1. Once was nowhere near enough. Giddy from their near death experience after letting Lehman Bros. sink, Ben and Hank couldn't wait to play another round of What's My [credit] Line? with the invisible hand around the throat of the capital markets.
They made a winning combination, like... well, like Merrill and Lynch, like Citi and Travelers, like Bear and Stearns, Martin and Lewis, Peaches and Herb, Bing and Bob, Fear and Greed, Barnum and Bailey, Tom and Jerry, Gerry and the Pacemakers, Pacemakers and Defibrillators, Widows and Orphans, Orphan and Annie, Mick and Keith, Burns and Allen, Fools and Money, and everybody's favorite, Moose and Squirrel. Capitalism, incorporation, after all, was all about partners.
Ben, the student and scholar of the 1930s depression, knew exactly what went wrong then and was prepared to do exactly the wrong things differently this time.
Hank, the master of the credit derivative, was confident, always confident, that with the right vehicle, with the proper execution, his proposed reverse forward purchase convertible optioned collateralized repo swaps would lead, not all, but some, the important some, out of the wilderness and into the land of milk and honey. And if the milk was spiked with melamine? And if the bees had vanished from colony collapse syndrome? Hank would resecuritize that risk, too.
They were the best and the brightest. The were so smart and they were rich, too, so that proved it.
So on November 10, Hank announced that the Treasury would not purchase the asset backed securities, the super-heavy bad paper, the anti-money burning black holes in the banks' already empty pockets.
Playing Bullwinkle the Moose to Ben's Rocket J. Squirrel, Hank turned to his trusty sidekick and said, "Hey Rocky, watch me put a kill on this rabbit and then stuff him back into the hat."
"Again?" said Rocky.
Again, indeed. Again the markets responded with fear, despair, and then panic.
And on the trading floors in New York, in the back offices, in pits, across desks, on Blackberrys and iPhones, a single thought, a new combination, a new favorite, was traded back and forth: "Moose and squirrel must die!" said 100,000 Borises to another 100,000 Natashas.
2. Stupidity, like everything else is a learned art, a historical category, called forth on the historical stage at just the right time that is itself the wrong time, to give full voice, full faith and credit, to the temporal nature, the limits and inadequacy of the bourgeoisie's intelligence. Being really stupid requires an education, and timing.
If Bush is, in fact, the stupidest president in US history, he is, at his stupidest, no more stupid, and no less, than all those previous and future presidents serving the interests of their class [with the exception that proves the rule of Abraham Lincoln].
They served, and will serve, the needs of a specific moment of capital with the resources at their command. Their brilliance and stupidity, and each is organized in the other, depends precisely on those resources, and those specific needs.
In his belligerent ignorance, Bush represented more than the belligerent ignorance of that nexus of the petroleum and finance capitalists, he represented everything capital required at that moment. And if today, Bush is isolated, despised, and disregarded, it is not because he represents an isolated, despised, and disregarded nexus of the bourgeoisie. It is because all of capital requires something else. At this moment.
Paulson is no more stupid, and no less, than Rubin, his predecessor at both Goldman Sachs and Treasury. Bernanke is no more stupid now than Greenspan was prior to 2006 during the "salad days" of securitization . As a matter of fact, if Lincoln represents one exception to the rule, representing more than the bourgeoisie at more than their best, Greenspan represents another exception-- being legitimately, chronically, pathetically, stupid and shallow even at more than his best, never knowing better, no matter how much he pretends to know.
Paulson represents no different wing or section of the ruling class than did Rubin. He represents, in all his stupidity, his missteps, the changing need of capital-- the need for drastic devaluation of all values.
The reproduction of stupidity is not at all limited to the United States and the US bourgeoisie, although given the centrality of the US financial networks, the stupidity here sure gets more air time.
Before the G20 conference, Sarkozy, confident in having Gordon Brown behind him (talk about stupidity) ran around the world stage like a ferret on crystal meth proclaiming the the era of laissez-faire capitalism was over, the dictatorship of a single currency was finished, that a new collective strength of Europe and whatever support it could gather from the BRIC countries would replace the US domination of the financial markets.
As he spoke, of course, the US Fed had to extend unlimited currency swap lines to European central banks to prevent the collapse of the EU's capital markets; while he spoke, euros were being exchanged for dollars so that European investors could move their money into the safe haven of US government debt instruments; while he spoke spreads between French sovereign debt and German and US debt widened as the bond markets were not quite so confident in Sarkozy's dream of the DeGaulle Monetary Fund/Pompidou Bank for Reconstruction and Development.
At the conference itself, Merkel leaned over to Brown and whispered, in English, "Shut that man up before he ruins everything."
3. The last time the bourgeoisie had dot.conned themselves out of much less money, in 2000-2001, their theoreticians of the purse, the economists, had identified the speculators, the criminals, the con-artists, all those who had out-bourgeoisied the bourgeoisie, who had found those pots of gold called the bigger fool at the end of rainbow.
