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Financial apocalypse seems to be in the air. NBC Nightly News has a new nightly segment called Hard Times, which provides economic “survival strategies” to the viewers.

We have entered The Interregnum.

As I said before, the notion of an interregnum has classically been tied to those periods when one king has died and there is no clear successor. But for our purposes, the notion of interregnum refers to those hinges in time when the old order is dead, but the new direction has not been determined. Quite often, the general populace and many of its leaders do not understand that the transition is taking place and so a great deal of tumult arises as the birth pangs of a new social and political order.

Since the election of Ronald Reagan in 1980 the American political ruling ideology has been based on the twin poles of the Neoconservative philosophy first elucidated by Irving Kristol in The Public Interest in 1965: in domestic affairs the national government should shrink (by cutting taxes and business regulations) and in foreign affairs the government should grow (by becoming the world’s sole military superpower). Four kinds of business firms have done very well by this strategy: finance,oil, drugs and military. And while their shareholders and executives like our Vice President and former Secretary of Defense get very rich, the middle class is losing ground. The election of 2006 brought the neoconservative era to a close, but did not define “the new order” and so we are in an Interregnum.

Some things are clear; that the digital revolution in communications and finance has ushered in an era of globalization that cannot be contained and that the devolutionary forces of the Internet are pushing power to the edges of almost every organization.  Neither top down, hierarchical business organizations or centralized government organizations are going to succeed in the networked world. But what we have also learned is that total “hands off” deregulatory schemes propounded by the neo-conservatives do not work either. For the simple reason that there are too many venal characters trying to game the system. So despite Mr. Paulson’s fake regulation, the next President will have to bring the Shadow Banking System and the drug, oil and military companies to heel. This will not be easy.

The next four months will tell the tale of whether we are in a recession or a depression. We should concentrate on what kind of society we want to live in if the crisis stresses our democracy. Never underestimate the ability of an unemployed populace to look for scapegoats. In simple terms, democracy is at risk everywhere.  Robert Kaplanwrote an essay in 1999 entitled, Was Democracy Just a Moment.

I submit that the democracy we are encouraging in many poor parts of the world is an integral part of a transformation of new forms of authoritarianism; that democracy in the United States is at greater risk than ever before, and from obscure sources; and that many future regimes, ours especially, could resemble the oligarchies of ancient Athens and Sparta, more than they do the current government in Washington.

I spent most of last week speaking at three conferences about the future of the Media in a Democracy. The first was the Tech Policy Summit, which I would characterize as the Establishment Conference. The second was Media Republic, which was the academic and blogger meeting. The third event was Common Cause’s Democracy, Media and Justice Forum, filled with Media activists. The mood at each event was totally different. The Establishment guys were just worried that a new administration doesn’t start regulating the media. The academics and bloggers at Media Republic were so filled with the possibilities of radical change that when I tried to introduce a bit of dystopian realism into the debate, the thought that anything might choke the web seemed to be banished. The activists were all pretty glum, but I felt like they were fighting the last war, so scared were they by the mere specter of Rupert Murdoch.

While waiting to speak on Saturday, I caught up on my back New Yorker’s and found myself entranced by Eric Alterman’s fine essay on the future of the news business. Just when I was surrounded by the despair of the media activists I came across this passage about Walter Lippmann, who ruled the pundit class in the 1920′s.

Lippmann likened the average American-or “outsider,” as he tellingly named him-to a “deaf spectator in the back row” at a sporting event: “He does not know what is happening, why it is happening, what ought to happen,” and “he lives in a world which he cannot see, does not understand and is unable to direct.” In a description that may strike a familiar chord with anyone who watches cable news or listens to talk radio today, Lippmann assumed a public that “is slow to be aroused and quickly diverted . . . and is interested only when events have been melodramatized as a conflict.”

The issues of whether the Broadband Internet will remain a truly democratic media “circulation system” are not as assured as the Media Republic folks believe and not as compromised as the media activists dream. In a small way, Lippmann’s own pessimism reassured me that these battles will go on forever.

Why am I not surprised.

The biblical metaphor from the Garden of Eden, of the fig leaf being used to cover up embarrassment born of knowledge has the implication that “the cover is only a token gesture and the truth is obvious to all who choose to see it.” This morning Treasury Secretary Paulson rolled out his fig leaf for the Credit Crisis.

Mr. Paulson also deflected blame for the current tumult away from his administration. “I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil,” he said. Under the plan, the Fed would receive some authority over Wall Street firms, but only when an investment bank’s practices threatened the financial system as a whole.

I have long cited Bill Gross’ depiction of the Shadow Banking System as the main culprit in our current meltdown. The ability of a bank like Bear Stearns to use off-balance sheet entities and 30-1 leverage to blow their relatively small capital mole hill into a mountain (all be it one made of air) is where our problem lies. But it does not appear that Paulson’s remedy would force the next Bear to keep a more conservative reserve policy. Read more…

Our former Treasury Secretary has some pretty trenchant comments.

