Page 1 of 2 Public interest RIP By Julian Delasantellis
With the discovery that hard American power could be stopped dead in its tracks
with just a handful of desert sand in its Humvee's gearbox, the emphasis has
switched to soft power, with Kobe Bryant and American Idol winner Kris
Allen carrying the spear of the American ideal the nation's army exhausted
itself trying to advance.
For most of the last century, one of America's most powerful wielders of soft
power has been none other than a group of talented black men joined together in
a uniquely American cultural institution, the basketball team named the Harlem
Founded in Chicago in 1926, what would eventually become the
Globetrotters started out as an opening act for a band at formal dances in the
city's Savoy Ballroom. One year later, after failed British-born baseball and
basketball player Abe Saperstein bought the team, he sent it out to play
exhibition games in Southern Illinois and Iowa with the new moniker of the
"Harlem Globetrotters", correctly surmising that associating the team with
cosmopolitan and far-away Harlem, then the center of African-American culture
in the United States, might sell a few more tickets among the insular but
curious in the overwhelmingly white rural communities the team was passing
through. The team would not play an actual "home" game in Harlem until 1968.
Prior to World War II, the team mostly tried to play its games somewhat
seriously, but with the founding of what would become the National Basketball
Association in 1946, Saperstein knew he had to take his franchise in a
different direction. From then on, the team's matches became more exhibition
and comedy friendlies than actual sport, with players demonstrating more
amazing feats of ball control and shotmaking skill rather than the team
integration necessary to win actual games.
The audience was frequently as much a part of the show as spectator. Many games
saw team members going up into the stands to select a child to try his or her
hand at free throws; if this was too difficult for the little tyke,
arrangements, such as pulling the basket down to the child's level, would be
made to facilitate the process. This vision of gentle American inter-racial
harmony was wildly popular both at home and abroad; the team's web site claims
that it has performed before 125 million fans in 117 countries.
Even though in reality it wasn't, each Globetrotters exhibition was designed to
look like an actual sporting contest, with the team playing a group of mostly
NBA and college rejects who traveled with the team. The opponents went by
numerous names - the Boston Shamrocks, the Jersey Reds, the Atlantic City
Seagulls, but mostly by the name of the Washington Generals.
But for the fact that the team's games aren't real, the Washington Generals
would certainly have the dubious honor as the absolutely worst, most pathetic
team in sports history; between 1953 and 1995 the team won six "games" against
the Globetrotters and lost more than 13,000; a victory in 1971 snapped a 2,499
game Generals losing streak.
I like to think of the relationship between the Globetrotters and the Generals
as being analogous to that of monied, corporate and financial interests (the
Globetrotters) versus that of the people (the Generals) in the United States. I
suppose that, sometimes, the people win, like the 00.04% of the time the
Generals did between 1953 and 1995.
Usually not, though, and there's not a whole lot of indication that this is any
different with the change-oriented Barack Obama administration. It's not like,
as Globetrotter Meadowlark Lemon used to do with the hapless Generals, the
oligarchy is going to put a live fish, or even a whole basketball, down the
people's shorts - unless, of course, there's some money to be made from the
A fine current example of this is the sad fate of the Troubled Asset Relief
Program, the US$700 billion US Treasury financial rescue program introduced
last autumn to pull the financial system out of the morass it had thrown itself
into with the subprime mortgage mess. Designed as an initiative to serve the
public interest, the core failing of the program was in its not realizing that
a generalized public interest in American public policy basically does not
exist anymore - just the oligarchy regularly getting a huge share of any pie
baked by the government or anybody else, with the rest of society left to fight
over the crumbs.
Very soon now, the sad decline of TARP will be filling the syllabi of many
civics and political classes, with the students being given assignments to
write papers as to what went so horrifically wrong with the effort. Over the
past nine months, I've written about the promise and shortcomings of the
program as they have happened, but, as it is now obvious that the effort is
reaching the full extent of its incompetence, watching it die is like being on
a mountain top and watching an airplane careen out of the high sky to burn in
the valley on the ground.
It was after the fall last September 15 of Lehman Brothers and the horrifying
stock market declines that ensued that the government of president George W
Bush and Treasury secretary Henry Paulson, then only trying to wheeze its way
out of office, realized that it had to do something to deal with the financial
system's troubles in a systematic fashion. Since bad mortgage and
mortgage-derived debt was the problem, why not just initiate a huge government
program to buy it out of the banks' vaults, cleaning them out so as to free the
banks to conduct new lending?
What was wrong with the plan? In short - everything. A popular grassroots
resistance movement grew up overnight by people opposed to giving "our tax
dollars" to greedy New York bankers. This smashed something of the begrudging
bipartisan consensus in favor of the proposal; it wasn't until early October
that the TARP bill passed, on its second attempt, through the US House of
But then Paulson, having stuck his finger into the air to gauge the political
winds and finding his digit nearly cut off, changed his mind. With TARP so
unpopular, it became obvious that both pundits and politicians were desperately
searching for any type of financial system support initiative that did not
include the government's purchase of toxic assets. When, in mid-October,
British Chancellor of the Exchequer Alistair Darling came up with one, namely,
for his government to take ownership stakes in tottering private banks through
the purchase of stock in them, and when Nobel economics laureate and New York
Times columnist Paul Krugman wholeheartedly backed the measure, the writing was
on the wall for toxic asset disposals.
