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.

Now he’s at it again.

On the news last night, this grab from Turnbull’s appearance on Insiders featured prominently:

And Kevin Rudd has hyped up this crisis or this financial crisis by saying it’s a rolling national security crisis.

If you read the quote in the context of the whole interview, it makes more sense – because Turnbull’s making a reasonable point about accountability to Parliament (which Andrew Bartlett also makes in somewhat different terms). But the politics are just awful – it allowed Wayne Swan to quickly swat Turnbull away, again making him appear as if he was out of touch and disconnected with what voters are feeling and fearing.

It’s also wrapped up in another argument which makes Turnbull seem self-obsessed – the claim that he hasn’t been included in decision making. There’s a very fine line – at times like these – between playing the bipartisanship card and appearing petulant about your own marginalisation – and it also plays into the perception that the Liberals still can’t accept that they’re in Opposition.

Turnbull might be able to counter that he’s been quoted out of context, but he should surely understand better how the media works. As an apparent media tart, along with others on the Coalition frontbench.

Elsewhere: More from tigtog at Hoyden.

Update: Tony Abbott, via Surfdom, would seem to have fewer excuses than his leader. He’s openly running with the “talking up a crisis” line. Reading between the lines, it appears that the Opposition are preparing to run a “they spent our surplus” flag up the pole. Yep, it’s all about them.

What we’re seeing here, I think, is a combination of Kevin Rudd’s very conservative personal values and political calculation.

Ps: Incidentally, Julie Bishop’s point on Lateline about the contrast in the degree of information given in Keating’s economic statements compared to Rudd’s announcement might have some validity in terms of transparency, but it ignores the fact that the Keating government’s interventions occurred after recession was well and truly entrenched (and arguably thus too late) and were prepared over a time scale of months rather than a weekend in response to an emergency. The opposition appears to be playing a complicated game – trying to weave together a message of holding the government to account, blaming the government partially for what’s occurred, and suggesting that Malcolm Turnbull is a bright spark who thought of it all first. I’d have thought all this – combined with the whining about briefings – puts them at the centre of their message rather than the economic situation itself, and risks looking petulant. I think they’d have done better to stick to their initial reaction – nobly supporting the government’s endeavours in the public interest at a time of crisis, blah blah.

NB: Previous post and thread discussion on the stimulus package here.

[Via Majikthise, but it's just about everywhere on the web - it's so viral it might just be this cycle's Macaca moment.]

Now McCain at least – if not Palin, I think (it’s hard to tell as there appears to be some internal GOP noise dissing Palin), have belatedly taken to hosing down calls of “Bomb Obama!” and “kill him!” at their rallies, often leading to the candidate being booed by the enraged “base”. But it’s pretty clear that this sort of thing stands in a very close relation to the dogwhistling that’s going on at epic volume from the GOP “hate talk express”. All this vileness is leading to more conservatives jumping ship, and a hollerback from a supposed “McCain adviser”, Congressman John Lewis.

I really hope that this stuff gets repudiated at the ballot box, and goes down the tube with McCain’s shattered reputation (and incidentally, I’m somewhat bamboozled that some local observers seem inclined to give McCain the benefit of the doubt.) The politics of division has revealed its true face.

Elsewhere: More from Lyn Calcutt at Public Opinion. Some more incidents of ugliness here and here.

Apparently Obama has been consorting with terrorists, because he once knew a member of the Weathermen (long afterwards and when Bill Ayers had become an educator and a Distinguished Professor at the University of Chicago). All these allegations were aired during the primaries – and no doubt the Rev. Wright stuff is being readied for an encore. Reading this article on the campaign in Florida really does show how much dissemination the loathsome “Muslim sleeper” stuff is getting as well, and Palin’s attack on Obama as some sort of terrorist sympathiser will reinforce that theme among those disposed to believe it, or to have doubts.

