, does not come with a large honorarium and a trip to Stockholm.

Those were the halcyon days, when equipped solely with the back of an envelope (which had once enclosed a late notice from PG&E) and a dull pencil, and unable to find the novel I was reading and yet still needing to...well, never mind. Such details are extraneous. The Swimmer Theorem is simplicity itself, exemplifying the elegant Occamesque eschewal of all frivolous detail. The American "economy" was based on 70% consumer spending, as in, I will mow your lawn if you will wash my car. Or we can all do each other's laundry. The beauty of a "service" economy is that it doesn't really matter what pointless activities we occupy ourselves with. We're not building wealth. That's what the countries do who have the jobs all the multinational corporations in America sent to them so that what wealth remained could be concentrated in fewer and fewer hands, which swag could be used to buy Congress to keep the tax code and "free trade" agreements amenable, and the Out-of-Work Artists Formerly Known as the Middle Class could go straight to Hell, do not pass Go, do not collect your $200 Social Security payment, because the system is bust-o. A moment's reflection will also tell you that the "subprime" crisis (which can now be characterized more generally as the Debt Depression) really was the real estate and credit card (and auto loan & student loan) equivalent of the same offshoring principle; that is, by securitizing everyone's debt, the same cabal of the super wealthy could control this remaining American "industry" (i.e., going in hock up to your eyeballs). This is why, of course, no one on Wall Street pays any price whatsoever for the greatest swindle in history; it's what Washington wanted them to do (gee, let's think - why again are the Chinese and Japanese getting testy? Couldn't be those mountains of fraudulent Fannie & Freddie debt instruments they bought, could it? That can't be it. That would be our fault. So it must be Barack palling around with the Dalai Lama.)

Mondays - I just love 'em. Anyway, back to the Theorem. The Federal Reserve is obviously tiring of manipulating the stock market, so the Dow, obedient to the laws of gravity, is settling back to a more sustainable level below 10,000. Washington couldn't run that con forever, and they never planned to do so. Touching in their naivete, and perhaps motivated by a bad conscience secondary to their enabling of our destruction out here in the land of strip malls and multiplexes, far, far from the Caffe Milano in Georgetown, Congress, the Fed & the Treasury operated on the idea that this Recession was just another cyclical blip, instead of a structural turning point in American economic history. To wit, we're not coming out of this for a very long time. Nevertheless, the Fed and the White House bought up the entire mortgage industry in the United States by taking all of the Fannie & Freddie guarantees onto the Fed's balance sheet or by making the Congressional sponsorship of the GSE's explicit (on Christmas Eve, so no one would notice), to the tune of $6 trillion (which amount, however, is not carried as part of the current deficit, although it is a moral certainty that some significant fraction of this load will go bad over the next few years). Who's got time for reality anymore?

But where was I. Okay, so the Dow is sinking like an anvil in deep water once again. The downward pressure must be considerable to overcome the Fed's habitual trading of stock market futures through its New York prop desk. When you consider that the Fed can, through its prestidigitalization (ah, why do I give this stuff away?) make money up at will, financial g-forces must be Jupiter-like to overcome the levitation. Maybe they're starting to realize that we're just going to have to face it: the equity's gone, everywhere in this country.

So if you'll recall, the original Theorem held that the American peasantry were really only capable of fueling their 70% share of consumer economy to about half the level suggested by the GDP. The rest was borrowing, and a lot of that from mortgage re-fi and lines of credit. Well, we can't do that anymore, now can we? So simple math told you that we should see a fall of 35% from 14,000 to 9,100, at which point the Fed went to work. But as suggested by analysts here at the Walden think tank, there would also be a knock-on effect caused by the results of the general fall-off in economic activity. Rather than measuring this effect through the use of the GDP (another gimmicked number), it probably makes more sense to use the delta in the U-6 unemployment figure, which since the fall began has soared about10 percentage points to its current 17%. That would suggest about 900 points or so, down to 8,000.

