The two key elements of the plan are: 

• Legacy Loans Program: a program to combine an FDIC guarantee of debt financing with equity capital from the private sector and the Treasury to support the purchase of troubled loans from insured depository institutions.

 • Legacy Securities Program: a program to combine financing from the Federal Reserve and Treasury through the Term Asset-Backed Securities Loan Facility (“TALF”) with equity capital from the private sector and the Treasury to address the problem of troubled securities.

Okay, so what does all this mean exactly? The best description-by-analogy I’ve seen is Economist’s View’s toxic car analogy, which begins like this:

Imagine a car lot that has 100 cars on it. However, some of these cars have problems. Half of them will have engine troubles that total the cars – the engines blow up and the cars are then worthless – and this will happen just after purchase. The other half are perfectly fine. Unfortunately, there is no way to tell prior to purchase which type of car you will get no matter how hard you try. Thus, half of the assets on the car dealer’s “balance sheet” – the cars on its lot – are toxic, and lack of transparency makes it impossible to tell which ones are bad prior to purchase.    

The Geithner plan works in the following way: the government offers a subsidy to private sector buyers. Depending on what the sellers of these toxic assets are prepared to sell them for, the government will have to top up the amount that purchasers are willing to pay by an extra amount. As EV notes (WARNING: a supply-and-demand curve follows):

the government will not know if it is getting this right or not. Suppose it offers a $1,000 subsidy thinking that is generous enough. In this example, that won’t bridge the gap between the highest offer of $6,000, and the reservation price of $7,500. Thus, the subsidy would be too small to restart the market and the plan would fail. So the answer is to make the subsidy large enough to encourage buyers, but the problem is that if it is too large, the government will be giving money away unnecessarily.    

And there’s another problem. If there’s a large gap between what people are willing to pay and what dealers are willing to accept(the gap between $6,000 and $7,500 in the example), this would be problematic politically since it would require subsidies that are unacceptably large.

And I should note that it doesn’t have to be a subsidy. That’s one way to do this – as a giveaway – but another way is through a no recourse loan (what is being called a partnership). Suppose that the government gives (up to) a $3,500 loan to a private sector buyer to purchase the car for $7,500. If it’s a good car and the value rises above $7,500, say to $15,000, then government will get paid back (with interest) since the asset can be sold profitably (another option is for the government to demand a share of this profit through warrants or other means). But if it’s a bad car, the price falls to zero and the loan is forgiven – it does not need to be repaid. So the private sector agents only have to put up a fraction of the price to control the asset, and their losses are limited to the amount they put up while the gains are potentially large.

This is, in essence, the Geithner Plan. If many of the loans are not repaid, or if the subsidy is too large, it could lose a lot of money, but it could also make money too.

Okay, back to the real world for those of you who find supply and demand curves just a little bit fake. As Paul Krugman notes, the real issue here is how toxic these assets are.  The substance of the Geithner plan is that hese assets are not really toxic, but merely mispriced. Which means that by re-financing the banks, they can eventually sell these assets and the crisis will pass. As Krugman points out, 

early on in this crisis, it was possible to argue that it was mainly a panic. But at this point, that’s an indefensible position. Banks and other highly leveraged institutions collectively made a huge bet that the normal rules for house prices and sustainable levels of consumer debt no longer applied; they were wrong.     

Atrios via Kevin Drum makes the same point (as does Naked Capitalism):

Aside from setting up an overly complicated plan to try to disguise what they’re really doing, the utility of the Geithner plan rests (or pretends to rest, not sure) on one fundamental premise: that Big Shitpile is greatly undervalued by “the market” and that these mortgage securities really have expected revenues which justify higher prices. One could have reasonably believed this months ago, I have no idea why anyone would believe this now. The housing bubble burst, and now recession is here. There’s a lot of shit to be eaten, the question is who will eat it? Timmeh wants to make sure it’s not the banksters.      

Drum makes the point elsewhere that the crticism of the liberal bloggers is fairly simple:

banks aren’t willing to sell their mortgage-backed assets at market prices because they think the market is panicked and only willing to buy at fire sale prices. And fire sale prices will ruin them. But if the government buys at the price banks value this stuff at, they’re almost certainly paying too much. It might rescue the banks, but only by essentially giving away lots of free money.     

Not everyone is anti-Geithner, of course. Cautious supporters of the plan include conservatives like Gregory Mankiw and venerable liberal economist Brad DeLong, who argues that 

I think the private-sector players in financial markets right now are highly risk averse–hence assets are undervalued from the perspective of a society or a government that is less risk averse. Paul judges that assets have low values beceuse they are unlikely to pay out much cash.     

Okay – so – will it work? That depends, of course, on how toxic these assets really are.