The flick to a negative posture on the part of McCain’s campaign is a sign of desperation – with the polls consistently showing Obama with a winning lead. By contrast with John Kerry, Obama has been ahead most of the time, with only the most spectacular “game changers” from McCain giving him temporary momentum (Kerry trailed Bush for most of the campaign). With the economy tanking in the wake of the Wall Street crises – and this piece from Robert Reich [via Terry Flew] really spells out what’s going on – we’re about to see whether culture wars really do trump economic issues. This article in The Guardian from the distinguished sociologist Richard Sennett is an intriguing answer to why the culture wars card can still be played.

Bill Clinton is the only genuine political talent that creaking heap of donkeys, the beloved Democratic Party, has produced in an age. Damn that Twenty-Second Amendment.

Obama plays it safe yet again, basically following the line of least resistance by endorsing the Paulson bailout plan with some meaningless caveats. There were calls in the States for Obama to actually return to the Senate and get involved in the legislative process over the “plan”, which would be a useful contrast with what firedoglake correctly characterises as McCain’s “empty babbling on the economy”. That might be a smart move particularly given his very thin legislative record.

But, nope.

What we get is propaganda about “post-partisan solutions”. The Democratic candidate who won’t even speak the D Word, let alone the L Word. What is it with the DNC/DLC campaign playbook from hell where “play nice” and “move to the centre right” is supposed to be the universal strategy? At one point, Obama was supposed to be aiming at piling up a mega-majority to actually bring about “change we can believe in”. What’s happened to that? What are we at now? A tiny majority in the electoral college, with a mandate for nothing much?

Bill Clinton, by contrast, has actually thought a bit about what a progressive alternative to the GOP plan might be. You can take issue with it, but as Henry Farrell points out at Crooked Timber, at least he’s talking specifics and not just buying the GOP’s pig in a poke as Obama is.

I’ll tell you what, I found voting for Bill a lot more positive an experience in 96 than I’m going to find voting for Barack this year.

I do not want to hear people tell me that regulation cripples the economy, unless they are willing to admit that a lack of regulation can also cripple the economy. Not ever. I don’t understand why anyone is so much as tempted to think that “regulation” is good or bad, as a whole: to me, that’s like being for or against “things” or “people”. Some regulations are good, some are bad; obviously, we want people in government who can tell the difference, and implement regulatory systems that work well. However, altogether too many of my fellow citizens were willing to listen to ideologues, and now we all get to pay for their mistakes.

Very oddly, Malcolm Turnbull has proposed that the federal government in Australia should also bail out Australian banks. Now, unless he’s suggesting that the banks should have their exposure to Lehman Bros. etc. paid for gratis by the Australian government, to the benefit of their share price or something, it’s hard to see how this makes any sense, particularly when Turnbull has been blathering all round the shop about Kevin Rudd and Wayne Swan “talking down” the Australian economy (and thus magicking inflation into existence – it wasn’t at all Peter Costello’s fiscal profligacy, no matter what the IMF may think). One can only infer from this call that there’s an implication that there’s some disaster waiting to happen domestically.

Unless Turnbull is suggesting that the Australian government should compensate the banks for their exposure to Lehman Brothers or whatever, it’s really quite hard to work out what he’s saying here. Obviously, it’s a bit of politicking, tied up in a neat package as it is with his “bipartisanship” theme, and it may also be designed to imply that while the Bush administration has a Plan, Rudd doesn’t. But it’s difficult to read it as anything other than irresponsible, despite the instant anointing of Messiah Mal with the all important “economic credibility” by the media.

The second is more specific and recent – the tendency to replace ‘heavy-handed’ forms of regulation with ‘regulation with a light touch’ and self-regulation. This has been most marked in Anglo-American economies, but other countries (in continental Europe and elsewhere) have faced persistent ideological pressures to move in this direction. This is a large chunk of the so-called ‘reform’ agenda that the Economist magazine, the OECD and other such bodies keep pushing. Both of these shifts are largely ideological – that is, they gained much of their impetus from changes in the ideas which constitute policy-makers’ shared collective wisdom about how to deal with the economy.

