“The old is dying and the new cannot be born. In this interregnum there arises a great diversity of morbid symptoms.”-Gramsci
“What the cynics fail to understand is that the ground has shifted beneath them.”-Obama
If policy makers were even remotely honest, analysts said, they would force banks to take huge write-downs and insist on a high price in return for taking bailout money. For practical purposes, that could mean nationalization or partial nationalization for many banks.
So here are the choices for the economic team. Either you force the banks to acknowledge that many of the CDO’s on their balance sheet are worthless and nationalize the ones worth saving, thereby wiping out the equity holders. Or you persist in the fantasy (like Japan did for ten years in the 90’s) that these assets will “come back to par” in the distant future, because you refuse to cross the theoretical rubicon of Nationalization.
And here are the choices for the national security team. Either you acknowledge that our military was built to fight a war with another superpower that disappeared in 1989 and that radical transformation of the force structure is needed to defend against small, networked non state actors. Or you persist in the fantasy that one day in the future we will have to fight a nuclear and conventional war with a new superpower like China, because you refuse to accept that the world has fundamentally changed.
Obama realizes the world has changed. Throughout the speech there were acknowledgements of this. But unless he is willing to allow radical new thinking “to be born”, we will be stuck in the Interregnum.