From last week’s Tuesday Morning Quarterback:

Meanwhile, previous AIG CEO Edward Liddy repeatedly said he was working “for $1 a year.” He asserted this on “60 Minutes” and in sworn congressional testimony, and was broadly praised for his dollar-a-year service. Now it turns out he was lying.

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I don’t know about anybody else, but this whole treasury/bailout/banking thing is just mind-numbing and overwhelming and I find myself in turns going from angry to confused to depressed to giggling and I’m just not sure what’s going to happen, but it doesn’t seem promising.  My wife remarked to me earlier that a lot of this economic stuff is probably just going over my head – which it is, to be sure – but I remarked back that maybe the very fact that so much of this is so bloody complicated and hard to understand is part of the problem itself. There is really no reason economics should be terribly complicated.  It should be difficult to put a finger on, as it is really just a study of human behavior and interaction which are mercurial subjects by nature – but it shouldn’t be so outrageously complicated that an entire nation gets suckered and then can’t make heads nor tail of half the terminology used to explain what the hell just happened.

Economics really ought to be the study of trade; and trade really boils down to two things: people buying and people selling.  That’s what a market is.  That’s economics.  When it gets as messy as all of this you know you’re dealing with black magic and deceit.  When we depart from the realm of good, tangible exchange of goods and services and enter the realm of derivatives and bailouts and TARP funds and pension scams and ponzi schemes and an overarching system that, quite frankly, is built upon a mountain of bad, bad capitalism, then you know that something’s wrong.  The thieves are all around us – in the highest halls of business and government – and they’re getting away with some of the biggest thefts in history.  Perhaps this is why the ancients warned against usury.  “Neither a borrower nor a lender be.”  Perhaps this is why we need a radical economic realignment.

Now for some link madness:

Michael Hudson:

Here’s the problem with all the hoopla over the $135 million in AIG bonuses: This sum is only less than 0.1 per cent – one thousandth – of the $183 BILLION that the U.S. Treasury gave to AIG as a “pass-through” to its counterparties. This sum, over a thousand times the magnitude of the bonuses on which public attention is conveniently being focused by Wall Street promoters, did not stay with AIG. For over six months, the public media and Congressmen have been trying to find out just where this money DID go. Bloomberg brought a lawsuit to find out. Only to be met with a wall of silence…

There are two questions that one always must ask when a political operation is being launched. First, qui bono –  who benefits? And second, why now? In my experience, timing almost always is the key to figuring out the dynamics at work….

The moral should be: The larger the crocodile tears shed over giving bonuses to AIG  individuals (who seem to be largely on the healthy, bona fide insurance side of AIG’s business, not its hedge-fund Ponzi-scheme racket), the more they will distract public attention from the $180 billion giveaway, and the better they can position themselves to give away yet more government money (Treasury bonds and Federal Reserve deposits) to their favorite financial charities.

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My personal favourite line/analogy,

People are angry about the AIG bonuses and so they should be, much of the country is hurting and it’s insult to injury to watch the folks who caused that harm get effectively rewarded. Obama getting out in front of that outrage also makes a certain political sense, such outrage can be put to good use in galvanizing support for a particular course of action. But populist outrage turned support is a bit like hiring berserker mercenaries for your army: good at laying waste to all that stands in your way, difficult to control throughout the entire process.

I guess there’s only one guy to blame for the AIG bonuses, so next time Obama revs up the populist righteous indignation he knows who to direct it at….  [Read more →]

Clive Crook writing in The Financial Times:

Political capacity is the real key, and here is where I would question the administration’s judgment. The prospects for Mr Obama’s agenda depend on his ability to marshal political capital and spend it wisely. In the simplest terms, he needs to stay as popular as he can for as long as possible. Once his approval ratings slide – and they show the first signs of doing so – he is sunk. This is why the “overload” critique is so significant: not because it is correct on the merits but because it is plausible and bipartisan and will erode his standing with the electorate.

I’m not sure I’ve ever really understood this mirage called “political capital” or its real relevance to actual political praxis (at least I’ve never seen a concise practical definition of the term), but here of all places I find it remarkably low-ball compared to the enormity of the tasks facing the country.  In fairness, I’m one of these goofballs who doesn’t think presidential candidates ought to have Health Care proposals and the like as it reinforces the notion that it’s The Executive’s job to somehow shape (that specifically) legislative policy in this country.

Regardless, I agree with Mr. Crook that “political capacity” is the real key.   leave the Clive train however at the “political capital is the primary means by which to marshal political capacity” stop.

Let me suggest an alternative mechanism.  What if the political capacity tracks veer off into far darker trajectory then Crook’s analysis suggests?  What if the problem is structural and at the heart of the entire politico-railroad system itself?  Simply, what if what we are seeing is the slow burn of the US governmental order to really achieve anything of value (Democrat or Republican, with and without a President with high approval ratings/political capital?).