Nice and round. Such a number perhaps represents the residual wealth of the American populace. It is about a 43% drop from peak to trough, and perhaps it will apply across the board: houses, commercial real estate, equity stocks. This will assure that the big banks will eventually go broke despite all the efforts to shield them from the effects of realistic accounting, such as actually marking to market all the worthless mortgage-backed securities still on their books.

If Greece (and the other members of the PIIGS) can teach us anything, besides the calculations of force necessary to move something up an inclined plane, or figuring the square on the hypotenuse, it might be that all this additional sovereign debt, in the not-very-long run, is simply going to make a terrible problem disastrous.

February 07, 2010

Roadblogs to Governance?

Recently (on Groundhog Day) Robert Wright wrote an Op-Ed for the New York Times in which he argued, on a basis I didn't completely understand, that the world of blogging and the Internet in general was making the country "ungovernable" for Obama, citing (I think) the ease of organizing public opinion into pressure groups in a "frictionless, low cost way" that makes it impossible to navigate policies to successful fruition in Washington.

The open forum nature of the Internet does make it possible for an overwhelming array of opinions on everything to enter, instantaneously, the bloodstream of national discourse. Of course, for probably 99.999% of all such blogging, that's about where it begins and ends. Talk. Most of it sheds more heat than light. I do think that the best of the blogs offer analysis and factual reporting that is simply unavailable in the mainstream media. The rest of it (perhaps me included) is just another form of the "e-mail forwards" that were all the rage during the culture shock years of the early Bush Administration. That's actually why I started doing it. It didn't seem fair, or even polite, to impose an opinion on someone just because they were in my address book. Just put it out there as an exercise of First Amendment rights.

The coverage of the Christmas Day bomber is an excellent case illustrating the usefulness of the Internet in rounding out the analytical picture, as accomplished by the blogs. The fracas here centers around whether Abdulmutallab should be treated as a "criminal" or an "enemy combatant." Similarly, an inchoate "national conversation" followed the decision to try Khalid Sheikh Mohammed in New York City, in federal district court, which the Obama Administration is now backing away from. If I were to derive all of my information and legal framework from the usual national media (cable and network news, conventional press, radio), and I had no legal background of my own, I would probably not know that there is, after all, an existing statutory and Constitutional structure under which these issues are supposed to be decided. Very similar to this issue is the question whether Khalid Sheikh Mohammed (KSM) should or should not be tried in federal district court in New York, as opposed to before a military commission in Guantanamo.

Jane Mayer in The New Yorker does her usual excellent job of chronicling the sequence of events which led to the decision to try KSM in New York, the resulting firestorm of criticism, and then the waffling by Eric Holder and the Justice Department. It's worth reading at http://www.newyorker.com/reporting/2010/02/15/100215fa_fact_mayer. What's evident from this account is that the Obama Administration's equivocation has to do solely with political considerations, and many of those calculations emanate from Rahm Emanuel, the White House Chief of Staff. Emanuel feels Obama "needs" the cooperation of Sen. Lindsey Graham of South Carolina to close Guantanamo, and he can't get that cooperation without trying KSM in front of a military tribunal. Mayer notes in passing that Emanuel is a "non lawyer."

Yeah, and that's kind of the point. We are supposed to be a nation of laws, not men. That was the most important principle in the founding documents of this country. The Patriots (the original New England Patriots, not the gridiron version) had had their fill of arbitrary English decisions handed down by King George III and Parliament. They wanted, most of all, a reliable, predictable legal structure. As we phase out strict adherence to the Bill of Rights, that is what we are moving away from, and that is very, very dangerous.

For example, we should simply figure out and act consistently about this "civilian trial," "crime paradigm" versus "war on terror" argument. It should not be decided by mob rule, even if members of the mob are Rudy Giuliani and Lindsey Graham. What's it gonna be? The argument now usually takes the form of rhetorical questions: What shall we do, give Osama bin Laden his Miranda rights? For Jim DeMint, Mitch McConnell, Sarah Palin (and Dianne Feinstein), the argument is won simply by posing this question. But that doesn't actually answer the question. "Liberals" are being frightened away from bedrock principles of civil liberties by browbeating and accusations that they are "soft on terror." Barack Obama is not soft on terror, and neither is Eric Holder. But the political climate (and not the one created by the Internet) is apparently forcing them (so they say) to make up rules on the fly in order to stay ahead of the increasingly lawless trends in this country.

