Capitalism

Fours days before receiving a second bailout to the tune of $30 Billion, AIG issued a confidential internal memo regarding what could happen if the insurance company failed.

Doomsday scenarios included:

• The potential for cascading failure of US insurance companies
• The potential that US companies in foreign companies could be permanently lost to nationalization
• A run on the US dollar
• Destroy US retirement savings
• General economic meltdown similar to that of Lehman Brothers

Happy reading!

The meltdown of the economy is becoming so common and widespread it has been hard to keep track of everything that is going on. Briefly:

• In Canada, media empires including
  CTV, Torstar, Quebecor and Canwest continue to flounder along with a whole host of other media outlets across the continent.
• At the same time, Canadian pension funds, most of the big banks, Nortel, Walmart Canada, GM and a number of agricultural and mining industries are being hit with massive losses.

South of the border, thing are looking a little rough for the folks in the halls of power.

• Barack Obama is strutting out the biggest budget in US history which looks to (supposedly) raise taxes on the upper classes, cut Medicare to give more people health care and rip into Pentagon spending, military contractors and agri-business. The US economy meanwhile contracted 6.2% in the last 3 months of 2008.
• The "Sage of Omaha", Warren Buffet is sage-no-more having admitted to $11.5 billion in losses.

The Rwandan New Times has an interesting article on how global economic problems are affecting African industry.

The continent’s tourism sector, remittances from abroad and Aid flows will dramatically fall as a result of the global crisis.

“African governments will have to reduce their expenditure because they are not going to get as much aid. Governments should prepare themselves by concentrating on domestic growth to sustain the economies because ultimately even the export market will be affected and there will be reduced sales,” said Betty Maina, Executive Director of the Kenya Association of Manufacturers.

Iceland is nearing economic collapse as its second largest bank has been nationalized by the government.

The most free-market of the Nordic countries, it seems as if Iceland has been too heavily involved in the credit markets for the last 15 years. The Guardian reports:

Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.

In a telling turn of events, Iceland has had to get a loan from cash-rich Russia to help stave off collapse. The Prime Minister of Iceland has reportedly stated,

"We have been calling for aid from neighboring countries and have been turned down. In times of crisis, one has to look for new friends."

Nouriel Roubini, one of the economists who successfully predicted the subprime crisis years ago, has been allowing full access for the time being to his blog: RGE Monitor.

Roubini, once considered a perma-bear (a perpetual pessamist about the economy) has recently looked at banking crises historically to find the best way to prevent a total economic meltdown.

Surprise, surprise, he found that the US $700 billion plan may not be the best way to go. Instead, he suggests that the way Scandinavian countries (Norway, Sweden, Finland) dealt with previous crises, may be the better method.

To understand how this works on a more understandable level, Planet Money, a spin-off of the award winning radio show This American Life has been putting out some great radio about the credit crisis and solutions.

A strange and incredible amount of information is flowing from the Guardian about the inner workings of the $700 billion deal between Republicans and Democrats to bail out the US economy.

It's tough to judge what is real and what is fake but there some incredible stuff coming out.

According to one report, a deal had been reached by all parties until a group of hard-right, free-market Republicans met privately with McCain and threw a new "free-market" proposal into the mix.

Their behaviour at the meeting was a study in contrasts, according to press accounts. Obama, granted deference by his fellow Democrats, led off the debate.

Then [Republican minority house leader] Boehner made his move, throwing down a plan that differed wildly from the one under discussion. McCain, asked for his opinion, stayed silent - and that, according to those at the meeting, was taken by his fellow Republicans as a sign of his support for the Republican revolt.

Ironically, a Republican on the Senate banking committee, Richard Shelby, was doing his best to paraphrase the thesis of Naomi Klein's Shock Doctrine; that in a state of crisis the ideas lying around are the ones which get used:

"They're trying to push this in an emotional state, saying the sky's falling on our heads," he said. "Every time we have rushed to judgment in the past, we have paid for it."

