President Obama’s destiny – more than his foreign policy decisions – will be sealed by how he deals with the US financial crisis, argues Pepe Escobar. The verdict of top economists on Treasury Secretary, Tim Geithner’s new PPPIP has not been auspicious. Some speak of taxpayer rip-off while Nobel Prize winner Paul Krugman foresees a “lost decade of zombie banks.” The president has been trying to appease Wall Street while at the same time appeasing America’s anger directed at anything bank bailout-related. On a global level the Chinese have made it known their patience with America’s addiction to debt has limits. The upcoming G20 meeting in London is bound to discuss more radical steps, while back in the US some already dream of a new saviour, post-Geithner.
Obama held hostage by PPPIP
PEPE ESCOBAR, SENIOR ANALYST, TRNN: Forget for a moment Iran, Afghanistan, Pakistan, Russia, or China. President Obama’s destiny is likely to be decided by the financial crisis. And it all depends on this man with, finally, a plan: the Public-Private Partnership Investment Program (PPPIP) outlined in this white paper. The masters of the universe, they love it. Anybody would love it. Can you imagine if Treasury Secretary Tim Geithner offered you up to a trillion dollars? If PPPIP sinks, Obama sinks. It’s as simple as that. So would it work? That depends on a lot of variables, says the website Credit Writedowns. And that includes, and I quote, Obama using his inner Bill Clinton to demonstrate to millions of Americans he can feel your pain. The economic chattering classes are saying that PPPIP does not get to the heart of the matter, which is leverage, debt, and too much credit. The former US business editor of The Financial Times, now with the Guardian in London, he shows that the Brits tried more or less the same thing and failed. He says, and I quote, “Both the US and the UK plans underestimate the scale of the crisis.” David Goldman, formerly from Bank of America, he says that nationalization—that’s what a lot of economists would prefer, in fact—that would be, he says, I quote, “unnecessary, apocalyptic, and politically undesirable.” But this is his money quote: the Geithner plan was all about “suppressing the perception that banks were about to fail and that the financial system was about to break down.” President Obama knows that perception is reality, especially in the US. In his press conference—in which, by the way, nobody asked him about bank bailouts—he confidently projected the impression that after this crisis everything will be back to the old golden kingdom of financial capital, which has not abdicated from any of its political and economic privileges.
BARACK OBAMA, US PRESIDENT: We believe that if you take the steps that we’ve already taken with respect to housing, with respect to small businesses, if you look at what we’re doing in terms of increasing liquidity in the financial system, that the steps that we’re taking can actually stabilize the economy and get it moving again.
ESCOBAR: Nobel Prize winner Paul Krugman is not convinced. Krugman says that Geithner is recycling Bush treasury secretary Henry Paulson’s cash-for-trash plan. You remember this one. So the new scheme also will not work. The US is heading to, I quote, a “Japanese-style lost decade of ‘zombie banks.’” James Galbraith, he also nails it—very politely. He says Geithner “… views the crisis the same way Wall Street does—as a temporary liquidity problem—and his plans to fix it are designed with the best interests of Wall Street in mind.” Remember, Geithner was in control of the New York Fed when Bear Stearns and Lehman Brothers defaulted. And yet another Nobel Prize winner, he could not be more explicit. All this while the US remains pitchfork-mad with anything smelling bank bailout or bonuses.
Courtesy: Comedy Central
STEPHEN COLBERT: Let’s go get AIG! Woo! [thrusting a pitchfork]
ESCOBAR: So take PPPIP as a welfare state for billionaires. Or this one is very, very popular: hedge fund socialism. PPPIP, we’re relying on Federal Reserve printing a lot of taxpayer money to subsidize Wall Street. Geithner and Fed chairman Ben Bernanke, they are all in this together. And even their suits match.
In the end, the suits on Wall Street—shall we call them friends of Geithner, maybe?—they dictated their terms to Obama. It’s all here in this striking Wall Street Journal piece that—very few people read it, actually. This was the bank’s message, and I quote: “If you want our help to get credit flowing again to consumers and businesses, stop the rush to penalize our bonuses.” With US taxpayers putting up 94 percent of the investment but only getting 50 percent of the profits, here’s the verdict of Dutch maverick Willem Buiter of the London School of Economics. This thing is bad, he says, but it could be worse. To do it right, Buiter says, Geithner will have to come up with more than $1 trillion. He’s just spending a mere $100 billion. So he’s leveraging the US taxpayer ten-to-one. So this is essentially another trillion-dollar cheque. The account happens to be already overdrawn by $11 trillion. Yes, the US heroin or opium—after all, let’s talk about Afghanistan—is debt. Total debt is already $57 trillion. In the last six months alone, debt in the US has increased by $4 trillion. Soon it may be bye-bye dollar hegemony. China is freaking out about financed US debt. China’s central bank chief, he wants a new world reserve currency. That would be the IMF’s special drawing rights, the SDRs. Essentially this is a basket of currencies. Would it happen? Well, it’s possible. The Eurozone is neutral, but the word in Brussels is that they would love this. The BRIC countries—Brazil, Russia, India, and China—plus South Africa, plus South Korea, plus a UN commission of experts, they all want it. And, in fact, they will demand a proposal to be studied at the G20 meeting on April 2 in London.
OBAMA: The goal at the G20 summit, I think, is to do a couple of things. Number one, say to all countries, let’s do what’s necessary in order to create jobs and to get the economy moving again. Let’s avoid steps that could result in protectionism that would further contract global trade. Let’s focus on how are we going to move our regulatory process forward so that we do not see the kinds of systemic breakdowns that we’ve already seen.
ESCOBAR: Well, systemically, countries would rather see that the US cannot borrow dollars and pay back—well, maybe pay back much much later in devalued dollars. So they want a new world order, and, you betcha, it is coming. It’s just around the corner, maybe. So while the bells toll for the global disaster, America is already thinking post-Geithner. Will there be a savior? You betcha, oh, yes. There he is, the resurrected steamroller himself, former New York governor Eliot Spitzer. America may in the end forgive and forget his taste for young, expensive hookers. After all, one thing he does know is how to nail mature, expensive masters of the universe.
Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.