If they are actually worth something in the long term – as surely some of them must be – then, with time and more government liquidity, the institutions can eventually sell them, round out their losses, refinance their balance sheets and begin to lend money again. The massive extra liquidity sloshing around the world will then move slowly (or perhaps rapidly) back out of defensive plays and into wealth-generating assets, US consumers will regain confidence and start spending again, and economic growth in the rich world may restart. Even so, we will have experienced a very nasty recession indeed.

But if enough of the assets are truly toxic, eg. worth nothing, then institutions like Citi, AIG, RBS et al are truly insolvent (which, given how much US government money they have all accepted, is not a long bow to draw).  In this case, Krugman is right: many of the pillars of global finance are in fact zombie banks. And zombie banks which do not die can limp on for years, soaking up liquidity and not lending it out to anyone. See: Japan in the 1990′s.  In which case the global credit squeeze will continue in the medium term, and economic growth in rich countries will continue to stagnate. And, in any case, consumers in much of the rich world will have to repair their balance sheets after decades of under-saving.

Which is why I think the current equities rally is just a bear market or “suckers” rally, and will soon be eclipsed by more market pessimism.

Since September, I’ve been wading through far more reading matter than I’d ever imagined possible on economics and finance. Much of it has been, by necessity, somewhat ephemeral. However, it’s good to see some commentators coming out with something of a longer view.

Immanuel Wallerstein’s conclusion won’t be any surprise to anyone who’s been following his work:

We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times.

As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms. And we are moving into acute social conflict within states, as everyone competes over the smaller pie. In the short-run, it is not, by and large, a pretty picture.

As I’ve previously commented, I’m not at all sure that he’s right that what we’re seeing is the final death throws of capitalism. But I do think he makes another very important point in his commentary:

The characteristics of a Kondratieff B-phase are well-known and match what the world-economy has been experiencing since the 1970s. Profit rates from productive activities go down, especially in those types of production that have been most profitable. Consequently, capitalists who wish to make really high levels of profit turn to the financial arena, engaging in what is basically speculation. Productive activities, in order not to become too unprofitable, tend to move from core zones to other parts of the world-system, trading lower transactions costs for lower personnel costs. This is why jobs have been disappearing from Detroit, Essen, and Nagoya and factories have been expanding in China, India, and Brazil.

As for the speculative bubbles, some people always make a lot of money in them. But speculative bubbles always burst, sooner or later. If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be – the U.S. Treasury and Federal Reserve Bank, the International Monetary Fund, and their collaborators in western Europe and Japan – have intervened in the market regularly and importantly – 1987 (stock market plunge), 1989 (savings-and-loan collapse), 1997 (East Asian financial fall), 1998 (Long Term Capital Management mismanagement), 2001-2002 (Enron) – to shore up the world-economy. They learned the lessons of previous Kondratieff B-phases, and the powers that be thought they could beat the system. But there are intrinsic limits to doing this. And we have now reached them, as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.

I think it’s incredibly important to underline the point made in the second paragraph of that extract. I feel like I’m sounding the same note over and over again when I’m arguing that what we’ve seen during the global financial crisis reveals the incapacity of ideology for understanding events. Dichotomies about states v. markets are nonsense. There are no “free markets”, except in the fervid imaginings of Hayek’s disciples. The bubbles which are now bursting simultaneously are to large degrees artefactual creations of state power – the self same mob – the Bernankes and the Paulsons of the world – who have now totally lost control of what’s occurring. It is just foolhardy to believe otherwise, and it also should signal that “state action” doesn’t necessarily equate to action in the public interest, another theme I believe has gone missing in action as folks on the left have rushed to claim some sort of revenge of socialism moment with strategies such as the TARP bailout.

It’s understandable that ideology continues to operate as a frame through which to view events which appear unprecedented and frightening, even when the events themselves show up its inability to provide understanding. In this context, LSE political economist Robert Wade’s analysis in the latest New Left Review is very instructive indeed:

Since the 1930s the non-communist world has experienced two shifts in international economic norms and rules substantial enough to be called ‘regime changes’. They were separated by an interval of roughly thirty years: the first regime, characterized by Keynesianism and governed by the international Bretton Woods arrangements, lasted from about 1945 to 1975; the second began after the breakdown of Bretton Woods, and prevailed until the First World debt crisis of 2007–08. This latter regime, known variously as neoliberalism, the Washington Consensus [1] or the globalization consensus, centred on the notion that all governments should liberalize, privatize, deregulate—prescriptions that have been so dominant at the level of global economic policy as to constitute, in John Stuart Mill’s phrase, ‘the deep slumber of a decided opinion’.

