北京麻雀 (Sparrows of Beijing)
无 Void 2016 - 5
7
The Panic of 2008
This isn't your father's recession: the temple of your deceased father, or as Krugman quipped about 2001 - your grandfather's, it is panic from the 19th century, where a house of cards comes completely unraveled with a bank failure. The fall of Lehman will be the precipitating event for the panic of 2008. Traditional options are dwindling and plan to sell. And Paulson is fiddling while Rome burns at midnight.1 It is a pheasant under glass backwards and against.
It is panic. The Dow is crashing as I write this. Though it is bouncing back, The pressure to do something in Time is enormous. A distressed opening for the void.
How those worked was that banks would lend on some new venture, trade paperback, and forth, and then one would go bust down to their sectaries underpants. Like Lehman Brothers, for example, then all the crisscrossed agreements would unravel, people would engage in runs on the bank, and holders of stocks would dump them to cover the real debts with a greasy smile. Like selling niobium on the street with salamanders. Only get a different surname as the poets did in the Tang Dynasty.
Right now, the belief is that PIMCO and others who insured Lehman's defaults are selling. The even step nature indicates that this is not waves of sell orders coming from many directions, but a dolloped out selling. Someone is selling and walking away until the next day, so as not to shut the market down. In 1987, waves just kept coming, and eventually, the market ground to a halt as it was impossible to process them all. In retrospect, it was azadi—“freedom.”2 Look askance at me but hide in a parapet and spoil the child luxuriant. Don’t be shy, don’t be bashful, don’t scared … be prepared.3
This is an orderly panic with the flutter of flags. And it marks the end of the world that everyone reading this has known – full stop. Perhaps we can muddle through this one without fundamental change, by printing paper and then standing in place. But in reality, we need to make changes and dramatic ones. We need to green the American spirit because it is not green supply, but green demand which is the key. If people want black things, then "alternative" energy is more expensive than old energy. If we want green things, then oil is a boutique fuel for specific purposes.
Yesterday's rapid sell-off at the end of the day in New York brought the collapse in share prices full circle, coordinated rate cut did nothing to budge the frozen credit markets which are dependent on recycled petrodollars. The credit crisis is not over until the petrodollar holders say it is over, or until the Democracies act in concert to change the direction of their economies. This is not about green-collar jobs but about the greening of the developed nations to their spirit. Doubt and suspicion reign in the restaurants with huddles gasping for air. No air for you in the mud.
This collapse is being driven by large players because it is not coming in waves of selling where one person sells and then another is forced to in a rainbow. It is coming in very discrete jumps with teeth added in place. This means that it is a few players who know the limits of the system dumping and then coming back the next day. The world's equity system is like a bank, and there is a run of one or a few large depositors in that bank. The general belief is that it is those who backed Lehman's debt. It was a reasonable choice, economically. Then of the future past: crossbars in a carriage.
Not only is John McCain melting down and bringing the Democrats within shouting distance of 60 in the Senate, but the oil patch bust in Canada may prevent the Conservatives from getting their coveted majority government. The political fall-out is likely to reverberate across elections and take many forms. The banks are the pushers, and we are the addicts. Such are the forces of Nature.4
But these calculations must stand aside from the most crucial step, and that is to cast off the fetters of oil as a previous era cast off the barbarous relic of gold. To do this means to inject fresh dollars into the banking system backed by something. That something, in 1933, was assets on the books. That something in 2009, must be revenue streams. From inflationary silver, the world turned to deflationary gold, from gold to assets. From assets to revenue. Borrowed from the future.