Paulson announced a short-term delay for toxic asset sales in October, then a
longer-term delay (that is, until after the inauguration of Barack Obama, the
only timeframe that anybody in the Bush administration then cared about) in
The equity injection initiative involved the immediate usage of $250 billion of
TARP's $700 billion for the purpose of the government purchasing the preferred
stock and common stock warrants, similar to long-term call options, of the
banks in question. Over the previous six months, the world had watched
modern-day electronic mobs initiate bank runs that toppled at least two major
US financial institutions - Bear Stearns and Lehman Brothers, so the government
had no intention of painting a big red "I'm weak! Shoot me!" bull's eye on any
potential number three.
The banks would be forced to sell the preferreds and take the government's
money, which was generally thought to be intended for new lending. Also, in a
mostly failed attempt to at least drum up some sort of popular support for the
program, salary and income caps would be placed on the executives of
institutions receiving the largesse. If the Paulson Treasury, which by then
unofficially included future Obama Treasury Secretary Timothy Geithner, had
been sufficiently outside of the American financial elite's governing
superstructure so as to be able to see it in its full entirety, it would have
seen that this, the pay caps, would eventually doom the TARP with more
certainty than any initiative to run sumo wrestlers as jockeys in the Kentucky
As the Bush administration panted out of office and the full force of crisis
hit the new Obama administration like an open furnace door, more uses were
found for TARP. In its last hours, the Bush administration announced that funds
from the program would be used to give emergency financial support to General
Motors and Chrysler. Early in its time, the Obama administration announced
that, although it didn't know just how it was going to do so just yet, when it
finally did come around to addressing the toxic bank assets issue, TARP monies
would be involved, as they would with the new administration's initiative to
provide mortgage relief to US homeowners threatened with foreclosure.
Of course, using the TARP as a sort of all-purpose financial crisis Swiss army
knife was nothing but a technique of bypassing any role in the matter by the US
Congress, now obviously too hopelessly rent by extreme partisanship to do
anything constructive on these issues.
By any measure, the TARP was providing capital to the banks on extremely
generous terms; the only cost was a 5% dividend coupon payable to the
government on the preferreds, and the warrants that would allow the government
to pick up equity, stock, in the banks should the stock start to rise. Last
October, these were very generous terms indeed, as those were the days that
only while wearing a hazmat suit would anybody deal with an institution
operating in the financial markets without an explicit government guarantee.
But as late winter ticked towards spring, the appreciation for the emergency
assistance turned into something more akin to "Well, what have you done for me
lately?" begrudgement, even though it was still obvious that many of the
institutions, especially the large ones, would collapse should the government
withdraw its explicit and implicit promises of support.
More executive pay restrictions on those institutions receiving TARP funds were
implemented in late January and early February that, along with the crucifixes
bearing AIG officials that Congress put along the Acela train route from Wall
Street to Capitol Hill, put the Masters of the Universe well in the mood to
make a meal out of the hand that was feeding it.
The only way that the banks could get out of the TARP pay restrictions was to
give the money back, and also to come to an agreement valuing the warrants the
banks had to buy back from the government. This would certainly be a challenge,
as back then the markets hardly believed that bank balance sheets would support
gum purchases from the newsstands in the lobby, let alone a good portion of the
$250 billion the banks received in TARP.
Still, the banks wanted to be out from under the government's thumb immediately
if not sooner; they were in no mood to wait for some manner of economic
recovery that would inflate their balance sheets and fill their vaults. In
short, the banks had to fool the markets into believing that the banks were a
lot stronger than they seemed.
As Charles Baudelaire once said, "Speak of the devil, and the devil appears."
Suddenly, mark-to-model bank asset accounting was added to the Newspeak
financial dictionary, and mark-to-market cast out to the dustbin of history.
I've written before about how many free-market conservatives, believing that
nothing so wrong as what we see in the present could possibly go wrong with
their visions of endless laissez-faire paradises, chose instead to blame it all
on an obscure accounting rule called "mark-to-market", contained in an industry
document called FAS 157. The Obama administration had no cause to support free
market fantasies, but, after everything else they were trying along the lines
of bank rescue were either not getting off the ground or dying still-born, they
realized that repealing mark-to-market in favor of letting the banks use
computer models that produced current values to their liking was just about the
easiest, cheapest thing they could do, at least in the short term. (See
Bankers get a model rush, Asia Times Online, April 9, 2009).
Then, since the prospect and actual implementation of mark-to-model had done so
much to support bank share prices during the late winter and early spring, the
Obama administration decided to go for the gusto once more. They allowed the
new, flexible accounting standards to be used in the so called bank "stress
tests" being given to see if the banks and other financial institutions had
sufficient capital for ongoing and forward operations.