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by Gerhard Illing
Thursday, Oct. 09, 2008 at 10:13 AM
"A recapitalization of relatively sound banks could be vital for creating trust in the financial system. This must happen in a way that prevents privatizing profits while socializing losses. One can learn good crisis management in the example of Sweden's banking crisis in the 1990s
“WORSE THAN IN THE IRAQ WAR”
The financial crisis. With a more intelligent policy, the US government could have prevented the escalating financial crisis, says Munich economist Gerhard Illing. But it ran blindly into crisis. An Interview
[This interview published on: Zeit-Online 40/2008 is translated from the German on the World Wide Web, http://images.zeit.de/text/krisenmanagement-interview.]
ZEIT ONLINE: The House of Representatives first rejected the billions of dollars for the bailout plan of the US government. Now no one knows what will happen. Fear rules the stock exchanges. Is there a way out?
Gerhard Illing: The markets could be reassured with a more reasonable plan stabilizing the American economy. If that succeeds, there are very good chances for overcoming the crisis. The problem is no one knows at the moment whether this will succeed. For a long time, the Bush administration managed this crisis worse than the Iraq war.
ZEIT ONLINE: President Bush, Federal Reserve chief Bernanke and Treasury secretary Paulson vehemently canvassed for the package. Bush repeatedly urged the Congress to agree. What was their mistake?
Illing: They had no plans in the drawer for the worst conceivable case. There are many experts in the US with whom the government could have consulted a half year ago to develop a strategy. It didn’t do this and therefore wasn’t prepared. The original proposal of a relief package by Treasury secretary Paulson was appalling and couldn’t pass through Congress.
ZEIT ONLINE: The crisis is above all a crisis of trust. Even the bailout package didn’t offer any absolute protection to banks from further bankruptcies. What can politics do?
Illing: A recapitalization of comparatively healthy banks could be vital for successfully creating trust in the financial system. This must happen in a way that prevents privatizing profits while socializing losses. One can learn good crisis management in the example of the Swedish banking crisis in the 1990s.
ZEIT ONLINE: How can you hope, despite the prevailing chaos, that the crisis will end mildly?
Illing: I hope for the famous American pragmatism. Sometime or other people will have to reach agreement.
ZEIT ONLINE: Isn’t it much more likely that the chaos will continue at least until the election in November?
Illing: We hope not.
Gerhard Illing is a professor for macroeconomics in Munich.
RELATED ARTICLE FROM THE REGISTER, U.K.
Original URL: http://www.theregister.co.uk/2008/10/03/the_bailout_and_the_pundits/
Sudden outbreak of democracy baffles US pundits
That didn't last long
By Andrew Orlowski (firstname.lastname@example.org)
Posted in Government, 3rd October 2008 18:47 GMT
Comment Something very spooky happened in the United States last week. The chances are you noticed it too, many days before it was reported.
Tuesday found me in New York, on my first stateside visit in a couple of years. The details of the Bailout plan had just been revealed and the slow burn of outrage was apparent everywhere. Admittedly, this was New York.
(Long-time readers will know I was the San Francisco correspondent for El Reg for six years and was frequently asked by Europeans: "What do Americans think of ... x?" To which the only honest answer is, "I can't tell you what Americans think, but here in San Francisco ...")
The outrage isn't the spooky part. The really odd thing is that if you had to rely on the mainstream US newspapers and TV channels - and nothing else - you'd wouldn't know something remarkable was happening. Which is that the Treasury Secretary's Bailout Plan had united parts of America who spend most of their energy hitting each other over the head, in common opposition to the proposal.
It was the moment that politicians dread the most. This was not merely an outbreak of popular discontent, but a phenomenon which breaks down those convenient labels the political marketing people like to use, to shield their masters from people's true desires and intentions. Not just coarse labels like "Left" and "Right" - but the really dumb, patronizing demographic ones like "Soccer Mom" and the nadir of modern politics, those found in Mark Penn's "Microtrends." Niche marketers will have to start from scratch.
Conservatives, libertarians, and lefties all raised objections to the Bailout for very sound reasons of their own. The idea that the state should bail out feckless private enterprises offended both conservatives and libertarians, who take moral responsibility seriously. The left wanted their traditional adversaries put in jail, not given a gift of new lease of life with the public's money.
People discovered that to "Change Congress," you simply need a ballot box - or the threat of one.
All this was reflected on political sites, forums and blogs - but not a hint of this sentiment was expressed by the professional media. So when Congress rejected the Bill on Monday, America's punditocracy expressed its shock. It also reported that the markets were "astonished" - the markets being presumed to have a better grasp of what American citizens want than American citizens themselves.
