While that’s largely true, it doesn’t mean that only unseen structural forces are to blame. We could debate the responsibility of people like Alan Greenspan til the cows come home (and others have). But we don’t need to – we can look at a much more contemporaneous cause of the ongoing mess.

As Paul Krugman argues, the “dithering” of the Obama administration is a huge worry. There appears to be a bedrock ideological resistance to taking banks into public ownership (albeit temporarily). Hence all the talk of “zombie banks” and the continuing lack of liquidity in credit markets. Nothing has been done – effectively – to track down the toxic debt, and credit markets remain close to frozen.

Kevin Rudd is right to blame ideology for a large part of the world’s current economic woes. But the closest thing America has to a social democratic administration is compounding, not ameliorating the problems.

In any event, it’s been interesting to see some more clarity emerging about the issues surrounding various types of investment funds freezing withdrawals – including the fact that there are 190 000 Australians with such investments. Turnbull has certainly been carrying on as if the problem is of much greater dimensions than that. Bernard Keane raises one salient issue in Crikey:

The demand by cash management funds and mortgage trusts that they also get a government guarantee is one of the more shameless try-ons in an era of particularly refined rent-seeking. Why don’t we guarantee all listed companies while we’re at it? It would be heartlessness of titanic proportions to dismiss the concerns of shareholders about their investments.

It’s also becoming clearer that some of these investment vehicles have been in some trouble for quite some time, though it’s worth noting that in most instances, investors still have access to distributions and dividends even if their capital is temporarily not liquid. But it does look as if the “all the fault of the government and that bank guarantee” narrative is – at best – vastly overstated. Meanwhile, as Keane also observes, the News Limited papers are full of heart-tugging stories about hardship which conveniently support the opposition’s “narrative”.

He raises the question of whether unwise investment decisions made by individuals ought automatically to attract government bailouts.

Christopher Cole sold his New Zealand home last year and invested the entire $600,000 proceeds in failed mortgage fund MFS PIF at the suggestion of a financial planner.

“I was going to buy a house with it but now I’m living in a caravan,” he said.

I’d have thought that it was always well known that you’ve got hundreds of thousands of dollars to invest, on which you’re relying, that you should diversify your investments to reduce your risk.

Without wishing to diminish the plight that this gentleman and others find themselves in, why is it that we’re so ready in this country to thunder about the “responsibilities” those on welfare have to account for, and manage their meagre finances responsibly while relatively cashed up citizens are automatically presumed to have some recourse from the state for questionable investment decisions, taken to chase high returns?

Perhaps Turnbull would care to explain.

Elsewhere: More from Ken L at Surfdom.

In The Guardian, Will Hutton explains why measures to halt the cascading crisis have been ineffectual to date. He might have made more explicit the implication that one of the basic structural problems is that action taken at the level of the nation state can be counter-productive given the disseminations and movements of capital, and that there are real domestic political barriers to coordinated action, as well as all the obvious problems of concertation through institutions such as the EU and the G20.

But he does make this point – harmonising with the note I’ve been sounding repeatedly – very clearly indeed:

There was no effective opposition. The left and organised labour collapsed as intellectual, social and political forces; there was no conviction that any alternative to this shareholder value-driven, financial, ‘securitised’ capitalism existed, or any political muscle to support it even if there were. Mainstream culture moved away from public purpose and fairness; the new priorities were individual self-fulfilment, personal experience and loyalty to self.

Hutton is perhaps more sanguine than I am, though, about the capacity of state action to turn all this around. In essence, he’s making an argument he’s been making for some years – about the virtues of other forms of capitalism than that which has been hegemonic in the neo-liberal Anglosphere. He briefly had some success in influencing Tony Blair in the early days of New Labour – in opposition, to be precise – in pushing ideas about “Stakeholder capitalism”. Whether a reorientation to a capitalism focused on the medium rather than the short term and on the real rather than the financial economy would work now – or whether as John Quiggin seems to think the Gordon Browns of the world are predisposed to be pushed, however much they might kick and scream, in something like the correct direction, is perhaps anyone’s guess as events continue to move at breakneck pace.

Immanuel Wallerstein puts a contrary view. I’m not quite sure if I agree – though he’s right more often than most. It is certain that what is occurring is Schumpeterian “creative destruction”, but whether or not the capacity to begin the cycle of valorisation and capital accumulation anew exists is something I think it’s better to be agnostic about at this stage. While I dare say he’s right about the end of a Krondatieff cycle, beyond that, prognostication seems to have a very short shelf life in these times.

