Winning the Propaganda War

August 05, 2008 By William Greider
Source: The Nation

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Washington can act with breathtaking urgency when the right people want something done. In this case, the people are Wall Street's titans, who are scared witless at the prospect of their historic implosion. Congress quickly agreed to enact a gargantuan bailout, with more to come, to calm the anxieties and halt the deflation of Wall Street giants. Put aside partisan bickering, no time for hearings, no need to think through the deeper implications. We haven't seen "bipartisan cooperation" like this since Washington decided to invade Iraq.

In their haste to do anything the financial guys seem to want, Congress and the lame-duck President are, I fear, sowing far more profound troubles for the country. First, while throwing our money at Wall Street, government is neglecting the grave risk of a deeper catastrophe for the real economy of producers and consumers. Second, Washington's selective generosity for influential financial losers is deforming democracy and opening the path to an awesomely powerful corporate state. Third, the rescue has not succeeded, not yet. Banking faces huge losses ahead, and informed insiders assume a far larger federal bailout will be needed-- after the election. No one wants to upset voters by talking about it now. The next President, once in office, can break the bad news. It's not only about the money--with debate silenced, a dangerous line has been crossed. Hundreds of billions in open-ended relief has been delivered to the largest and most powerful mega- banks and investment firms, while government offers only weak gestures of sympathy for struggling producers, workers and consumers.

The bailouts are rewarding the very people and institutions whose reckless behavior caused this financial mess. Yet government demands nothing from them in return--like new rules for prudent behavior and explicit obligations to serve the national interest. Washington ought to compel the financial players to rein in their appetite for profit in order to help save the country from a far worse fate: a depressed economy that cannot regain its normal energies. Instead, the Federal Reserve, the Treasury, the Democratic Congress and of course the Republicans meekly defer to the wise men of high finance, who no longer seem so all-knowing.

Let's review the bidding to date. After panic swept through the global financial community this spring, the Federal Reserve and Treasury rushed in to arrange a sweetheart rescue for Bear Stearns, expending $29 billion to take over the brokerage's ruined assets so JPMorgan Chase, the prestigious banking conglomerate, would agree to buy what was left. At the same time, the Fed and Treasury provided a series of emergency loans and liquidity for endangered investment firms and major banks. Investors were not persuaded. Their panic was not "mental," as former McCain adviser Phil Gramm recently complained. The collapse of the housing bubble had revealed the deep rot and duplicity within the financial system. When investors tried to sell off huge portfolios of spoiled financial assets like mortgage bonds, nobody would buy them. In fact, no one can yet say how much these once esteemed "safe" investments are really worth.

The big banks and investment houses are also stuck with lots of bad paper, and some have dumped it on their unwitting customers. The largest banks and brokerages have already lost enormously, but lending portfolios must shrink a lot more--at least $1 trillion, some estimate. So wary shareholders are naturally dumping financial-sector stocks.

Most recently, the investors' fears were turned on Fannie Mae and Freddie Mac, the huge quasi-private corporations that package and circulate trillions in debt securities with implicit federal backing. Treasury Secretary Henry Paulson (formerly of Goldman Sachs) boldly proposed a $300 billion commitment to buy up Fannie Mae stock and save the plunging share price--that is, save the shareholders from their mistakes. So much for market discipline. For everyone else, Washington recommends a cold shower.

Talk about warped priorities! The government puts up $29 billion as a "sweetener" for JP Morgan but can only come up with $4 billion for Cleveland, Detroit and other urban ruins. Even the mortgage-relief bill is a tepid gesture. It basically asks, but does not compel, the bankers to act kindlier toward millions of defaulting families.

A generation of conservative propaganda, arguing that markets make wiser decisions than government, has been destroyed by these events. The interventions amount to socialism, American style, in which the government decides which private enterprises are "too big to fail." Trouble is, it was the government itself that created most of these mastodons--including the all-purpose banking conglomerates. The mega-banks arose in the 1990s, when a Democratic President and Republican Congress repealed the New Deal-era Glass-Steagall Act, which prevented commercial banks from blending their business with investment banking. That combination was the source of incestuous self-dealing and fraudulent stock valuations that led directly to the Crash of 1929 and the Great Depression that followed.

Even before Congress and Bill Clinton repealed the law, the Federal Reserve had aggressively cleared the way by unilaterally authorizing Citigroup to cross the line. Wall Street proceeded, with accounting tricks described as "modernization," to re-create the same scandals from the 1920s in more sophisticated fashion. The financial crisis began when these gimmicky innovations blew up.