That's not what we need. Here's what the Authorization for Use of Military Force dated September 18, 2001, actually says about the President's authority to use the military apparatus to deal with the threat of terror:


    (a) IN GENERAL- That the President is authorized to use all necessary and appropriate force against those nations, organizations, or persons he determines planned, authorized, committed, or aided the terrorist attacks that occurred on September 11, 2001, or harbored such organizations or persons, in order to prevent any future acts of international terrorism against the United States by such nations, organizations or persons.

So the general consensus of opinion is that al-Qaeda was responsible for the attacks, and the Taliban was complicit in harboring and aiding. So there's a starting point. So how do we determine when someone is an "enemy combatant" under this AUMF and when they're a common criminal, thus becoming a "person" within the meaning of the 5th and 14th Amendments? (And the term "person," as recognized by the Bush Administration in giving civilian trials to Richard Reid, the Shoe Bomber, and Zacarias Moussaoui, the "20th hijacker" and a member of al-Qaeda, applies to everyone in U.S. civilian custody, not just to American citizens.)

The problem, of course, is in formulating a clear, Constitutional rule. Do we want to say that any Muslim who engages, or attempts to engage, in an act of terror or asymmetrical warfare against the United States is an "enemy combatant?" That's actually how we enforce the concept, if you think about it. Whether they are a member of "al-Qaeda" is often pretty hard to tell. Were the 19 hijackers of 9-11 members of al-Qaeda? It seems likely that the ringleaders, Mohammed Atta and Marwan al-Sheihi, were actually radicalized through connections to the Egyptian jihadist movement known as the Muslim Brotherhood, and then went over another line into full-scale terrorist planning as the result of "exposure to the West" in Hamburg, Germany. Congress, the White House, and all the mainstream opinion-makers don't know if they can come up with a satisfactory statement of policy which doesn't seem (a) overtly racist or sectarian or (b) unconstitutional. So the response is to make it up as they go along, referring to the AUMF (as Bush did) as if it answered anything, which it doesn't, not really. Is this Christmas Day bomber in the same category as the 9-11 hijackers because they can connect his training to al-Qaeda in Yemen nine years after 9-11? What is al-Qaeda, exactly? I think it's an organizational structure that we superimpose on Muslim groups which may or may not have anything to do with each other in order to keep them within the framework of the AUMF.

Bush denied habeas corpus rights to the enemy combatants at Guantanamo, using the AUMF as the legal basis for the designation of the detainees there as enemy combatants, but that didn't work out when tested by the Supreme Court (which was the same result in the Hamdan case regarding the constitutionality of the Military Commissions Act procedures).

The whole thing is a mess, but the real danger is in the arbitrary nature of the responses by government officials and the complete politicization of civil liberties, which are supposed to be decided by legal principles, not mob rule. I think the real position taken by the government (both Bush & Obama) is as I've stated: a Muslim jihadist engaged in terror activities will be treated as an enemy combatant, because the war on terror is a war, not a crime-fighting exercise. It just isn't much like any other war we have fought: no uniforms, no specific national allegiance of the enemies or backing of a specific foreign power, no entity capable of "surrender" or signing a peace treaty. And no end in sight. Whether everyone (and everyone on the Internet) agrees with the wisdom of such a statement, it is nevertheless vital to enunciate the principle so we don't get too used to deciding things as King George III did a long time ago.

Opinions on such matters, expressed by individuals on the Internet, don't produce a country which is "ungovernable." They simply fill out the picture and keep the discussion from being cast solely in terms of the "manufactured consent" of a narrow bandwidth of the "opinion elite," who increasingly decide everything solely in terms of the next election cycle. I guess it's a jealous guarding of such "horse race" politics that the New York Times feels is threatened. Call guys like Glenn Greenwald, the lawyers at Balkinization and Cenk Uygur "roadblogs" and we're good to go.