[Marxism] Hoping new bubble is on way, Wall Street jumps at 1tn bailout for bad paper

["Fred Feldman" <ffeldman@xxxxxxxxxxxxxxxx>]

Basically the whole course of Bush-Obama policy on the economic crisis has
been founded on creating the basis for a new bubble to float the economy
through the current crisis. Whether this can really raise the "real economy"
out of its doldrums on a long-term basis is questionable in my opinion. And
how long such a bubble -- on really worthless paper, stranger-than-
"fictional capital" -- could last is at least equally doubtful. But
capitalist rule is mostly about buying time, even in the name of the "New
American Century."

The whole idea of creating a hot market for the mortgages of people by now
may be living in their cars or homeless shelters is a fascinating concept.
But to some extent, and under given circumstances (these being more
parlous), capitalism can do really weird profitable swindles. Remember this
is all based on the assumption that all that worthless paper is
"undervalued." By purchasing the items from the current owners at prices
significantly above their value, the government hopes it can create a bubble
which will enable them to sell the "undervalued" nothings at a higher price,
and thus create a new "upturn." 

Sounds chancy, but with a trillion dollars behind it, almost any scam can
work for a bit. 

Of course, notice that a billion dollars is now chump change.
Fred Feldman

http://www.guardian.co.uk/business/2009/mar/23/useconomy-timothy-geithner/pr
int 
US shares rise sharply as Wall Street backs $1tn debt bailout
Andrew Clark in New York and Daniel Nasaw in Washington
Guardian, Tuesday 24 March 2009  

Timothy Geithner, the embattled US treasury secretary, won a burst of
approval from the financial markets last night as Wall Street stocks rose
sharply on a $1tn proposal for a partnership of public and private
investment to rescue Wall Street's struggling banks.

In the biggest one-day rally since late October, the Dow Jones industrial
average leapt by 497 points to 7,775, a rise of nearly 7%, as a clutch of
encouraging economic figures fuelled a sense of relief that the Obama
administration is poised to act on the financial crisis.

Last night Barack Obama announced that he would nominate veteran treasury
department employee Neil Wolin as deputy treasury secretary. Wolin, who
served as general counsel at the treasury from 1999 to 2001, was one of
three senior nominees named by Obama.


In an initiative that forms the cornerstone of a long-awaited government
strategy to tackle teetering financial institutions, Geithner proposed that
the treasury would match private funds on a dollar-for-dollar basis to buy
questionable loans and complex derivatives that have clogged up the banking
system, blocking the flow of new loans and mortgages.

The proposal came at a crucial time for Geithner, who has struggled to fill
positions in his team. Over the weekend, Barack Obama batted away
suggestions that Geithner should resign, telling CBS's 60 Minutes: "He's got
a lot of stuff on his plate. And he is doing a terrific job." Briefing
reporters in Washington, Geithner acknowledged that there was "deep anger
and outrage" that imprudent risks taken by financial institutions had
contributed to a deep recession.

"That anger and outrage is perfectly understandable, and if we are going to
get through this we need to engender more confidence in the American people
that we are going to use taxpayers' money effectively and wisely to again
help get credit flowing and help reduce borrowing costs," he said.

The treasury's proposals end a month of uncertainty, inertia and waning
confidence.

Until last night's sharp rise in the Dow Jones, the financial markets had
steadily declined as fears mounted for the future of vast institutions such
as Citigroup and Bank of America, prompting certain economists to call on
the White House for wholesale nationalisation of top banks.

Under the scheme, between $75bn and $100bn of public money will serve as
seed capital. Hedge funds, private equity funds and other private partners
will match taxpayers' funds.

Then the partnerships will be able to swell their firepower as much as
sixfold by borrowing money, aided by a guarantee from the state-backed
Federal Deposit Insurance Corporation, which is usually used to insure bank
accounts.

The initial amount raised is expected to be $500bn, with a potential to
expand to $1tn. The treasury hopes that participants will find long-term
bargains in loans and securities that have proved impossible for banks to
offload.

Geithner said the objective was to restore confidence in banks, allowing
them to return to normal operations: "This will make it easier for them to
raise capital privately because they'll have a cleaner balance sheet."

Obama said yesterday: "The good news is that we have one more critical
element in our recovery, but we still have a long way to go and we have a
lot of work to do."

Previous initiatives to shore up US banks have proved largely ineffective.

Two of the biggest investment houses on Wall Street, Pimco and Blackrock,
lent their support to yesterday's proposals but others were more
circumspect.

Adam Sussman, director of research at the financial consultancy Tabb Group,
said: "The trillion-dollar question is whether the popular outrage over AIG
bonuses and the 90% tax is going to scare some private investors away from
investing alongside the government."



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