when the wall street becomes the mean street

“This is unique, and the Fed has never done something like this before,” said Allan Meltzer, a professor of economics at Carnegie-Mellon University and author of a sweeping history of the Federal Reserve. “If you go all the way back to 1921, when farms were failing and Congress was leaning on the Fed to bail them out, the Fed always said ‘It’s not our business.’ It never regarded itself as an all-purpose agency.”

The investor of the last resort, that's a new role for the Federal Reserve, NYT's article claims. 

The report says 'the Treasury Department sold tens of billions of dollars of special “supplementary” Treasury bills on Wednesday to provide the Fed with extra cash. The Treasury sold $40 billion of the new securities on Wednesday morning and will sell $60 billion more on Thursday. More money-raising is sure to follow.' 

Who are the buyers of those special supplementary treasury bills? China, or some Middle East countries? Why they are not specified? 

Rosa Brooks, the columnist in L.A. Times, gives some clue in her quite self-deprecating essay,

'Last week -- even before Wall Street's latest collapse -- 13 former finance ministers convened at the University of Virginia and agreed that America must fix its "broken financial system." Australia's Peter Costello noted that lately America has been "exporting instability" in world markets, and Yashwant Sinha, former finance minister of India, concluded, "The time has come. The U.S. should accept some monitoring by the IMF.' 

According to this local report, the summit was led by former U.S. Treasury Secretary John W. Snow, and the attendants included the former finance ministers from Iraq, South Korea, Germany, Afghanistan, Kuwait, Canada, Brazil, Spain, China, India and Italy. 

WSJ has calculated in this article that 'the Fed has committed some $380 billion of its $888 billion in assets to these mortgage rescue operations. That's nearly half. And yesterday the Treasury announced it will issue new debt to lend to the Fed, not merely to fund government operations.' It offers some solutions for the Fed to maintain independent and to stop serial nationalizations. 

Zachary Karabell invents a new word 'Chimerica' to describe how the US and China became one. Although his book on the subject will only be available next year, he nevertheless uses AIG case to illustrate the convergence. 

'In the interim, there will almost certainly be a wave of regulations designed to prevent the flood that has already occurred, some of which are likely to trigger another crisis down the line. Until we can have a more rational, measured public discussion about what government and regulations can and should do vis-à-vis financial markets, we are unlikely to break the cycle.'  

What kind of cycle is it? Let's review some golden rules that Hayek, the father of economic neo-liberalism, said nearly 50 years ago: 

'First, it seems that certain that we shall not stop the drift toward more and more state control unless we stop the inflationary trend; and second, any continued rise in prices is dangerous because, once we begin to rely on its stimulating effect, we shall be committed to a course that will leave us no choice but that between more inflation, on the one hand, and paying for our mistake by a recession or depression, on the other.' 

What would happen to US then? In the foreseeable future, the inflation will become worse. Instead of encouraging more saving, it will discourage saving. The size of the middle class will shrink further, and the gap between the rich and the pool will be widened. The worst thing probably is, starting from the Fed's intervention with the financial market, the US as a free world will enter into the vicious circle 'wherein one kind of government action makes more and more government control necessary', as what Hayek says. 

It is an irony indeed, as what Mr. Karabell says, that 'AIG was founded in Shanghai in 1919, when China was emerging from millennia of imperial rule. Over the next century, China turned away from capitalism. Almost 90 years later, AIG is now being taken over by the U.S. government just as the Chinese government is moving as quickly as possible to divest itself of control of major companies'. 

When worse comes to the worst... 

History is Back

8/8/2008 seems to be a special day, not only because it's the day that China opened the Olympic Games with its extravagant opening ceremony, but also it's the day that Russia invaded Georgia.

That night I was sitting in the news room, watching live broadcast of Zhang Yimou's show. At the beginning, the top story of major international news media like CNN, BBC, or Al Jazeera was about the Beijing Olympic Games, then, breaking news came in that Russian tanks moved into the territory of Georgia. My immediate response was, 'Woah, Russia is stealing the show'. The situation was quite murky at the first. Later, when the story was unfolded and more details came out, some questions appeared.

The first one is the timing. Is it a coincidence, or a conspiracy of a bunch of neo-cons? I'm actually not really into such a guess work, but I'm sure Saakashvili's reckless action must have obtained nod of White House in advance. Strangely, so far, there is no report to explore this aspect. Although the rumor of conspiracy is spreading, the truth nevertheless would hide somewhere. Perhaps I have to wait until someday in the future, the confidential files about the communication between Washington and Tbilisi are accessible to the public.