The reason this is essential is that, but for various tricks with mirrors, we now have deflation. That is, counting the losses of the housing portion of assets, the consumer is facing deflation, and the asset buyer is as well. Why spend today, when money can be put under the mattress of short-term T-notes? That's the problem, some parties are breaking the global equities piggy bank, and there’s no reason for anyone to invest until the bloodbath is over. Why lend to your competitor today at pennies on the dollar, when you can buy him for pennies on the dollar tomorrow? It is like a union, which constantly negotiates a tiered contract - selling less of the future to hold on to a slice of the present. Be good Johnny.5
The solution then is to take the money out of Paulson's hands, give it to the FDIC with a simple mandate: buy up banks that are not lending and then start lending in an ever-widening circle between them. "Too sick to lend is too sick to live." This should be the mantra. Banks lend. If they stop lending, they aren't banks, but electronic bricks. Health insurance is not car insurance - and even a caveman knows that. The problem is that America wants to be a liberal nation but has not come to grips with the fact that must be a liberal people. Only in Bloomingland is $500,000 considered “middle class.” I only like dreaming.6
The way to manage this transition is to flood the world with short-term US debt, forcing up short-term rates, and then both forcing money out of treasuries and giving a supply of money to directly lend as an asset base. The FDIC, and not the treasury, should take over banks that are clogging the system, and complete the clean-up of toxic waste by a simple expedient: cram down CDS holders to the amount of default insurance that could have been afforded based on what they can pay going forward. What is best in us we do not know – we cannot know.7
As the FDIC insured deposits and subjected banks to examination and control, so too must the new era realize that we are now insuring equities, and thus must charge for crash insurance. I wanna watch you bleed.8
However, to have the revenue going forward, we must create an activity to go with this revenue, but it must be an activity that will move people to engage in commerce. There has been a great deal of focus on "green-collar jobs" but most of these consist of subsidies to make energy more expensive. We have "green-collar" jobs that involve "clean coal," which is as much of an oxymoron as "clean soot." Fast clean jetliners. Parce-que.
This panic means that the market is saying that everything we have done in the last decade: the Iraq War, the billionaire building, Homeland Security, the Credit Bubble, and the Housing boom, is worth nothing. The past is being discounted, and only the future has any value at all. It is green demand. That is, we must want a thing that can be supplied with less carbon. Once we want those things, or demand is directed towards them, a green supply of the right kinds can be invested in, and there will be economic activity and jobs that come with that. Its next step is to admit that everything done in the age of Reagan, was only buying time. Japan is now inching closer to the lows of the 1980s. You know, back when people thought that REO Speedwagon was cool. When you could start a fight over VHS and Beta. Those 1980's. No one else could heal my pain.9
The problem then is the lack of investment supply. Not enough businesses that can pay the real cost of money. While Barry is right about the need to fix the problem, the LIBOR spreads don't suggest a lack of credit confidence, they suggest deflationary expectation. Like the ticking of the clock.10
The paralysis in Washington is obvious. In effect, this should be done as soon as the dust settles from the election, and the newly elected President should take power. This can be done formally, by the resignation of the Vice President, the appointment of the President-elect, his approval by the Senate, and then the resignation of the President. Or it can be done informally. But each moment that the truly white-haired madman in the White House clings to power is another moment that cannot be replaced. Each day like today means trillions of dollars are evaporating, and it will begin bankrupting otherwise healthy institutions who will then have to be bailed out in turn. In turn. Intern. Eturn retorvaunche.
If not, Congress might well show some sense, and do what ought to have been done and ram through an impeachment. Conviction is more sanity than the public can muster. That would be the threat to Bush (or a shrub) to comply: leave and you leave clean, stay and we will impeach you, and humiliate you before history, in fifths. I will obey each and every golden rule.11
At that point, the plug will be pulled on interbank lending by the bid process, because the government will own the banks, and will lend. But we are in the deflationary expectation trap: why spend or loan a dollar today, when tomorrow it will buy a great deal more? Liquidationism was part of what created the Great Depression, but a great deal of the old needed to be liquidated. Either this will be through bone-crunching deflation, or it will be by creating a monetary system that can expand with a much broader range of economic activity. Part of me wishes that JKG had lived to see this and chuckle. A fawn looking over a Japanese cicada. Phoneticalni of course, like a Buddhist nun.
This is a new epoch, until now the Fed sanitized inflation, and Congress and the President were free to spend. The deficits came at the price of higher interest rates, but we allowed some interest rates to be subsidized namely housing. Housing was over-developed because it was underpriced. Now the Fed is going to have to have interest rates pegged low, because of interest on the deficit, the need to keep housing propped up, the need to directly loan, and the need to provide such stimulus as can be had. Therefore, the fiscal authority will have to control inflation. One reason that politics had been so polarized is that those who controlled the treasury could rob everyone, to pay their constituencies with pork. When this decade we both spent and had low interest rates, it gave out. Not in the ways that perhaps people expected, but a credit bubble leading to a panic is a perfectly 19th-century thing to do. Or 1700s if you like a lift on a Badinerie. The fall of Eugenics.12
The time when politicians could spend irresponsibly and allow the Fed to clean it up is over. This doesn't mean budget-cutting per se, we are going to be running deficits. The question is what we are going to be buying with those deficits. Presently we are buying a war in Iraq, happy billionaires that get tax breaks that we then pay for by borrowing the money from them. The old-style panic happened because in eras of hard money, places where there was hope for vast profits created rushes, for gold for example, or silver. However, as often, they were illusory. Since there was no way to print more gold or silver, or whatever combination was hard money, the only response was to let the panic burn itself out, and then start over again. There is no way to print more oil and the things that make it. By incident or accident, the world gets warmer with more greenhouse gases. D’abord. D’sys.