Q-It’s so hard to understand how the subprime mortgage crisis has triggered a financial crisis of global proportions. A-If you have 10 bottles of water, and one bottle had poison in it, and you didn’t know which one, you probably wouldn’t drink out of any of the 10 bottles; that’s basically what we’ve got there.

How do you feel about
John McCain, who claims to be a straight talker? I don’t want a straight talker. I want a leader. And a straight talker is one dimension of a leader.

McCain recently confessed in public that his grasp of economics is limited. Yeah. That’s a great place to start from, isn’t it?

Do you feel bitter about your service for the Bush administration? No. I’m thankful I got fired when I did, so that I didn’t have to be associated with what they subsequently did.

It turns out the Vast Right Wing Conspiracy really likes Hillary after all. Richard Mellon Scaife, who financed the early Anti-Clinton Investigations asked Hillary to lunch the other day. He was impressed.

Particularly regarding foreign policy, she identified what we consider to be the most important challenges and dangers that the next president must confront and resolve in order to guarantee our nation’s security. Those include an increasingly hostile Russia, an increasingly powerful China and increasing instability in Pakistan and South America.

In other words, Hillary is ready to return to a worldwide war against the godless powers of Russia, China and Venezuela, that Scaife has always desired. OMG.

Since Scaife was so impressed maybe he and his billionaire friends can bail out Hillary’s broke campaign before she stiffs too many more creditors..

The first task if we are to construct an alternative solution to our political gridlock is to understand what responsibilities of the Federal Government could be returned to the states. For those of you who are new to this debate, an early paper on The New Federalism will help you get caught up. In this work I was aided by the research of Public Agenda a coalition of left and right interest groups trying to tackle the budget problem. They have published a book called Where Does The Money Go? that I found quite useful.

To begin with the current budget situation is sobering. In 2006 the Federal Government spent about $2.7 Trillion and had revenues of $1.6 Trillion. Part of the deficit came out of a social security trust fund and the rest we borrowed. I am not going to try to tackle the entitlement issues here, as they are clearly Federal responsibilities and this exercise is about what could the states take on and how much could we cut the Federal Budget and taxes. I will also not try to deal with the political fallout of these suggestions, because if I did, I would never bother to start the “thought experiment”.

Read more…

As the recent Gallup poll has shown, Obama is beginning to pull away from Clinton. However, when Hillary runs in a state with a strong Democratic machine with a governor who backs her (Ohio, New Jersey, New York and now Pennsylvania) she often comes out ahead. In a general election, that machine would no doubt back Obama as well. I believe the day after the May 6 primary, if Obama has won Indiana and North Carolina, the move by the Super-delegates towards Obama will close the door for the Clintons. It will not be a moment too soon as our former President is twisting into a pretzel to find a new justification to soldier on.

“Right now, among all the primary states, believe it or not, Hillary’s only 16 votes behind in pledged delegates,” said Bill Clinton, “and she’s gonna wind up with the lead in the popular vote in the primary states. She’s gonna wind up with the lead in the delegates [from primary states].”

“It’s the caucuses that have been killing us,” he added.

By his logic, any state that holds a caucus should be disenfranchised, because their Machine Politics just doesn’t work there.

update-Two days later and now Obama’s Lead is 10 points. Pulling Away

As we discussed two days ago, the battle with the Militias is ramping up. NBC reports that US Commanders in Iraq were surprised that Malaki personally took control of the Basra operation against the Mahdi Army. Juan Cole explains why now.

But if they have provincial elections, their chief ally, the Islamic Supreme Council, might well lose southern provinces to the Sadr Movement. In turn, the Sadrists are demanding a timetable for US withdrawal, whereas ISCI wants US troops to remain. So the setting of October, 2008, as the date for provincial elections provoked this crisis. I think Cheney probably told ISCI and Prime Minister al-Maliki that the way to fix this problem and forestall the Sadrists oming to power in Iraq, was to destroy the Mahdi Army, the Sadrists’ paramilitary. Without that coercive power, the Sadrists might not remain so important, is probably their thinking. I believe them to be wrong, and suspect that if the elections are fair, the Sadrists will sweep to power and may even get a sympathy vote. It is admittedly a big ‘if.’ Read more…

The lead in Merrill Lynch’s Friday evening research report is that Inflation is going to be the surprise issue of 2008. They have three reasons. Commodity and money supply inflation is a global issue. Developing nations will export their local inflation to the US by allowing their currencies to appreciate dramatically. The effect on the developing world could be quite chaotic.

The current global expansion will come to an end when emerging market central banks decide to deal with this threat (of inflation) more aggressively. Watch out for aggressive policy tightening, civil unrest and capacity constraints. Capacity constraints could take the form of power blackouts, physical shortages, or more frequent interruption of production as a result of seemingly random events such as extreme weather.

As the New York Times reports this morning, this is not some dystopian future scenario.

Food riots have erupted in recent months in Guinea, Mauritania, Mexico, Morocco, Senegal, Uzbekistan and Yemen. But the moves by rice-exporting nations over the last two days — meant to ensure scarce supplies will meet domestic needs — drove prices on the world market even higher this week.