It’s also interesting to observe that some are suggesting that the Canadian Tories’ “steady as she goes” approach is precisely what is leading to their decline in support in the campaign which has reached its final stretches. It may well be that Stephen Harper has more problems than just perceived inaction in the face of the credit crisis, but it probably is significant that voters are demanding state action to propitiate fear. In the Australian context, I wouldn’t be at all surprised if Kevin Rudd and Labor are able to consolidate their support at a time when their momentum may have been sagging. The “cut through” of the opposition really diminishes at times of crisis, and it may be that Rudd has a chance to entrench himself with his response. To some degree that’s dependent on how far Australia is able to resist the global push towards recession, and again, I really would hesitate to place much value in any predictions at this stage.

Iceland right now is apparently in a state of shock and gives a snapshot of what a depression with the Great in it will look like everywhere – “cafes were half-empty, real estate agents sat idle, and retailers reported few sales” says the AP.

This after the government basically took over its banking sector, with Russian money, which as noted in the linked post, has real geopolitical implications.

Meanwhile, the British government is laying out 500 billion pounds to take equity in its banking sector, but basically proposing business as usual. Co-ordinated interest rate cuts are having very little impact on the stock market, and more worryingly, on the liquidity crisis. Paul Krugman writes:

We’re way past the point at which conventional monetary policy has much traction.

In America, in the eye of the economic storm, the Fed has basically become the financial system, but to little avail:

The time for a recession was 2005. At that time simple macroeconomic policy; simply raising interest rates, would have ended the bubbles in credit and housing at the cost of a standard if somewhat nasty recession. Trillions of dollars of intervention would not have been needed. Just standard macro policy. Even in 2006 it might still have worked. The Fed blew it, and they broke the system, and now with the system broken they may have to either buy it all out (and Paulson may be considering that after all) or just become the system. And even if they do that may not work, because, well, who wants to borrow and invest right now?

Bernanke and Greenspan are certainly in the “worst Fed chairman of all time” stakes in a big, big way.

So what does all this mean? It’s not “financial socialism” or the “end of capitalism”. While there are some truly absurd narratives circulating about how the meltdown is all the fault of… you guessed it, regulation, the Left and/or Bill Clinton, this nonsense is not unrelated to the coincidence between the financial meltdown and the American Presidential election, and it can be disposed of very easily:

Although financial institutions were evaluated for compliance with the act, it never required they lose money on mortgages or that they be given to people with slim prospects of repaying them. Even if, as some claim, the legislation ultimately played a part in encouraging excesses, such as the bundling of sub-prime loans into packages that hid their riskiness, that was a failure not of too much but of too little regulation.

[Mike Steketee]

What conservatives can’t point to, ultimately, is any form of regulation that actually caused the crisis. No one put a gun to the head of US bank executives and made them lend to people without the means to repay loans. No one threatened dire retribution to investment bankers unless they packaged sub-prime securities. And no one compelled Standard and Poor’s and Moody’s to inexplicably and wholly irresponsibly rate those securities at AAA levels even when they didn’t understand the packaging mechanisms being used.

[Bernard Keane]

As Keane points out, this sort of thing is a classic example of the moveable feast that is the right wing opinionating machine – an “ownership society” and aspirational citizens were the mark of the success of right wing governments yesterday, and today evil lefties encouraged passive banks to lend money to all sorts of unsuitable poor people.

While it may be difficult at the moment for the Right to point to capitalism as a roaring success story, what’s occurring in response is very far from being socialism, or even nationalisation.

John Quiggin writes:

This kind of instalment-plan nationalisation seems to offer the worst of all worlds. At some point, a more systematic approach will have to be adopted, and given the rate at which markets are plummeting, the sooner that point comes the better. This isn’t the return of socialism, but it certainly looks like the end of the kind of financial capitalism that has prevailed for the last few decades.

And his opinion is echoed by a socialist blogging sociologist:

And what about the future of capitalism itself? No one is saying the system itself has collapsed, rather what has gone down the tubes is a particular way of organising capitalism. It is too early to tell what could replace it, though a number of participants flagged up the possibility of a more regulated capitalism, albeit without the welfare and full employment commitments of post-war Keynesian capitalism. It’s also likely that Neoliberalism will continue to cast its shadow.

And in a rather pithy article from Andrew Crook of Business Spectator:

Western economies, with their manufacturing industries gutted and the entrails shipped abroad, are struggling to actually produce anything beyond amorphous “services” and intellectual property. This has mirrored the spread of cancerous and impossible-to-decipher debt instruments, producing the biggest financial bubble in world history. That bubble has just burst.