Democrats who imagine they can reap partisan advantage from this crisis don't know the history. The blame is bipartisan; so also is the disgrace. In 1980, before Ronald Reagan even came to town, Democrats deregulated the financial system by repealing federal interest-rate ceilings and other regulatory restraints--a step that doomed the savings and loan industry and eliminated a major competitor for the bankers. Democrats have collaborated with Republicans on behalf of their financial patrons every step of the way.

The same legislation also repealed the federal law prohibiting usury--the predatory practices that ruin debtors of modest means by lending on terms that ensure borrowers will fail. Usurious lending is now commonplace in America, from credit cards and "payday loans" to the notorious subprime mortgages. The prohibition on usury really involves an ancient moral principle, one common to Judaism, Christianity and Islam: people of great wealth must not be allowed to use it to ruin others who lack the same advantages. A decent society cannot endure it.

The fast-acting politicians may hope to cover over their past mistakes before the public figures out what's happening (that is, who is screwing whom). But the Federal Reserve has a similar reason to move aggressively: the Fed was a central architect and agitator in creating the circumstances that led to the collapse in Wall Street's financial worth. The central bank tipped its monetary policy hard in one direction-- favoring capital over labor, creditors over debtors, finance over the real economy--and held it there for roughly twenty-five years. On one side, it targeted wages and restrained economic growth to make sure workers could not bargain for higher compensation in slack labor markets. On the other side, it stripped away or refused to enforce prudential regulations that restrained the excesses of banking and finance. In The Nation a few years back, I referred to Alan Greenspan as the "one-eyed chairman" [September 19, 2005] who could see inflation in the real economy--even when it didn't exist--but was blind to the roaring inflation in the financial system.

The Fed's lopsided focus on behalf of the monied interests, combined with its refusal to apply regulatory laws with due diligence, eventually destabilized the overall economy. Trying to correct for previous errors, the Fed, with its overzealous free-market ideology, swung monetary policy back and forth to extremes, first tightening credit without good reason, then rapidly cutting interest rates to nearly zero. This erratic behavior encouraged a series of financial bubbles in interest-sensitive assets--first the stock market, during the late 1990s tech-stock boom, then housing--but the Fed declined to do anything or even admit the bubbles existed. The nation is now stuck with the consequences of its blindness.

The Federal Reserve's dereliction of duty is central to the financial failures. It betrayed the purpose for which the central bank was first created, in 1913, abandoning the sense of balance the Fed had long pursued and that Congress requires. Most politicians, not to mention the press, are too intimidated to question the Fed's daunting power, but their ignorance is about to compound the problem. Instead of demanding answers, the political system is about to expand the Fed's governing powers--despite its failure to protect us. Treasury Secretary Paulson proposed and Democratic leaders have agreed to make the insulated Fed the "supercop" that oversees not only commercial banks and banking conglomerates but also the largest investment houses or anyone else big enough to destabilize the system. This "reform" would definitely reassure club members who are already too cozy with the central bankers. Everyone else would be left deeper in the dark.

The political system, once again, is rewarding failure. The Fed is an unreliable watchdog, ideologically biased and compromised by its conflicting obligations. Is it supposed to discipline the big money players or keep them afloat? Putting the secretive central bank in charge, with its unlimited powers to prop up troubled firms, would further eviscerate democracy, not to mention economic justice.

If Congress enacts this concept early next year, the privileged group of protected financial interests is sure to grow larger, because other nonfinancial firms could devise ways to reconfigure themselves so they too would qualify for club membership. A very large manufacturing conglomerate--General Electric, for instance--might absorb elements of banking in order to be covered by the Fed's umbrella (GE Capital is already among the largest pools of investment capital). Private- equity firms, with their buccaneer style of corporate management, are already trying to buy into banking, with encouragement from the Fed (the Service Employees International Union has mounted a campaign to stop them). A new President could stop the whole deal, of course, but John McCain has surrounded himself with influential advisers who were co-architects of this financial disaster. For that matter, so has Barack Obama.

The nation, meanwhile, is flirting with historic catastrophe. Nobody yet knows how bad it is, but the peril is vastly larger than previous episodes, like the savings and loan bailout of the late 1980s. The dangers are compounded by the fact that the United States is now utterly dependent on foreign creditors--Japan and China lead the list--who have been propping us up with their lending. Thanks to growing trade deficits and debt, foreign portfolio holdings of US long-term debt securities have more than doubled since 1994, from 7.9 percent to 18.8 percent as of June 2007. If these countries get fed up with their losses and pull the plug, the US economy will be a long, long time coming back.