Never trust an economist to have any insight into the economy.
The source then, as is the source now, of capital's contraction are the very terms of its previous expansion, which like smart people gone stupid, turns accumulation, value, asset into decomposition, devaluation, loss.
Demanding improved and improving rates of extraction of value, of surplus value, from the wage-worker, the bourgeoisie invested back then considerable amounts in the means and methods that could reproduce the workers own wages in less, and less again time. Between 1993 and 2000, annual amounts of capital investment in US manufacturing increased 45 percent. Each increase in investment produced an incremental increase in rates of surplus value, reducing the time required for wages to be reproduced, but not always enough to improve overall rates of return on total investment in production.
The US Commerce Department's Annual Survey of Manufacturing contains data on production workers' wages, production workers' hours, total costs of materials consumed in production, total value added, and capital expenditure. When examined for years 1998, and 2000-2006 provides a glimpse into the genius of capital self-deconstruction.
Annual amounts of capital investment had increased more than 40% between 1993 and 1998, but between 1998 and 2000, the increase was less than 2 percent. The mass and the rate of surplus value extraction, the time it took for the worker to reproduce a value equivalent his/her own wage was incrementally improved, so that the worker reproduced the daily wage within the first 1.48 hours of labor. However, the accumulated investment in production and the costs of expanded production reduced the ratio of the mass of surplus value, the "value added" as the annual survey categorizes it, to total value of the products produced.
In 1998, that ratio of value added to total value measured 48.5 percent.
In 2000, the ratio declined to 46.9 percent.
In 2001, despite reduced capital investment, reduced production worker wages and wage rates, reduced costs of materials in production, the ratio declined again to 46.6 percent.
By 2002, yearly capital investment amounts were 21% below the 2000 peak, wage rates were 6.32 percent above the 2000 mark, but the total wage expenditure was 9% below that of 2000. The rate of surplus value extraction had improved so that the hourly wage was reproduced in 1.42 hours. The value added ratio improved to 48.2 percent.
The bourgeoisie thought had found an answer and it made them look, and feel smart. Reduce investment, control costs, hoard cash.
In 2003, yearly capital investment again declined and was now 28% below its 2000 peak. Total wage costs declined again. Wage reproduction rates improved again that the day's wage was reproduced in 1.38 hours of labor. With the rising cost of petroleum, fuels, and energy used in production, however, the value added ratio declined to 47.9 percent. The bourgeoisie were smart and had the answer. The mass of value added increased and approached the previous peak of 2000.
In this reciprocating compensation of mass for rate, and rate for mass, the bourgeoisie sought comfort, and the love that only money can buy.
In 2004, the steady decline in production workers and production hours offset the minor increase in total wage costs. The daily wage was reproduced in the first 1.3 hours of work. Again costs of materials in production increased and reduced the value added ratio to 47.3 percent.
In 2005, unable to remain comfortable with increased costs of the material, the fuels, the energy absorbed in production, the bourgeoisie found an old answer waiting for them-- boosting the rate of surplus value extraction through increased capital expenditures. The capital spending amount increased by 13 percent. Wage reproduction was accomplished within 1.23 hours of work. The mass of value added shot up by 10% over the year earlier, exceeding the increases of the 90s. The bourgeoisie had their answer. The ratio of added value at 46.6 percent, was a question put off for another year.
In 2006, capital investment increased by another 10 percent. It had to as only increased rates of production created the possibility for the mass of value to compensate for the fall in its rate of reproduction. With total wage costs still 6% below those of 2000, with a surplus value rate of 6.65 to 1, where the daily wage was replaced in 1.2 hours of work, with total value added 15.8% above the 2000 mark, the rate of added value reproduction fell again to 45.6 percent.
The bourgeoisie were out of answers, and with the increasing costs of production and transportation driven by the price of oil, with the price of oil driving the bourgeoisie into greater capital expenditures to increase the rate of surplus value; with oil undermining growth in the mass and rate of value added-- manufacturing, hidden beneath all the noise and clamor of Wall Street, of all the investment bankers at all the trading desks slapping themselves on the back with each new deal-- manufacturing had all ready rung the closing bell.
Those who didn't hear it, couldn't hear it. They were too smart. They were too stupid.
The only answer left for capitalism was/is the destruction of assets.
4. With so many special purpose vehicles, new credit facilities, capital injections, bailouts and buyouts all in the market, taking up space where money used to be made, The Wolf Report offers its own concrete practical program for rescuing the economy:
The Wolf Report will deposit with the Federal Reserve System for distribution to all member banks, all primary dealers, all money market funds, all asset-backed commercial paper issuers, 24 dollars in trinkets, in exchange for which all such bankers and dealers agree to immediately leave the island of Manhattan.
November 26, 2008
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