Leaving this unknown truth behind, some pundits have started to treat the Beijing Olympic Games and Russia-Georgian conflicts as two historical events, and capped them into a catchy phrase 8/8. Since today marks the seventh anniversary of 9/11, it is indeed the day to ponder a bit what has happened since then, what it is now, and what will happen in the future.

Here comes Timothy Garton Ash's sweeping view that has been published transatlantically in the Guardian and the L.A. Times, which is noteworthy. It's far better than Kagan's dichotomy thinking, but alas, I still have some doubts. Ash has made it clear that neo-cons doctrine of the 'war on terror' is not the only thread that defines the mesh of global politics. Judging from the current atmosphere of the general election campaign in the US, one may find how eerily this phrase has been outdated in both candidates' rhetoric that Obama and McCain are all emphasizing the word 'change' now.

One of the decisive factors in moving towards such a direction is the rise of the rest, that the economic slice of China, India, Russia, and Brazil in the global volume has been largely increased, therefore, their political weight in the world stage. The new rhetoric is that since China and Russia are both autocratic countries, their increasing economic power will disturb or even threaten the current world order if they don't join the democratic world.

Ash is quite concerned about the economic prospect of these new comers, but I'm a bit surprised that he quotes Goldman Sachs' prediction about BRIC's economic performance in 2040 to support his argument.

‘Analysts at Goldman Sachs predict that by 2040, China, India, Russia, Brazil and Mexico will have a larger combined economic output than today's G7. The date matters less than the trend. Even today, the shifts in economic power are translating into political and military power faster than many anticipated.’

The logic error lies in using the unknown as a matter of fact to portray a quasi-realistic scenario. Take China for example, whether it can sustain the current development rate as per Goldman Sachs' prediction has already been questioned by a lot of people. The high speed development of China in the last 30 years doesn't guarantee that it can do so in the next 30 years. China's problems, to name but a few, such as the shortage of energy supply, water supply, and natural resources; the binary system of the rural and the urban which have overtaxed peasants without granting them the same welfare treatment as city residents do; the alarming gap between the rich and the poor, lack of clear picture for institutional reforms; comparatively low productivity; infantile knowledge-based economy; all these are daunting tasks to tackle, which would significantly affect its economic growth in the global context.

Nevertheless, it's still quite inspiring to see that 'we of the FLIO (friends of liberal international order) must now confront the prospect of a new world disorder. Or rather old-new, for disorder rather than order is the more natural condition of international society', but I'm not so sure whether this 'we' refer to the people across the world who dedicate to universal values, or it just refer to the western nations, because later on Ash argues that 'Russia and China are not just great powers challenging the west. They also represent alternative versions of authoritarian capitalism, or capitalist authoritarianism.'

It seems to me that Ash's 'we' is more about the identification with the nation than the universal liberal values. I must say such a way of thinking, which is now prevailing in both the west and the east, is the most worrisome sign, and if this tide is not turned around, the so-called democracy vs. autocracy confrontation will probably be self-reflexively fulfilled.

Ash seems quite clear about such a negative prospect as he says that 'we should not kid ourselves that we can have only liberal democracies as partners', but later on when he says 'our values may pull us that way, but our interests will necessarily push us to relationships and even partnerships with currently illiberal states as well', he again identifies himself with interests (What interests? No elaboration. From the context, I judge they are the national interests or western interests.), even though he acknowledges that 'the future of freedom now depends on the possibility of new versions of modernity evolving - whether in India, China or the Muslim world, which are distinctly non-western yet also recognizably liberal, in the core sense of cherishing individual freedom'.

The problem is, juxtaposing the advocacy of universal values such as liberty and human rights with the national interests will not enlighten those being repressed or oppressed; it will only heighten the awareness of national identity, and creating the mental barricade between 'we' and 'you'. Sadly, advocating universal values is already repressed in China while some public intellectuals are struggling, but sometimes I'm even more grieved to see that in another side of world, such idea of humanity is slowly being marred by advocating national interests in economic term while global anti-poverty and development issues have been ignored.

Where is the legacy of those prominent public intellectuals such as Hannah Arendt and Edward Said, that seeking the glory and manifestation of true humanity – unconditional ethical engagement, without overly identifying with any national interests is the central of one's endeavor?

History is back, not in terms of national interests, but in terms of defending the true humanity which transcends nationalism. This 'we' should never be nations. We should always be people, no matter what color they are, no matter where they are from.