Sub-prime mortgages may have been the bitter pill, but it’s the yawning distance between these debt vehicles and the bricks-and-mortar of our everyday lives that could prove fatal.

Assuming the current crisis doesn’t result in the second coming of socialism, we’re left with the familiar remedy of ever more-regulated domestic markets. But the genuine policy levers of an earlier era remain out of reach.

Over the last 30 years, the Keynesian social fabric has being steadily eroded by the slavish adherence of Western governments to global market forces (“external harmonisation”) as a non-negotiable pre-cursor to domestic policymaking. Despite the tinkering of Rudd and co, this remains broadly the case. Not that they’d have you believe it.

As I’ve been arguing, the political logics behind neo-liberalism remain well entrenched, despite the recourse had by panicked “free markets” to the “nanny state”. Mark Davis agrees neo-liberalism isn’t finished:

It’s a nice idea, but underestimates just how deeply embedded neoliberal ideas are in the global finance system. My sense is that the bail-out, now passed by the US senate and to be revoted on in Congress tomorrow, will happen, even if it won’t necessarily work because there’s more to this than simply lancing a boil. Regulatory noises are being made and some tightening will take place. But the system will stay relatively unchanged because too much depends on it and because money and power have little respect, in the end, for principle.

We have essentially two problems at the moment from the point of view of the conjuncture of political economy and the alignment of social and economic forces. The first is that social democratic parties have bought into the logic of the dominant paradigm to such an extent that there are very few alternatives on offer. The second is that neo-classical orthodoxy has led to such a mismanagement of the global economy that states appear bamboozled in the face of a liquidity crisis, and few orthodox solutions appear to offer any hope of turning the situation around in the short term. We will probably see some sort of stabilisation, though perhaps not for a while, and we will also see the emergence of a new orthodoxy not too dissimilar to the old one as the superficial lessons of the crisis are absorbed and the wagons of the powers that be circle the camp.

So, if the policy cupboard is bare, and ideologues are trying desparately to readjust themselves to some version of “culture wars as usual”, what is to be done? Andrew Crook, once again, is absolutely on the money:

The broader challenge for the Left, and for politics, is to imagine a radically-different regulatory framework with actual meaning for alienated individuals struggling, in a world of tumult, to carve out a viable identity and a cohesive personal narrative. This won’t come from centre-left policy elites—it requires a new breed of social movements to organise around these faultlines and assert their right to economic and cultural autonomy.

But the outline of such a movement is only just being sketched and echoing Paulson’s doubters on Wall St (the Dow has lost 13 per cent of its value in the last five sessions), there’s little reason to believe conditions on Main St, or anywhere else, will begin to improve any time soon.

Update: New post here. Comments are now closed on this one.

Anyway, I’m off to bed. But you can follow what’s going on via this liveblog from Catherine Rampell at the NYT’s Economix.

NB: Previous discussion and commentary at LP on the bailout, the financial markets crisis and the ramifications can be accessed here.

Update: via danny in comments -

1:25 p.m. | Bill passes: The bill passed 263 to 171. The vast majority of Democrats voted in favor (172 yeas to 63 nays), while a slighter majority of Republicans voted against (91 yeas to 108 nays).

Reaction and commentary over the fold.

Dollars and Sense explains why the Dow nevertheless fell:

it is becoming clear that investors are more concerned about the the breakdown of the commercial paper and interbank markets than they are about the various fixes proposed to get them going again. As well they might be.

Needless to say, the, the bill’s passage didn’t do much to sooth the CP market, or the interbank market (which deals with banks lending amongst themselves)–the latter rate actually rose. The markets clearly think the TARP package is too little, too late, at least right now: we’ll see what happens next week.

This thing has taken on a life of its own, like the proverbial monster.

Ian Welsh skewers the “government will make a profit” talking point, arguing that the bill is a “huge giveaway of money to private interests”. Mike Madden looks at what changed politically to get the bill passed. Jill at Feministe links to some alternative policy suggestions, while Larry Elliott in The Guardian favours learning some lesson from the early 90s Swedish bank crash, but warns that the crisis may turn into something that “drags on for years” as with the Japanese deflation of the same time period.