The gravest danger is that the national economy will weaken further and spiral downward into a negative cycle that feeds on itself: as conditions darken, people hunker down and wait for the storm to pass--consumers stop buying, banks stop lending, producing companies cut their workforces. That feeds more defaulted loan losses back into the banking system's balance sheets. This vicious cycle is essentially what led to the Great Depression after the stock market crash of 1929. I offer not a prediction but a warning. The comparison may sound farfetched now, but US policy-makers and politicians are putting us at risk of historic deflationary forces that, once they take hold, are very difficult to reverse.

A more aggressive response from Washington would address the real economy's troubles as seriously as it does Wall Street's. Financial firms have lost capital on a huge scale--more of them will fail or be bought by foreign investors. But Wall Street cannot get well this time if the economy remains stuck in the ditch. Washington needs to revive the "animal spirits" of the nation at large. The $152 billion stimulus package enacted so far is piddling and ought to be three or four times larger. Instead of sending the money to Iraq, we should be spending it here on getting people back to work, building and repairing our tattered infrastructure, investing in worthwhile projects that can help stimulate the economy in rough weather.

An agenda of deeper reforms can boost public confidence even as it undoes a lot of the damage caused by the financiers and bankers. Some suggestions:

- Nationalize Fannie Mae and other government-supported enterprises instead of coddling them. Restore them to their original status as nonprofit federal agencies that provide a valuable service to housing and other markets. Make the investors eat their losses. Buy the shares at 2 cents on the dollar. Without a federal guarantee, these firms are doomed anyway.

- Resolve the democratic contradiction of "too big to fail" bailouts by dismantling the firms that are too big to fail--especially the newly created banking conglomerates that have done so much harm. Restore the boundaries between commercial banking and investment banking. In any case, market pressures are likely to shrink those behemoths as banks sell off their parts to survive. For the remaining big boys, revive antitrust enforcement. Set stern new conditions for emergency lending from government--supervised receivership, stricter lending rules to prevent recidivism and severe penalties for greed-crazed shareholders and executives.

- Assign the Federal Reserve's regulatory role to a new public agency that is visible and politically accountable. Make the Fed a subsidiary agency of the Treasury Department and reform its decision-making on money and credit to restore an equitable balance between competing goals and interests--seeking full employment but also stable money and moderate inflation.

- Begin the hard task of re-creating a regulated financial system Americans can trust, one that recognizes its obligations to the broad national interest. This requires regulatory reforms to cover moneypots like private-equity funds and to clear away the blatant conflicts of interest and double-dealing on Wall Street, and also to give responsible shareholders, workers and other interests a greater voice in corporate management and greater protection against rip-offs of personal savings.

- Re-enact the federal law against usury. The details are difficult and can follow later, but this would be a meaningful first step toward restoring moral obligations in the financial sector. People would understand it, and so would a lot of the money guys. Maybe in the deepening crisis, Washington will begin to grasp that money is also a moral issue.

About William Greider

National affairs correspondent William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and--due out in February from Rodale--Come Home, America.

Evan Bayh is the best choice for Barack Obama. He will turn Indiana blue for many years to come. He, as a VP, can also bring the belief of positive change to Indiana's economy.

Here is a link to my blog called, "The Politico Insider."

http://thepoliticolinsider.blogspot.com/

Mc$ame got a 15 yard penalty for unnecessary roughness. DON'T LET HIM SCORE!!

Here is a link to my blog called, "The Politico Insider."

http://thepoliticolinsider.blogspot.com/

Has McCain Finally Taken the Gloves Off?
Rick Moran
It seems that John McCain may finally be abandoning his "take it easy on Barack" approach to campaigning that was allowing the Democrat to walk all over him without getting much of an in kind response.

Lately, McCain has sharpened his attacks on Obama, using both ridicule and good old fashioned political punches to land some body blows on the messiah. His best line to date is his claim that Obama "would rather lose a war and win an election." You know you've hit paydirt when even the pro-Obama press whined about that one.

But it is McCain's critique of Obama's judgment on the surge that his campaign thinks will cut deeply into the notion of Obama's inevitability. Many pro-Obama analysts are already dismissing this tactic saying that Prime Minister Maliki's seeming acceptance of Obama's timeline is the ballgame.

McCain hasn't helped much by muffing the Iraq timeline a bit, saying the surge was responsible for the "Awakening" militias the sprouted up in the Sunni community to fight al-Qaeda. The surge may have given a nice psychological boost to those efforts but they clearly started before the surge was even announced.