All week, the media had refrained from comment that might embarrass the political class. In fact, the first professional column I read which was reflected the true feelings of many US citizens around me was written from 3,500 miles away and published in London's Sunday Times.
"To be told that this bill would be beyond scrutiny was more than democratic flesh and blood could bear," wrote (http://www.timesonline.co.uk/tol/comment/columnists/simon_jenkins/article4837722.ece) Simon Jenkins.
Ouch! Your democracy is hurting my consensus
But even after Monday's vote, the cream of America's pundits couldn't quite face up to what had happened. For example, Thomas Friedman retreated further into his fantasy world, from which he could only radiate disbelief:
We’re all connected. As others have pointed out, you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. "Decoupling" is pure fantasy.
There's a man who's a prisoner of his metaphors. Leaping from "we're all connected" (vaguely... somehow) to "you can't let banks fail" is a jump that can only be made if you think your metaphors have astounding metaphysical properties. Maybe Friedman really believes this. Who knows?
Or take David Brooks, who usually poses as the champion of the proles, except when the proles do something he doesn't approve of. He called the Congressional vote "The Revolt of the Nihilists." The dissenting Congressmen, Brooks wrote,
... showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.
You could see what Brooks really objected to was the natural order of things was being upset - how dare people question "expertise"? Or leaders? People don't know what's good for them. (But of course, David does...)
And to confirm that what really peeved (http://www.nytimes.com/2008/09/30/opinion/30brooks.html?em) him was voters getting uppity, he concluded:
What we need in this situation is authority.
Actually, what we need is an open, rational, and democratic debate about a range of choices - and that's something the political and media elites united to oppose last week.
The media had done all it could to keep awkward questions off the air.
Where did the surreal 0bn figure come from? On Friday, we found out - someone at the Treasury had just made it up (http://latimesblogs.latimes.com/washington/2008/09/bailout-plan.html). The Treasury also let slip that the plan had been in a drawer for months. "Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials," Rollcall reported. Oh, really?
Much else was kept off the air, particularly the key issue of whether US banks should be permitted to fail. The unspoken assumption was they couldn't - but they have before, and the financial system has continued.
The anti-democratic sentiment wasn't just confined to superstar American columnists. At the ironically-named OpenDemocracy, a British site funded by the Ford Foundation, the editor-in-chief patronized the bailout objectors by calling them "principled but mad." See how you're not permitted to both rational and disagree? (The site has argued before that people are too stupid (http://www.opendemocracy.net/article/the-lisbon-treaty-and-the-irish-voter-democratic-deficits) to be trusted with democracy).
Dumb and dumber
Was this a conspiracy to keep Americans from seeing the truth? I don't think so, but it is a watershed moment that exposes the media and political elites. These are people who went to college together, and who share the same sense of importance and entitlement. In the memorable words of the BBC's Adam Curtis, neither class knows what it's doing any more, "and they know that they don't know (http://www.theregister.co.uk/2007/11/20/adam_curtis_interview/page2.html)".
Both also have a close relationship to marketing, which claims it has a unique and almost alchemical ability to help politicians "reach" the public. In actual fact, it does something far much more useful for the politicians, by making people a distant, safe, and manageable entity.
Politicians hate democracy and the nasty surprises it brings, and marketing promises to disarm the threat. With "microtrends," people's true intentions can be managed into something that can be addressed with a soundbite, to be mollified with an earmark.
It's a truism that when someone claims an expertise on niche marketing - they really don't have a clue about the world. Finding refuge in atomicity, they've simply given up trying to describe the bigger picture. It's a cowardly choice.
The media's role is simply one of providing comfort and propaganda. Tremors in the micro niches are reported in great detail. But when a political earthquake takes place, the media can't even recognise it. It's literally beyond description - the words aren't in their vocabulary.
The result has left us disenfranchised. The same comforting propaganda that reduces people to a convenient aggregation of demographic labels, is quite useless at divining their intentions, when they are so forcefully expressed.
But clearly, now, the era where politicians, journalist and political marketing experts propped each other up is over, and the internet has helped enormously to destroy their power. The micro-marketing is now junk; the court journalism is superfluous, and deep alliances that the elites tell us are unthinkable and impossible( such as between libertarians and parts of the left) will surely emerge.
As I write, however, the Bailout that Americans don't want is returning, this time weighed down with pork barrel sweeteners for everyone from NASCAR track owners to environmentalists. A few minutes ago, it passed: so 21st Century America's brush with democracy may have been a brief experiment.
But wasn't it fun while it lasted? ®
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