10 worst ideas of McCain and Obama

10 worst ideas of McCain and Obama? The lists compiled by FP are just in time to recuperate both presidential nominees' views on some important issues. Although McCain's list and Obama's are separately outlined, they are now available side by side. What can be told from the list? Here is a preliminary analysis.

On foreign affairs: the difference between these two candidates are quite obvious, while McCain is conservatively value-driven and confrontational (1), Obama is more prone to diplomacy (4).

On immigration: both candidates are moving to the central part. The difference is that McCain's approach (4) is rather superficial (tightening border control), whereas Obama seeks to reduce illegal immigrants from Mexico within the framework of NAFTA (1).

On energy policy: McCain simply agrees with drilling offshore and setting up more nuclear power plants to achieve energy independence(5,9); Obama is more friendly to new ways like ethanol or coal-to-liquid fuel, though both are problematic (6,8).

On tax issue: McCain is reluctant to raise taxes (3, 7), and balancing budget is not his real concern (6); Obama wants to tax big oil companies more (9) and provides more support for the elderly (7).

Singular issues: McCain supports abstinence-only education; Obama pushes the patriotic employer act. These two issues are probably indicative in each candidate's tactics to reach voters, that is, McCain is more inclined to play value card, and Obama is more comfortable with economic problem-solving approach.

Google, the ultimate big brother?

Today's analysis of BBC is on Google and its latest development. I have heard it three times so far. First time I heard of it passively, and I didn't pay too much attention to it. When it came back second time, I listened to it half-heartedly with other works in hand. Then, in its third repetition, I caught the sentence that Google would finally make pc disappear and everything would be on the Internet.

It is this bold prediction that suddenly reminds me of the Big Brother. According to the analysis, Google is using a very sophisticated technology to mine data, making sense of a user's habit and delivering real customer based advertisement. I just started to use Google Reader several days ago, to consolidate information that I generally would obtain from different websites. Some web pages are interesting enough that I'd like to save them as bookmarks. Both Google and Yahoo provide such a function, but Google adds several buttons with which I can write a note and share with other on my shared list page. It's so handy that I immediately fall into it.

The most interesting aspect is that Google performs a kind proxy role. Once you create your own reader, your productivity is immediately enhanced. All of a sudden, all the information you need are consolidated in one page in the form of HTML. The only negative feeling that such a self-created page is that its content probably seems too much to read one by one. But then, you have 'mark all as read' button. If you are not in the mood to read anything, and don't want to accumulate reading stuff, simple mark them all as read.

This feature is very convenient to an end-user like me, but it also means that the web sites I have lumped into my reader is exposed to Google as well. It can do some analysis, and deliver advertisement specifically catering for my need. The day after I created my reader, Google delivered some media sites under the most recommended sector. It must have found that all inputs I have consolidated in my reader are from different newspapers and magazines.

I guess I'm just one of millions of thousands end users of Google, that our reading habits and tastes, no matter how trivial it seems to be individually, means something for a real global company. Its sheer size, and details it can reach, are truely unprecedented. Now with the launch of its new web browser Chrome, Google's world will be expanded further. The fact that nobody knows how large this virtual world has become is itself a bit frightening.

The co-existence of machine-human brain has caused a lot of concerns. Last month, the Atlantic published an interesting cover story, posing the question 'Is google making us stupid?'. Nicholas Carr points out in that story that losing focus, lack of deep reading and thinking, and becoming a passive information receiver instead of a critical thinker, all these syndromes are not uncommon now among Google users. Some scholars have raised their concerns about the tendency that the point-and-click culture of Internet is damaging people's intelligence and the civil culture.

This probably is the price one has to pay for the increase of productivity. Frederick Winslow Taylor, the father of the scientific management, once anticipated 'a utopia of perfect efficiency', that which the system is the first and man the second. Google seems to be steadily approaching to this aim, systematizing everything, including our mind. The gruesome picture is someday, every user's mind is uploaded to the system, so it becomes a supernatural gigantic brain, or a matrix.

Actually, in its founders' vision, Google will be building artificial intelligence on a global scale. Larry Page, one of two founders of Google once said, 'the ultimate search engine is something as smart as people—or smarter', that 'working on search is a way to work on artificial intelligence.' Another founder Sergey Brin said in a 2004 interview with Newsweek, 'Certainly if you had all the world’s information directly attached to your brain, or an artificial brain that was smarter than your brain, you’d be better off.'

Nicholas Carr is quite skeptical about such a prospect, worrying that all of us would turn into a kind of 'pancake people' - 'spread wide and thin as we connect with that vast network of information accessed by the mere touch of a button.'