Nevertheless, I think if McCain continues to hammer on the points he made yesterday in Denver speaking before an audience of veterans - that Obama was not only dead wrong about the surge but has now cynically come around to the view that it worked - he has a real chance to get people to start asking questions about Obama's inexperience and lack of judgment:

Senator Obama made a different choice. He not only opposed the new strategy, but actually tried to prevent us from implementing it. He didn't just advocate defeat, he tried to legislate it. When his efforts failed, he continued to predict the failure of our troops. As our soldiers and Marines prepared to move into Baghdad neighborhoods and Anbari villages, Senator Obama predicted that their efforts would make the sectarian violence in Iraq worse, not better.

And as our troops took the fight to the enemy, Senator Obama tried to cut off funding for them. He was one of only 14 senators to vote against the emergency funding in May 2007 that supported our troops in Iraq and Afghanistan. ...

Three weeks after Senator Obama voted to deny funding for our troops in the field, General Ray Odierno launched the first major combat operations of the surge. Senator Obama declared defeat one month later: "My assessment is that the surge has not worked and we will not see a different report eight weeks from now." His assessment was popular at the time. But it couldn't have been more wrong.

By November 2007, the success of the surge was becoming apparent. Attacks on Coalition forces had dropped almost 60 percent from pre-surge levels. American casualties had fallen by more than half. Iraqi civilian deaths had fallen by more than two-thirds. But Senator Obama ignored the new and encouraging reality. "Not only have we not seen improvements," he said, "but we're actually worsening, potentially, a situation there."

If Senator Obama had prevailed, American forces would have had to retreat under fire. The Iraqi Army would have collapsed. Civilian casualties would have increased dramatically. Al Qaeda would have killed the Sunni sheikhs who had begun to cooperate with us, and the "Sunni Awakening" would have been strangled at birth. Al Qaeda fighters would have safe havens, from where they could train Iraqis and foreigners, and turn Iraq into a base for launching attacks on Americans elsewhere. Civil war, genocide and wider conflict would have been likely.

Above all, America would have been humiliated and weakened. Our military, strained by years of sacrifice, would have suffered a demoralizing defeat. Our enemies around the globe would have been emboldened. ...

Senator Obama told the American people what he thought you wanted to hear. I told you the truth. (Hat Tip: Powerline)

In order for this strategy to work, McCain has to hammer on this theme daily for the next few weeks. He has to coordinate the strategy with surrogates. He has to spend some bucks on advertising in key states. He has to force Obama to address the discrepancy between his words then and his words now - force him to say he was wrong.

A tall order that. But a rewarding strategy if he can make it work.

NY Times Complains: 'Not enough dead soldiers'
Rick Moran
In a piece expertly slanted toward a point of view that supports the idea of showing dead bodies of Americans on the battlefield, the New York Tiimes complains about not being able to publish the bullet riddled or blown up bodies of American soldiers.

After all, how are they going to turn people against the war without using dead Americans as props in their little morality play?

The reason given for being able to publish these ghoulish photos is that if they don't, it "sanitizes" the coverage and that Americans should have their noses rubbed into how terrible war is for soldiers and civilians.

If you believe the war is wrong and that America should leave Iraq, that explanation makes perfect sense. If, however, you care about the dead soldiers and their families as well as, in many cases, operational security, you recognize why publishing photos of dead Americans should be a rare occurrence.

In the article, a general is quoted as pointing out that publishing photos of dead soldiers is as good as an after action report for the terrorists. How much damage did they do to the unit involved?

There is also the effect on soldiers still in the field. That became obvious when, on the few occassions a picture of dead Americans was published, the survivors became so upset that in a couple of cases a guard had to be placed on the journalist to protect him from the wrath of the dead man's friends. And even when the embed rules were followed by the journalist, there were many local commanders who just kicked the journalist out.

But this doesn't sit well with the Times who spill plenty of ink quoting pro-ghoul reporters and "experts" whose anti-war sentiment is clear. Plastering dead Americans on the front pages would no doubt make them feel better. How the families feel about it may be a different story.

This is a different issue than photographing the coffins of dead Americans as they land at Dover Air Force base. There again, you are talking about the sensibilities of families with regard to photographing the flag draped coffins. Some families have expressed support for the idea, others are radically against it. And since the coffins arrive several at a time (usually), it would become almost impossible to photograph one coffin and not the other. Hence, the policy of banning photographers altogether.

Perhaps the Times and other media who wish to make an antiwar statement should use their editorial pages to make their point and not use the pictures of dead heroes to further their political agenda.

The Most Incredible Example of Obama Media Love Yet'
Rick Moran
I am tempted to start a regular weekly blog post featuring the funniest "news" report on Obama that shows the reporter in the tank for the candidate.

Even if I don't, this story by a German reporter for Bild comes close to being the most riotously funny love note to the messiah evah:

As thousands waited at the Sieges Saule monument in Berlin to hear Obama's sensational speech, a BILD reporter met Barack all alone - in the gym! Here's the incredible account of Judith Bonesky's meeting...