Neoliberal economics has powerful antibodies against evidence contrary to its way of seeing things. However, the current crisis may be severe enough to awaken economists from the ‘deep slumber of a decided opinion’, and render them more receptive to proof that the post-Cold War globalization consensus has strikingly weak empirical foundations.

[My emphasis.]

Wade’s article is well worth reading in full. Written on 7 October, it’s a relatively up to date analysis incorporating a historical view with a sound understanding of the current conjuncture. He’s less apocalyptic than Wallerstein, but I think well captures the actual significance of the global financial crisis as a turning point:

The shocks of the past year—another thirty years on from the last major shift—support the conjecture that we are witnessing a third regime change, propelled by a wholesale loss of confidence in the Anglo-American model of transactions-oriented capitalism and the neoliberal economics that legitimized it (and by the us’s loss of moral authority, now at rock bottom in much of the world). Governmental responses to the crisis further suggest that we have entered the second leg of Polanyi’s ‘double movement’, the recurrent pattern in capitalism whereby (to oversimplify) a regime of free markets and increasing commodification generates such suffering and displacement as to prompt attempts to impose closer regulation of markets and de-commodification (hence ‘embedded liberalism’). [3] The first leg of the current double movement was the long reign of neoliberalism and its globalization consensus. The second as yet has no name, and may turn out to be a period marked more by a lack of agreement than any new consensus.

Wade also emphasises something I wrote about in comments on a recent post:

The uk’s role in the crisis deserves emphasis, because contrary to conventional wisdom, the dynamics at its heart started there. The Thatcher government set out to attract financial business from New York by advertising London as a place where us firms could escape onerous domestic regulation. The government of Tony Blair and Chancellor Gordon Brown continued the strategy, leading Brown to boast that the uk had ‘not only light but limited regulation’. In response, political momentum grew in the us over the course of the 1990s to repeal the Depression-era Glass–Steagall act, which separated commercial from investment banking. Its repeal in 1999 produced a de facto financial liberalization, by facilitating an unrestrained growth of the unregulated shadow-banking system of hedge funds, private equity funds, mortgage brokers and the like. This shadow system then undertook financial operations which tied in the banks, and it was these that eventually brought the banks’ downfall.

Wade’s final suggestions about a reform of economic thought and global policy are also measured, stimulating and worth reading and discussing.

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.

In the absence of any more “game changing” impulsive madness from Walnuts, all eyes will probably be on the Veeps debate on Friday – although our friends in the House Republicans or more spectacular crashes on Wall Street might diminish the focus a tad. Sarah Palin won’t be able to pull a McCain though, and “suspend” her campaign, after that trick spectacularly failed as Walnuts slunk out of Washington calling for bipartisanship on one hand while slagging off Obama on the other, after fairly poor reviews of whatever contribution he may have made to the crisis from his fellow Republicans. Nor will Palin be dropped from the ticket – I think (presuming there’s any rationality to the McCain strategy). As Nate Silver observes, there are at least three good reasons why it would be dumb (but again, I’m thinking dumb is the name of the McCain game). And the last time a Veep candidate was dumped – Thomas Eagleton in 72 – McGovern dropped 7 points in the polls.

Anyway, that’s that for the moment, but in this increasingly bizarre campaign which in true postmodern style seems to have as fictive a relationship to the real world as all that fictitious capital swirling around Wall Street waiting for the government to buy it, who knows what lies ahead, or even what lies lie ahead. My main purpose in posting was to draw attention to two excellent pieces from two of my favourite Stateside online writers on the bizarre phenomenon that is the Palin pick, something I continue to believe deserves more analysis than just political calculation or the desire to diss implies.

First, from the aforesaid Michael Bérubé, who has been kind enough to have “suspended [his] blog retirement so that I could see us through this crisis.”

I’ve been reading the GOP campaign as being not merely an assault on liberal elites—like I say, that’s old news—but a frontal attack on the very idea of standards of plausibility in argument. To friends and family (and one or two inquiring reporters), I’ve been calling it the National Insult My Intelligence Tour 2008. It’s as if they’re simply trying to see how much amazing shit they can get away with (like this amazing shit!), even though (as many people have noted) this strategy requires them to run against the very constituency McCain had courted for over a decade—the elite Beltway punditocracy, McCain’s base.

And in so doing, they’re laying a fairly obvious trap for actual liberal elitists like me.

Secondly, the fabulous Rebecca Traister at Salon:

Everyone seems to be oozing sympathy for the fumbling vice-presidential nominee. Please. Cry me a freaking river.

Do take the time to go read both!

Incidentally, lots of the pre-tribulationist Rapture watchers in the US have been expecting the world to end on Rosh Hashanah – the Jewish New Year – which is why Congress is closing down for two days. Weird!

Anyways, back on topic. I agree this is the scariest movie scene ever. From Mulholland Drive: