A blind spot for Leviathan

4th December 2008

‘Financial writers’ and establishment economists seem to live in a different world.  They often bring to mind bats, hanging upside down in the cavernous, soaring rafters of a barn, analysing the world from a great distance, and upside-down. Take one Diana Henriques – described as a ‘senior financial writer for the New York Times‘.  She was on the Rachel Maddow Show on US TV last night, reviewing the gargantuan $700 billion bail-out of US banks.  In defence of the opaque and unaccountable activities of the Treasury team dishing out taxpayer largesse she said this: “No-one could lay out a war-game for this (crisis) in advance”. (Ehem, correction: some were well prepared, and could have.)  But it was the next remark that took my breath away:

“We have not had any additional financial Leviathans collapse on us lately…that is a good sign…as another situation like that would terrify the market at this time…. I don’t think the financial markets are braced for a big insitution failing, and that certainly is a gain….”

Lets break this down slowly and quietly. There have been no ‘additional Leviathans collapse…..It is certainly a gain….that financial markets’ do not expect a big institution to fail.  And another such failure, would ‘terrify the market’.

Forgive me, but from where I stand, on the ground, things look very different from this frankly batty, finance-centred perspective.  From here I can see the biggest Leviathan of them all failing.

Its called the United States.

The idea that the NY Times and stock markets are cruising along, relaxed because no financial institution looks likely to fail, while the United States economy has shed more than 1.2 million jobs this year, is frankly, astonishing.  Today the US Labor department announced that 4.09 million – I repeat 4.09 million people – claimed unemployment benefit in the month up to 22nd November, 2008 – the highest in 26 years.  On this same day, tens of thousands of jobs in the auto industry hang in the balance, with workers, their families and communities threatened by the shock of unemployment, the loss of pensions and healthcare – not to mention marital and mental breakdown and social disorder.  On this day, thousands of dealerships and suppliers to the Detroit auto industry face bankruptcy. The idea that while this is happening, the absence of a bank failure ‘is certainly a gain’  – says a lot about dysfunctional ‘financial writers’ and stock markets.

That one is reassured because the poor darlings in the finance sector sleep more soundly thanks to the $700 billion bail-out,  while US consumption (70% of US GDP) is in free fall, demand collapses both at home and internationally, home sales and prices continue to spiral downwards, and orders for durable goods implode, shows a real blind-side for the real Leviathan – the US economy.  That one can comment airily from the lofty rafters of the New York Times while the US builds up what Prof. Roubini calls a tsunami of debt to finance domestic bank bail-outs (TARP, Fannie and Freddie Mac, Bear Stearns, AIG, Citigroup) and magnifies these with a massive trade deficit and rising external  liabilities, which in turn will weaken the dollar and raise real interest rates….shows that the world seen from those draughty New York Times rafters looks a whole lot different.

Batty, in fact.