Highly possible, I should say, but if, and only if we have lost our sense of real world, including the care of our inner nature. The problem, if there is any regarding its promotion of efficiency in handling information, is not from Google itself, but from ourselves. Have you become a prey of a powerful computer system?

More about Sarah Palin

In a lengthy article of the Newsweek, McCain's running mate Sarah Palin is exposed in more details. Here is the summary:  

1. She's not a sophisticated intellectual type like Barack Obama. 

2. Her governing philosophy is largely shaped by her political mentor, former Alaska governor Wally Hickel, who advocates an 'economy of the commons', which would place the state's vast energy and mineral wealth in the hands of the state government and its citizens. Palin has ordered a one-time $1,200 energy refund distributed to each Alaska resident.  (The revenues came from recalculating the tax on oil producers.)

3. She's religious.  Friends say the Ten Commandments imbued her with a strong sense of right and wrong. Even now, when she talks about complex political matters, she sometimes speaks in religious terms. She favours teaching creationism alongside evolution in schools. 

4. She has reputation of being ruthless senior city officials and has a tendency to interfere with public discussion. 

5. Wooten affair is under investigation, and probably will be a October surprise.

6. She markets herself as a reformer who fights against cronyism, when in fact her record shows her to be, in many ways, a typical politician who rewards her friends and punishes her enemies. 

7. Her all-politics-is-local approach has made her the most popular governor in the country for the nearly two years she's been in the job. 

8. As a mother of five children, she seems very capable of balancing family and work. 

In the battle with Obama and Joe Biden, the McCain campaign will emphasize Palin's executive responsibilities, her judgment, her instincts, her reformist credentials and her fighting spirit. Aides might encourage her to take the lead on energy issues, emphasizing one policy area she's very familiar with. They'll also play up her small-town roots, trying to draw comparisons to Harry Truman. 

Note: It seems to me that this newsweek's lengthy report about Sarah Palin is part of the media frenzy in US now to vet this public unknown vice presidential nominee.  For the better or the worse, NYT's public editor is certainly quite sure about such a close scrutiny of Palin. Complementary reading to the coverage of Palin. 

 

Japan's new shade of grey and American real economic scorecard

David Pilling argues in FT that there are some changes in Japan although the problems that any new PM would be facing seem very daunting to tackle.

One is the business model. Although the economic growth is still very slow, businesses become much healthier. Old Keiretsu system has changed and resulted in the decrease of cross-share holdings and the increase in foreign ownership.

Another one is the strengthening of civil society with better information disclosure and sweeping reforms of the legal system, including the start of jury trials.

'Some of these changes have little to do with government. Many have been precipitated by the private sector or private citizens. The sense of national drift owes partly to the fact that Japan’s political system is in a netherworld between the certainties of “one-party democracy” and the uncertainties of what comes next.'

Are Americans really better or worse off? That's the question that probably there is no easy answer, but Samuelson from the Newsweek discovers some issues beneath the statistic data recently released by American Census Bureau in this story.

'For most Americans, living standards are increasing, albeit slowly, over any meaningful period. But rising health spending is eroding take-home pay, and immigrants are boosting both poverty and the lack of health insurance. Unless we control health spending and immigration, the economic report card will continue to disappoint. Unfortunately, neither Obama nor McCain seriously addresses these problems. '

The reason that neither Obama nor McCain would like to talk about it publicly probably can be explained by the culture of politics in the US; that is, avoiding those unsayable issues. The problems are there, but it's better not to touch it since there is no direct and simple solutions to them.

Zizek's defense for thinking the right thing

When Zizek speaks, you'd better listen carefully. Joking, :)

Here is his latest essay on an old subject, that is, whether action is more important than thinking. The essay is written at the moment that Barak Obama, the democratic presidential candidate, seems to be facing some problems on his rhetoric of 'audacity to hope', as 'to hope for what', or 'to change what?' have become looming concerns among some swing voters.

'Our global situation is not only a hard reality, it is also defined by ideological contours. In other words, it’s defined by what is sayable and unsayable, or what is visible and invisible.'

I remember he once said that writing itself is an act, but he didn't elaborate in such a manner, so it seems to me he has implicitly endorsed Obamas's rhetoric because he says what is unsayable and invisible, that is,

'the continuing importance of race in politics, the positive role of atheists in public life, the necessity to talk with “enemies” like Iran.'

Zizek argues that US politics needs new words to change people's mind and way of thinking, with the general consensus that change is badly needed in US. Probably McCain's rhetoric can be seen from such a perspective, and who will win finally will indicate whether the majority of American voters are aware of such a need.