It's 16:02pm and I've been training in the gym of the Ritz Carlton hotel in Berlin. A man in a suit approaches me and says: "Barack Obama is about to come and train ..." Shortly after half past four and he actually arrives! Barack Obama is wearing a grey t-shirt, black tracksuit bottoms - and a great smile!

"Hi, how's it going?" asks Obama in his deep voice. My heart beats. "Very good, and you?" I say. Obama replies: "Very good, thank you!" (HT: Media Blog at NRO)

What makes it so funny is that the reporter is being dead serious. And she is barely able to contain herself when The One begins to work out:

He goes and picks up a pair of 16 kilo weights and starts curling them with his left and right arms, 30 repetitions on each side. Then, amazingly, he picks up the 32 kilo weights! Very slowly he lifts them, first 10 curls with his right, then 10 with his left. He breathes deeply in and out and takes a sip of water from his 0,5 litre Evian bottle.

Shortly before five o'clock Obama comes over and sits directly next to my cross-trainer on the mat. First he does 10 sit-ups, then stretches. Then he looks at his watch and says to his bodyguard: "It's time, let's go." Quickly I ask: "Mr. Obama, could I take a photo?". "Of course!" he answers, before asking my name and coming over to stand next to me.

"My name's Judith" I reply. "I'm Barack Obama, nice to meet you!" he says, and puts his arm across my shoulder. I put my arm around his hip - wow, he didn't even sweat! WHAT A MAN!

The poor, deluded girl. Not that it matters but I don't think the human body has too many sweat glands on the hip.

However, I have to agree with her final words except I would have punctuated the sentence a little differrently.

What, a man?

Hat Tip Ed Lasky

James, for the most part I agree with your article.

But what the Obamas and his ilk represent to me is a certain type of person who uses victim mentality to get what they want; its a tactic, that is often employed at the emotional level for people to feel sorry for them. Perhaps you have someone like this in your family, or work with them... nothing is ever good enough, and they always have it worse than others. In the extreme, they feel that they deserve to be pitied and all their bad mistakes should be forgiven because they've had it so hard.

These are the people who always whine when they get sick, who agonize and complain about their sprained ankle when others are in wheelchairs; who are literally depressed because they own a Nissan instead of a Mercedes; who are ashamed of their family background because they didn't grow up in a rich family and had to do without. These type of people have an innate failing to see the blessings and good things in their lives. For some, this is a powerful motivator, who use it to obtain fullness and/or help others who share similar woes.

But unfortunately, when not dealt with this feeling of emptiness leads to a greedily grasp for power and control. Whether it ends up in manipulating their own environs and relationships, or like the Obamas, on a more massive scale. It is intrinsic to the human condition. Yes, unfortunately, these people are out there who believe this "emptiness" allows them to act however they want; than they use EGO to bully everyone else.

What the Obamas try to do is equate their problems with others'. They try to connect with the voters through similarities. In essence trying to convey that they understand our daily problems because, they too have them -- financial struggles and tough issues growing up; for them, it was one of racial identity crisis.

Michelle made similar comments like those in Mich regarding their debt issues and struggles with the family budget when she came to Milwaukee, WI. It had the reverse effect here since thousands of factory workers had just lost their jobs to downsizing and factory closings. But this wasn't reported in the MSM.

Personally, her comments of them having it so hard made me want to spew on my TV. How dare they complain when people just lost JOBS, their livelihood with no similar jobs being offered in the near future. She just reeked of insensitivity and seemed so out-of-touch.

And, I agree that Germany was the epitome of such victim mentality because it was ingrained into the national consciousness, while the youth were indoctrinated with the Nazi's belief of its inherent Aryan superiority.

Indeed, Obama's own movement has both these qualities, and is creating generational divisions so deep (as evidenced by Marcell's comments) that is truly scary. Instead of the generational gap of the 1960's, you see that the young Obama followers see this as a time to abandon reason and get even more violent; they are already used to manipulating their world and having immediate technological access at their disposal; nearly every whim can be fulfilled. And they are treating this election season like its some type of sports event, something base and tawdry (like in faux reality shows). Not the esteemed competition in the market of ideas it deserves. Personally, I am not impressed when a candidate spends his entire time trying to make himself look cool.

But, as I've said, I think this victim mentality is an intrinsic human quality, and not one that just pertains to certain political or social groups which do have genuine concerns about society and strive to do what they deem important to help the human condition. The America Love it or Fix it mentality.

What Obama and his Obama Youth is saying to us instead