Ian Welsh reads the tea leaves of the economic consequences, and is not sanguine that Obama will pop up in January and fix everything:

And there are some ways this could be fixed. A lot of economists, like Stiglitz, are betting that Obama will eventually do a real bailout bill. We’ll see. He made no real push to fix this bill at all that I am aware of and his various economic policies have long indicated to me that he is essentially a gentler kinder Reaganite in economic terms, so I’m not so sure. Still, there are solutions, and I’ll talk about some of them in future, as I have in the past. The question is whether there will be any political will to do them. When you can pass a 700 billion bailout for the rich, but putting in real changes in bankruptcy laws to allow folks to keep their houses is unthinkable, it’s clear that the elite consensus is still that the little people are always to be made to pay to clean up their betters mistakes. Until that attitude changes, very little useful is likely to get through Congress.

And thanks to tigtog for pointing to the Money Meltdown site which has a lot of useful info and links.

Update: If you believe Nouriel Roubini is right about what’s going on, it gets even scarier. Hilzoy summarises at Obsidian Wings:

This is indeed a cardiac arrest for the shadow and non-shadow banking system and for the system of financing of the corporate sector. The shutdown of financing for the corporate system is particularly scary: solvent but illiquid corporations that cannot roll over their maturing debt may now face massive defaults due to this illiquidity. And if the financing of the corporate sectors shuts down and remains shut down the risk of an economic collapse similar to the Great Depression becomes highly likely.

Crucially, it was House Republicans who defied their president’s appeal. For some, the choice was ideological. They would rather die than vote for an expansion of government’s economic role which they regard as tantamount to socialism. No, Bolshevism. Listen to Representative Thaddeus McCotter of Michigan, chair of the House Republican policy committee and co-sponsor earlier this year of a resolution urging the president to make 2008 “The National Year of the Bible”, as documented in the Congressional record of Monday’s debate: “The choice is stark, and it was put forward in the book by Dostoevsky. In The Brothers Karamazov, the grand inquisitor came to Jesus and he said: ‘If you wish to subject the people, give them miracle, mystery and authority; but above all, give them bread.’

“It has always been the temptation in a crisis especially to sacrifice liberty for short-term promises of prosperity, and it was no mistake that during the 1917 Bolshevik revolution the slogan was Peace, Land and Bread. Today you are being asked to choose between bread and freedom. I suggest that the people on Main Street have said that they prefer their freedom, and I am with them.”

Main Street Jesus against the Dostoevskyan Bolshevik bail-out. Who was it said American reality trumps its own fiction?

Have you noticed that every person suddenly knows everything there is to know about how the economy works? Wow, it’s all so simple.

Maybe there’s a point there, but not the one John Amato thinks he’s making. I’ve consistently been of the view that the economy should be a subject for civic and political discussion, and that we shouldn’t hold back because of the “not an economist!” cries that sometimes echo around the place. If one of the continuing problems with the US financial sector is the lack of transparency which is causing the crisis of solvency – because no one still knows where all the securitised bodies are buried – so too a bit of transparency in demystifying the fiscal arcana whose complexity was part of the reason for this mess should be welcomed.

So, with that in mind, I wanted to share some links (from econobloggers and non-economists both) I’ve found particularly insightful and interesting over the last few days.

First, Tyler Cowan’s take at Marginal Revolution is succinct and informative.

Secondly there’s no lack of alternative proposals to the TARP bailout around in the blogosphere. I haven’t reviewed all of these carefully, and there are a lot more out there, but there are some samples at Crooks & Liars and Boztopia. It’s good to see some policy thinking going on among online activists as well as political pointscoring. That leads me to my next theme – which is exemplified in this post from Ian Welsh at Firedoglake – the indictment of the neoliberal consensus for what’s gone down and a call for a new New Deal. FDR’s getting more than a few hat tips at the moment, and Barack Obama has certainly made the first part of the case, and it may not be entirely wishful thinking to expect an Obama administration – it one eventuates – to make a genuine attempt to reshape the governing structures and logics of the American economy. The enormous bill that’s being presented to the taxpayers may provide the political opening.

Publius at Obsidian Wings also argues for the possibility of a “Progressive Moment”.

Of course, it’s also possible that an Obama administration would be Clintonomics as usual. We’ll see, but the discussion itself will hopefully build some momentum.

It’s hard to see how the immiseration of the American middle class can be permitted to continue (I don’t expect any real action from the Democratic Party on actual poverty) for another four years, if the culture wars card fails to trump economics.

On a somewhat more theoretical note, it’s also pleasing to see attention being paid to the work of Karl Polanyi and his work back in the 1940s on the constructedness of markets. At the same site, Saskia Sassen joins the new New Deal chorus and calls for a refocusing of policy on the real economy.

I’m not sure, though, how “market sentiment” of “it’s 700 billion or the apocalypse” will deal with this development.