This means that there are three responses. Let it burn. Pretty lights. Print money, and then try and recoup it later, buying, for example, slashing social security benefits. Create a new form of money and recapitalize. Almost everyone realizes that the first will not work, but until there is action, it may happen anyway. But the difference between the last two is simple. Do people just make do with less? Or do we create more of something else? If you count on the costs of global warming and oil depletion, we are not producing GDP, we are robbing it from someone else, many not even born yet, who will not have oil or not have an environment. The honest thing to do is to radically change direction. But honesty is in very short supply – and one of the parties has forgotten what they stand for. Drone without oboe. There is a crematory in the grove beyond.13 Like a lion or other mythical beast beyond in wool.
Everyone is a liberal now, or almost. The question is who is going to be a smart and honest liberal, and who is going to not try and pretend that there is another round of Reaganomics for us all? 14 A moment of choice for us all, braving the arrows of wisdom, hoping for one last throw at the economic table, where climate change has the winning hands. Moving forward with all my breath.15 And grinding out the last wheezes of breath that closes the beginning of the moonlight sonata. Wǒ ài nǐ.
Do we possess the revolution round wind or fly by wing upon a marque bird of fantasy flight,16 to love which drives the sun and other stars.17
fin du texte18
Afternotes
There should be other notes in The Accident, but they will remain secret from the beginning.
Remember: “The past is a foreign country. They do things differently there.” That is The Go-between opening line by L.P. Hartley. The rest of the book is worth reading too.
Some of the poems are derived from 500 Common Chinese Idioms, The New Yorker, Distant Mirror as well as other places. My thanks to the writers especially Liwei Jiao and Barbara Tuchman.
As well thank you to the author of Infinite Jest, for which he will be ever waiting for the punchline, and House of Leaves, which many people will be scrutinizing for the punchline for years.19
Yichen Shi Red Ribbon is still your best novel and in the fullness of time, I am sure it will be published. On your terms.
Christopher Lydon for fortification.
For Matt Stoller for keeping on keeping on.
Vale Iris Chang.
There are, as yet, unpublished, essays on the hidden sonnets of John Milton’s Paradise Lost and Shakespeare’s rhyming pattern in his sonnets.
Ken, this is baroque and ornate.
Thank you for the Beethoven violin sonatas. Susanna.
Maybe one day you will hear the music that is in the text. But it matters not at all.
Thank you, T.S. Eliot, for giving me the right to use Dante.
I hope one day that a proper rendition of White Noise will reach celluloid or what passes for it.
What would Hu Yaobang do? Would The Wall be approved?
Yes, there still is editing to do.
Because the sun is eclipsed by the moon.20
1 In the fine script, Ardelle Li broke a pencil while writing:
Confront the Police
Thursday crowds killing overran
officer charged with murder
midnight building ablaze
celebratory intersection alcohol circulated
copyright disbelief
spinning donuts detached disturbed
threatening residential neighborhoods
Cordoned Friday protesters
thousands and millions and billions
Third World precinct station
Boulevard in commercial
parameters concrete systemic
discouraged destruction demolish
advocating action
reinforced deploying grenades River prelates
Gilet Jaune
tomorrow
“I’ll be Bach”
2 Yichen Shi, Red Ribbon, unpublished novel
3 A variant on Tom Lehrer, Be Prepared.
4 Schopenhauer, The World As Will and Representation, 45, Translated Payne
5 Men at Work. “Be Good Johnny”
6 Men at Work. “Be Good Johnny”
7 Nietzsche, Beyond Good and Evil, Peoples and Fatherlands 249, Translated Kaufmann.
8 Guns’N Roses, “Welcome to the Jungle”
9 Sixpence None the Richer, “Kiss Me”
10 A reference to Qian Zhongshu, Fortress Besieged
11 Men At Work, “Be Good Johnny”
12 Sussman, The Myth of Race, Chapter 7
13 While the line is altered from Mishima, The Decay of the Angel Chapter 14, the is an allusion to Akutagawa, “In a Grove.”
14 Borrow from the future with climate.
15 Modern English, “I Melt With You”
16 Pun in Chinese on “sparrow.”
17 Dante, Paradiso, XXXIII.145
18 Jouissance
19 David Foster Wallace and Mark Z. Danielewski.
20 8 April 2024.