Wednesday, January 2, 2013

Soon You Will Be In Our Place - One Cannot Allow the Illusion to Falter, Even a Little, to the Bitter End (Krugman On the Bitter-End Cliff Hanging)

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As we now see the struggles ensuing from the playing fields of the end-of-empire planners, it's instructive to remember those of the past.

The end of empires and the accompanying sea change of social organization are always remarkable for their extremes of human behavior. The almost frenetic preoccupation and adherence to the Nazi ideology in the latter stages of the war, when it was obvious to any rational observer that they could not win, is remarkable. I had been particularly struck in my reading some time ago with the 'wolf packs' of Nazis who had raged through Berlin, rounding up old men, and even boys who had not joined the Volkssturm, and hanging them, even while the Russians were shelling the Reichstag. It never made sense to me until today. 

"The radio announced that Hitler had come out of his safe bomb-proof bunker to talk with the fourteen to sixteen year old boys who had 'volunteered' for the 'honor' to be accepted into the SS and to die for their Fuhrer in the defense of Berlin. What a cruel lie! These boys did not volunteer, but had no choice, because boys who were found hiding were hanged as traitors by the SS as a warning that, 'he who was not brave enough to fight had to die. When trees were not available, people were strung up on lamp posts. They were hanging everywhere, military and civilian, men and women, ordinary citizens who had been executed by a small group of fanatics. It appeared that the Nazis did not want the people to survive because a lost war, by their rationale, was obviously the fault of all of us. We had not sacrificed enough and therefore, we had forfeited our right to live, as only the government was without guilt."
- Dorothea von Schwanenfluegel, eyewitness account, fall of Berlin 1945.

I was reminded of this phenomenon by the trial of Sophie Scholl, and her words to the judge Roland Freisler, as he ranted his virulent condemnations at them. 'Soon you will be in our place,' she said to him. He did escape the hangman's noose at Nuremburg, but only by virtue of an Allied bomb in 1945. When his body was brought to hospital an orderly remarked, 'It was God's verdict.' He was buried in an unmarked grave, without ceremony and unmourned. Much like his beloved Fuhrer.

This is an almost perfect illustration of the credibility trap. One cannot allow the illusion to falter, even a little, to the bitter end. And as the fraud fades, the force intensifies, becoming almost rabid in its deflection. Because that illusion has become the center of a hollowed people's being, their raison d'ĂȘtre, a mythological justification for their existence. If the ideology had been a lie, then they are not heroes and gods on earth, but monsters and criminals, and their life has been self-serving and meaningless, without significance and honor. And that is the credibility trap. It is the impulse for the leaders to keep doubling down in the hope of a win, until exhaustion and collapse. And this is the US financial system today."

"Treason doth never prosper: what's the reason? 
Why if it prosper, none dare call it treason."
- John Harrington

Chris Hedges on "Empire of Illusion"

And as it will not be covered by the mainstream media (again, as usual), it reminds me of the following (remember the banking scandals?), courtesy of Digby's fine reporting:

Saturday, July 14, 2012

In-Depth TV News Coverage Is Too LIBOR-ious

by digby

In case you are still wondering, here's an informative discussion of the LIBOR scandal from Eliot Spitzer:

According to Media Matters,with the exception of Spitzer and Chris Hayes, TV news has pretty much avoided even mentioning this scandal, much less trying to explain it.

The papers are getting a little bit more aggressive. This is the top headline story in the dead tree version of theNew York Times today:

New York Fed Knew of False Barclays Reports on Rates

By Michael J. De La Merced and Ben Protess

The Federal Reserve Bank of New York learned in April 2008, as the financial crisis was brewing, that at least one bank was reporting false interest rates.

At the time, a Barclays employee told a New York Fed official that "we know that we're not posting um, an honest" rate, according to documents released by the regulator on Friday. The employee indicated that other big banks made similarly bogus reports, saying that the British institution wanted to "fit in with the rest of the crowd."

Although the New York Fed conferred with Britain and American regulators about the problems and recommended reforms, it failed to stop the illegal activity, which persisted through 2009.

British regulators have said that they did not have explicit proof then of wrongdoing by banks. But the Fed's documents, which were released at the request of lawmakers, appear to undermine those claims.

The revelations fuel concerns that regulators are ill-equipped to police big banks and that financial institutions can game the system for their own purposes.
Ya think?

And one more blast from the past.


January 2, 2013, 10:25 am

That Bad Ceiling Feeling

More thoughts about the fiscal deal:

One good thing is that the deficit scolds are furious: they had their hearts set on exploiting this crisis to push through benefit cuts, and it didn’t happen — part of the larger good news that Obama didn’t gut Social Security or Medicare this time around.

And as I pointed out yesterday, the numbers are disappointing, but the disappointment isn’t that big a deal. Let me offer more detail on that.

Before the deal, it was widely expected that Obama could get $800 billion in revenue. You may wonder how this reconciles with the much bigger numbers in his original proposal; the answer is that part of this came from the estate tax, on which he couldn’t count on backing from Senate Dems, but most of it came from going beyond just getting rid of the Bush tax cuts — he was proposing that itemized deductions be turned into tax credits at a maximum of 28 percent, which would have collected a lot of additional revenue from people in the 39.6 bracket. And that wasn’t something he could get just by going over the cliff.

So the disappointment, to simplify, is that he got $600 billion instead of $800 billion. Now, you want to scale that by the size of the fiscal problem.

The deficit is no problem now, but eventually we will emerge from the liquidity trap, and at that point you do want to start stabilizing debt. How big a deal is that? If you look at the CBO numbers, under their “alternative fiscal scenario” (Bush tax cuts extended and realistic spending), in 2022 the deficit would be 5.5 percent of GDP, about 2 percentage points higher than would be required to stabilize debt at 90 percent of GDP.

So what we eventually need is something like 2 or more points — probably more, because aging and the rise in health care costs won’t stop in 2022. Now, that’s nothing like the catastrophic sense about the budget you get from the usual suspects, but it is big compared with anything we’ve seen so far.

As I pointed out in the last post, nominal GDP over the next decade should be around $200 trillion.

An $800 billion revenue take would be 0.4 percent of GDP; the $600 billion Obama got is 0.3 percent. Not big stuff, and either way the big fight over taxes versus benefit cuts is still to come.

So, why am I feeling so despondent, and why do so many other progressives, like Noam Scheiber, feel the same? Because of the way Obama negotiated. He gave every indication of being more or less desperate to cut a deal before the year ended — even though going over the fiscal cliff was not at all a drop-dead moment, since we could have gone weeks or months without much real economic damage.

Now, given his evident antsiness to cut a deal in this case, how credible is his promise to hang tough over the debt ceiling, which is a much brighter red line? He may say that he absolutely, positively won’t negotiate over the ceiling — but nothing in his past behavior makes that believable.

Maybe this time will be different. Maybe the Treasury is secretly preparing to invoke the 14th amendment, or issue a trillion-dollar platinum coin, or direct that the whole budget gap be taken out of spending dear to Republicans. But I have to say that I now expect Obama to cave on the ceiling; and so, of course, do the Republicans, which means that the crisis is going to happen.

The only thing that might save this situation is the fact that Obama has to be aware just how much is now riding on his willingness to finally stand up for his side; if he doesn’t, nobody will ever trust him again, and he will go down in history as the wimp who threw it all away.

But even that may not be enough. I guess we’ll see.

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