When The Executive Branch (Treasury Dept. and all) can’t stop an AIG from continuing to play the incestuous circle jerk money game it’s been playing for years now that caused this problem in the first place, what else are we to think?  When Mr. Political Capital himself has to grandstand, when bipartisan (uh oh time) anger is the order of the day,  what else is this for those with eyes to see and ears to hear but the Emperor and his retinue shouting in public sans apparel?

Here I come back to Philip Bobbitt’s analysis of politics evolving past the nation-state to what he calls the market-state:

At the heart of his analysis is the concept of the ‘market state’, the millennial successor to the nation state. He explains: ‘You can see it here in Britain – when states go from reliance on law and regulation, so characteristic of the nation state, to deregulating not only industries, but also women’s reproduction. When states move from conscription to an all-volunteer force to raise armies; in the UK you saw this development in the policy of top-up fees for college tuition. You see it in America with welfare reform when we go from direct transfers, and workmen’s compensation, to providing skills to enter the labour market. In all of these instances you are seeing the beginnings of a change in which the state says, “Give us power and we will maximise your opportunity. What you do with it – that’s up to you. We will not assure you equality, and we will not assure you steadily improving security, but the total wealth of the society will be maximised.”’

We are moving, in other words, to a new global constitutional order without fully realising it.

By a nation-state Bobbitt means not only a certain kind of territorial integrity with a national government but also a common social history, a sense of common shared values, and specific policies (e.g. Social Security) meant to enact politically that sense of shared history and shared future.

For Bobbitt this legal-political-military-technological mode of formation came into being strongly in the later 19th century.  Prior to the nation-state, you had what Bobbitt calls state-nations (e.g. Articles of Confederation Order, Colonies, early US republic).  In the US you see this shift with the rise of The West, the end of the Civil War, Lincoln’s reshaping of the Constitutional Order (“no outs” for anybody) and the trans-continental Railroad.  In Canada it comes through the (roughly contemporaneous) move towards formalized Confederation.  The nation-state, defined by Weber as “monopoly of the means of violence within one’s boundaries”, really came into its own in the early-mid 20th century with the more formed nation-states (The West and the Soviets) expanding their reach across the planet–usually with disastrous consequences by drawing nation-states on maps for prior than nation-state political realities.

But even then Bobbitt says, at its height of the nation-state power, the downward slope was visible.  De-colonization led to a mass re-population/migration of human beings from the formerly colonized world to the previously colonizing world.  This mass of immigrants with different histories, different generational sense–which in the West is really built around WWI, Great Depression, and WWII–undid some of the social glue holding that previous nation-state identity together.  [This last thread is not an anti-immigrant rant].

Obama ran in some ways as a throwback to nation-statehood.  He repeatedly evokes The Civil Rights movement, Lincoln, The New Deal, the Fight against Communism, as well as his reference to a new generation (his so-called Joshua Generation) who like ones before have a special historical calling to fulfill.

But what we have seen to date is a structural inability to respond to the financial issues of the day.  I mean really–is anyone with half a brain really surprised by AIG’s actions?  Is Obama whatever he says (potentially to the contrary) in public honestly taken aback?  Frankly I think it’s worse if he’s not lying to us and faking anger because that would suggest he actually didn’t see this coming (which would open up a whole other can of worms).

In other words, per Bobbitt’s predictions, markets dominate national governments.  In other words, nation-states are crumbling under pressure from above.**   This problem isn’t relegated to the US alone by any stretch.  Somehow I doubt China’s ruling class, whose economic policy is a variation of the earlier US industrialization policy of the 18th/19th centuries, will be able to hold back this flood.  When Alexander Hamilton initiated the US protectionist policy (like the French and British before him) he was doing so in an era of far less technological speed and permeability/transparency across the globe.  Likewise the EU is in real trouble as its unwieldy bureaucracy is behind the curve on responding to this enormous market downturn.

A real danger it seems to me is that the financial implosion accelerates at such a rate that Bobbitt’s market-state does not yet have time to ground itself, to get it’s legs, and yet has done enough damage to the nation-state framework such that it (nation-state) is undermined and crumbling.  In that scenario, some other None of the Above Option comes into play which could be very difficult to maneuver through.  The market-state is predicated on increasing maximum/absolute total wealth in the society (even if not equitably distributed), but what if the market-state can not deliver on even that minimum requirement?

I’ve written before about some potential ideas/frames for a market-state age (e.g. Commons and Legal Frame for Long War), but this recent set of events suggests to me a need to think more deeply about the processes of governance in the 21st century.  As a seemingly minor (but actually quite serious) example is this article on the software capacities (or lack thereof) of the White House.

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** As to pressures from below, that sap the strength and effectiveness of nation-states, see the rise of criminal gangs, insurgents, terrorists, resistance fighters (whatever term you prefer) and their ability to defeat large scale armies over the long haul.