With the bankruptcy of Lehman Brothers, the sale of Merrill Lynch and the subsiqent transformation of Goldman Sachs and Morgan Stanley, the titans of Americas investment industry has now been wiped off the map.

How bad is it and what does it mean?

A couple of US Congress members who had a nice little chat with the US Fed Chairmen and the US Treasury Secretary had this to say last Friday:

"We’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally. Somber doesn’t begin to justify the words. We have never heard language like this."

But is it all a smoke-screen designed to give the Fed and Treasury complete control over bail-out money? According to economist Paul Krugman:

"Mr. Paulson insists that he wants a "clean" plan. "Clean," in this context, means a taxpayer-financed bailout with no strings attached — no quid pro quo on the part of those being bailed out. Why is that a good thing? Add to this the fact that Mr. Paulson is also demanding dictatorial authority, plus immunity from review "by any court of law or any administrative agency," and this adds up to an unacceptable proposal."

Many popular anti-capitalists are interviewed in the Guardian regarding their view on the current sub-prime crisis.

Chris Harman - Socialist Workers Party

"The whole system is unwinding; the other day we saw the biggest nationalisation in the history of humanity and that still wasn't enough.

"This could be a big moment for the left. But we really need to stand up and use the "c" word, say this is a crisis of capitalism and that people are suffering."

Sheila Rowbotham - Socialist feminist

"The problem now - unlike in the 1880s, when people discovered the ideas of socialism, and in the 1930s, when it seemed that communism was the solution - is that the left doesn't have a coherent alternative vision."

Hari Kunzru - Novelist

"In New York apparently, 12,000 jobs went, just like that, and Wall Street represents 20% of the city's jobs and something like 90% its tax base. So there's a definite sense here of systemic crisis.

"This will only genuinely become a crisis of capitalism if people generally become aware that much of the growth and prosperity produced by capitalism is a fiction."

First a series of mortgage companies. Then UK bank Northern Rock. Then Bear Sterns, followed by Fannie Mae and Freddie Mac.

Now another major US bank, Lehman Brothers, is about to crumble under the weight of disastrous decision making in the wake of the subprime mortgage crisis and ensuing credit crunch.

Lehman Brothers controls almost $700 billion in assets. According to the Guardian, the US authorities have authorized emergency trading of Lehman's shares should it file for bankruptcy.

Though the US bailouts of Bear Stearns, Fannie Mae and Freddie Mac were supposed to prevent a 'domino effect' of US banks collapsing, it appears banks are failing anyways.

Should Lehman Brothers, the fourth largest bank on Wall Street collapse "it will be one of the biggest failures in Wall Street history"...again.

BC finance minister, Colin Hansen, has just released a report showing that forestry revenues in BC are down by 36 per cent.

Hansen was quoted in the Tyee's new election blog "The Hook" as saying: "The downturn we are seeing in the forest sector is unprecedented. Since 1993 it has never even come close to being that low."

The pine beetle, sub-prime crisis, high dollar and a series of forestry strikes in BC have all contributed to the downturn which the NDP finance critic Bruce Ralston characterized the industry as being "in a tail spin".

Over $5 trillion in troubled mortgages have been taken over (read: nationalized) by the US government. Freddie Mac and Fannie Mae (the two largest mortgage providers in the US) have been put into "conservatorship" in order to stop them from collapsing.

This is the biggest government bailout in US history and comes on the heels of Royal Bank chief executive Gordon Nixon saying that the global financial system has been "pushed to the brink".

Full Article at Adbusters Magazine.

Despite the privacy invasions and wrongful imprisonments in the Minority Report, the most disturbing scene in the futuristic thriller is the interactive hologram advertisements that read people’s emotions and call out to them by their name. While Philip K. Dick’s vision of a wayward security state still lies in the realm of science fiction, the personalized ads were frighteningly real...