More at OpenLeft.

Ps: Paul Keating on Lateline last night made some very instructive points about why pumping liquidity into markets isn’t working and why Malcolm Turnbull is playing a populist game on interest rates.

Update: The Senate’s lone socialist, Bernie Sanders of Vermont, reflects on the TARP bill’s Senate passage:

This bill does not deal with the absurdity of having the fox guarding the hen house. Maybe I’m the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the Secretary of the Treasury, the former CEO of Goldman Sachs, who along with other financial institutions, actually got us into this problem. Now, maybe I’m the only person in America who thinks that’s a little bit weird, but that is what I think.

And Glenn Greenwald saw the bill’s rejection in the House as a victory for democracy. Which it sorta is… but perhaps only because the imminence of the election is concentrating Congressional minds. But the fact that substantive alternatives to the bill – or amendments – which seek to modify its nature such that it’s not just a bailout are unlikely to go anywhere should also concentrate the mind.

Context in this post about the Congressional rejection of TARP.

From my (sociological) point of view, the shorter answer to the question is – no.

In fact, I think the way the question’s posed reflects a number of category mistakes. The first is to take the theoretical apparatus that accompanies various ideologies too seriously. As I’ve argued previously, ideologies are ensembles of political forces and political interests and their theoretical baggage is necessary for their reproduction but still contigent and able to be discarded or modified where circumstances dictate. Debating the finer points of “Austrian economics” might be an interesting diversion for those who might have been debating how many angels can dance on the point of a pin in Thomist times, but it’s a side show when it comes to political action. Phil BC at A Very Public Sociologist makes this point succinctly and elegantly:

Academics, armchair economists, libertarians and House Republicans are the only ones who take the “principles” of neoliberalism seriously. Governments here and across the Atlantic only stick with it in as far as it entrenches the rule of capital.

The second error is to assume that neoliberal governments are serious when they talk about shrinking the state. Again, I argued previously that the size of the state is governed by much longer term secular trends, which are less amenable to political management than often thought. Just as the “nationalisation” of banks in the UK and the TARP bailout in the US don’t represent some form of socialism because the state buys junk paper or takes over failing financial institutions, so too an increasing tax take and its redistribution don’t signal the presence of social democracy.

Historically, the equation of socialism with public ownership is an artefact very much of the British (and to a lesser degree the Australian) experience. The Swedish Social Democrats were never all that exercised by it, preferring to shape product and labour markets by other means. And the French dirigiste planners of the right were quite enamoured of public ownership, while German social and Christian democrats intervened at the level of the firm through entrenching co-determination in governance rather than through public ownership.

This brings me to the third mistake – the failure to ask the critical question – cui bono? Neoliberalism historically has been much more about benefiting finance capital at the expense of manufacturing capital (and disciplining labour) than about freedom from government intervention per se. Thatcher’s embrace of monetarism was a massive re-engineering by the state of the economy, forcing up unemployment (deliberately, as Norman Lamont admitted) to destroy manufacturing and coal mining and with them the power of organised labour.

The deep reservations expressed about the beneficiaries of the TARP bailout should make it crystal clear that the American state’s intervention is not directed by any sense that power should be shifted within the economic field as a whole. The power of the state is being employed in this instance to recapitalise financial markets, through a sort of reverse redistribution. Incidentally, the objection about moral hazard has some force here. It’s part of the “Washington consensus” which has only been applied to the finance and banking sectors in other nations – for instance Korea and Indonesia during the Asian financial crisis. We can also see revealed in these events the myth of globalisation as some sort of process floating free of state strategies. Rather, globalised financial markets, and the consequences of their pathologies, are deeply imbricated with the stategies of the US state (and to a degree those of others – as in the G20).

The real significance of the credit crisis lies not in sounding a death knell for neoliberalism, but for what it can tell us about the decline in the power of the American state. That’s been touched on here before, and John Gray has something interesting to say about it in The Guardian.

Russia has already called the US’ bluff in geopolitical terms on Georgia. Now the sovereign owners of the US debt are getting restive. The American power elite is about to find out that debtors can’t continue to call the international tune indefinitely.

The next administration will be presiding over a deeply diminished United States after eight years of George W. Bush. The likelihood is that the TARP bailout won’t be the end of it. US taxpayers will be subsidising the ruins of American financial dominance for some time to come, and US economic and military power will have to come to terms with a more multipolar world. And if (as appears more likely recently) Barack Obama is elected, his ability to bring about any change will be severely constrained by the steps that have been taken in the last week.