The second shift (the reform agenda) is now a busted flush. Its proponents are in disarray (if I’m feeling in a vindictive mood, I may well buy a copy of the next Economist to see how its editorialists try to rationalize all of this).

Any reasonable assessment of the actions of the Fed and the US Treasury would suggest that they’re driven by confusion and are very much ad-hoc measures. Neither Bernanke nor Paulson seems to have much of a big picture grip, and politicians reciting “the fundamentals are sound” is clearly not going to cut the mustard now, even, as with John McCain, precipitating something of a backlash.

John Quiggin has speculated on how all this will play out. The confusion has led to some quite bizarre moments, such as pundits on Lateline Business declaiming “capitalism is in crisis” and “the financial markets may not be viable”. What we’re seeing – among other things – is a decomposition of that abstraction “the markets” and a reduction of these so-called impersonal forces to the panicked reactions of individuals. If Robert Skidelsky is right, and a tipping point has been reached, it begs a very big question, which Farrell answers in terms of process (because no one can know the outcome of such a fluid conjuncture).

Mark Blyth’s book, Great Transformations has a theory of the relationship between economic crises and economic ideas. Very roughly speaking, when a crisis occurs that is difficult or impossible for the prevailing wisdom to explain or deal with, intellectual entrepreneurs have an opportunity to create a new (partly self-reinforcing) collective wisdom. We’re most likely in just such a crisis now. Which set of intellectual entrepreneurs are going to succeed in reshaping a new collective wisdom – economic nationalists like Sarkozy and Putin, social democratic globalizers like Dani Rodrik, or some other crowd entirely – I have no idea.

Farrell rightly quotes Tyler Cowen:

The economic fallout from these events is dominating the headlines. The intellectual and ideological fallout we are just beginning to contemplate.

There’s no doubt as well, particularly in the US and in the UK, that an enormous climate of fear has been created and that there will be huge pressure on politicians to act. In the UK, Gordon Brown’s last shred of credibility – his claim to be a competent economic manager – has collapsed as the realisation has sunk in that his own out-deregulate the Americans strategy to make the City of London a more attractive financial node than Wall Street in the wake of Sarbanes-Oxley puts the British economy at great risk, even if the bursting of the housing bubble has not been as acute as it has in the States. It can confidently be predicted now that Brown’s premiership is terminal.

Many within the Labour Party are suggesting that the time has arrived for the British government to shut the door on neo-liberalism, including Jon Cruddas MP, who was recently in Australia and spoke to Labor MPs about the successes and failures of the “Third Way” project. Cruddas writes in The Guardian:

Labour now has an historic opportunity to seize the political high ground. The era of selfish individualism is on the wane. The electorate is increasingly concerned with social insurance, safeguarding living standards and ensuring social stability and ecological sustainability. From stranded holidaymakers to pension holders, to those falling ill, they are discovering that these collective goods are in dangerously short supply. The future will demand a more active and democratic state engaging with economic development and regulation. The redistribution of wealth and resources will be essential in rebalancing a dysfunctional economy.

However, it’s very difficult to see how these sentiments could be easily translated into policy action – here and now.

I don’t have any particular glee, unlike others, in observing that the US government has now become a huge player in its own economy. The US Treasury, if you read anything about the history of globalisation and global finance, has long been a massively influential player – as the point at which the state and capital meet in the world’s central financial node. Having 80% of equity in Freddie and Fannie and the AIG rescue has no particular implication for any project to use the power of the state for truly public purposes. In fact, even such minimal redistribution and healthcare reform as Obama has promised is likely to be impossible in the face of the enormous costs now being borne by the US state. We’ll end up, if Obama is elected, with the same “Eisenhower Republican” strategy Clinton bemoaned.

Nor do I necessarily think that state ownership is either a good in and of itself or some sine qua non of social democratic respectability. It has its purposes, but it shouldn’t be turned into a shibboleth. The lack of participatory and democratic administration of nationalised industries – a fact whose legacy can be traced back to the elitist Fabians – opened the door for privatisation, by failing to actually involve citizens democratically in the economy.

But here’s the rub – there may be an opening here for a revived social democratic economic policy framework. As far as I can see, though, no one has really developed such a framework at the very time it’s needed – so blinded have the left been by the nostrums of neo-liberal “no alternativism” in macro-economic policy. Many of those assumptions, as Farrell indicates, are now collapsing like a house of cards.

The sorts of questions being asked now are precisely the ones that can’t be answered by orthodox economics with a human capital theory supply side twist or by chanting mantras drawn from exogenous growth theory. If there’s a historical moment here that needs to be seized, then the intellectual resources to make a difference appear lacking.

We will probably just have to rely on muddling through. Fingers crossed. But I can’t help feeling that the left is in as much ideological and intellectual disarray here as the right.

Update: Gary Sauer-Thompson:

The significance of this is that politicians are on the sidelines watching like the rest of us despite their claim to inside information from those who really know what’s going on. They really don’t know what is happening or what to do about it.

Or the politicians could ghave mentioned how this financial crisis was different from the previous ones. The previous ones started on fringes of the global financial system– in the developing or emerging economies in Latin America, Asia or Russia— and the West (G7) worried about the contagion. This crisis was made in the US–the heart of the global financial system— and it is the emerging powers of the east that fear contagion. Doesn’t that highlight the big shift in economic power in the world?

Having reached this point, it’s hard to see how the US can turn back from a massive extension of financial regulation, starting with the derivative markets where AIG got into so much trouble, notably those for credit default swaps (CDS). Along with winding up the affairs of AIG, Lehman and others, the authorities will need to oversee an orderly unwinding of the transactions in these markets which they are now effectively guaranteeing. More generally, it’s time for a partial or complete reversal of the financialisation of the economy that took place after the breakdown of the Bretton Woods system back in the 1970s.

That needs to be read in conjunction with a column in The Guardian by Robert Skidelsky, the distinguished biographer of Keynes. Skidelsky argues that we’re at a conjuncture – a tipping point where one “cycle of economic fashion” gives way to another.

The bankruptcy of Lehman Brothers and the forced sale of Merrill Lynch, two of the greatest names in finance, mark the end of an era. But what will come next?

Cycles of economic fashion are as old as business cycles, and are usually caused by deep business disturbances. “Liberal” cycles are followed by “conservative” cycles, which give way to new “liberal” cycles, and so on.

Liberal cycles are characterised by government intervention and conservative cycles by government retreat. A long liberal cycle stretched from the 1930s to the 1970s, followed by a conservative cycle of economic deregulation, which now seems to have run its course.

With the nationalisation of America’s two giant mortgage banks, Fannie Mae and Freddie Mac, following the nationalisation earlier this year of Britain’s Northern Rock, governments have started stepping in again to prevent market meltdowns. The heady days of conservative economics are over – for now.

Skidelsky also has some quite scathing words about the economics profession and its mystifications and orthodoxies:

The cycles in economic fashion show how far economics is from being a science. One cannot think of any natural science in which orthodoxy swings between two poles. What gives economics the appearance of a science is that its propositions can be expressed mathematically by abstracting from many decisive characteristics of the real world.

The classical economics of the 1920s abstracted from the problem of unemployment by assuming that it did not exist. Keynesian economics, in turn, abstracted from the problem of official incompetence and corruption by assuming that governments were run by omniscient, benevolent experts. Today’s “new classical economics” abstracted from the problem of uncertainty by assuming that it could be reduced to measurable (or hedgeable) risk.

A few geniuses aside, economists frame their assumptions to suit existing states of affairs, and then invest them with an aura of permanent truth. They are intellectual butlers, serving the interests of those in power, not vigilant observers of shifting reality. Their systems trap them in orthodoxy.

When events, for whatever reason, coincide with their theorems, the orthodoxy that they espouse enjoys its moment of glory. When events shift, it becomes obsolete. As Charles Morris wrote: “Intellectuals are reliable lagging indicators, near-infallible guides to what used to be true.”

Update: Another interesting perspective from Ann Pettifor at Open Democracy.

Another post here by Mark.