The price of nominating the very people who where responsible for the deregulatory meltdown (Lawrence Summers and crew) is becoming apparent, writes Krzysztof Rybinski in Open Democracy, $2.5 trillion will be used, not for the productive economy, but to keep alive zombie banks that have been sucking the productive economy, with real risks for hyper-inflation at some point in the future, failed states because of depleted public finances, and a drying up for any funds for investing in productive pursuits, especially in emerging (and not so emerging) countries.

In addition, as context to the above, I also recommend reading:

– Umair Haque’s intervention: Why AIG must fail

– the more profound analysis by Ismael Hossein-zadeh on Obama as “Herbert Hoover Copycat”

– general background material in my combined tag in Delicious: http://delicious.com/mbauwens/Meltdown+Obama-watch

The crux of the argument bv Rybinski is here, but do read the whole article to understand his ‘zombie metaphor’:

Krzysztof Rybinski:

“If we are worried about world demand, we can help restore this demand by investing hundreds of billions of dollars in emerging markets. For example we are nowhere close to achieving the Millennium Development Goals set in 1990. Some measures – such as the number of people living in extreme poverty in sub-Saharan Africa, or the number of people infected by HIV – have actually worsened instead of improved. You can feed $100 billion to a zombie-bank one night and it is gone by morning; imagine how many schools, roads, and hospitals you could build in Africa with $100 billion. How many teachers you could hire to teach illiterate people in poor countries, how many doctors’ wages you could pay to provide health coverage to millions of poor children who do not have access to a doctor. How much good can be done if zombies skip just one midnight-feast – and they keep eating every night.

I was very disappointed when I saw the grand Obama plan. It does promise to cure some of the short-term (falling demand) and long-term (social security, medicare costs, high carbon-emissions) problems of the US economy and society; but at the same time, by sucking in almost all available world savings it deprives emerging countries from access to capital markets, with the result that many poor or emerging countries suddenly find themselves in a situation where they are unable to borrow.

Now the true cost of feeding the zombies can be seen. The cost is that large parts of the world will not be able to finance necessary investments, and some developing countries will not be able to pay their (once again growing) food bill. So the poor will become even poorer. There is no free zombie lunch.”

The crux of the argument by Ismael Hossein-zadeh:

“Faced with the financial meltdown of the Great Depression, the Hoover administration created the Reconstruction Finance Corporation that poured taxpayers’ money into the coffers of the influential Wall Street banks in an effort to save them from bankruptcy. Like today’s Bush/Obama administrations, the Hoover administration used the “too-big-to-fail” scare tactic in order to justify the costly looting of the national treasury. All it did, however, was to simply postpone the day of reckoning: almost all of the banks failed after nearly three years of extremely costly bailouts schemes.

In a similar fashion, when in the mid- to late-1990s major banks in Japan faced huge losses following the bursting of the real estate and loan-pushing bubble in that country, the Japanese government embarked on a costly rescue plan of the troubled banks in the hope of “creating liquidity” and “revitalizing credit markets.” The results of the bailout plan have likewise been disastrous, a disaster that has come to be known as “Japan’s lost decade.”

Despite these painful and costly experiences, the Bush/Obama administrations (along with the U.S. Congress) are following similarly ruinous solutions that are just as doomed to fail. This is not because these administrations’ economic policy makers are unaware of the failed policies of the past. It is rather because they too function under the influence of the same powerful special interests that doomed the bailout policies of the Hoover and Japanese governments: the potent banking interests.”

P2P commentary:

In conclusion, we could say that despite the ‘open’ and ‘participatory’ aspects of the Obama election, and some of his initiatives, as explained by Dale Carrico, his coming to the political scene at a point to early in the bottoming out cycle, means that the political will, and perhaps the balance of forces, is not yet such that any fundamental structural problems can be resolved, at a very risky cost to Obama’s political popularity.

However, there is still the political opportunity, which also depends on the potency of public pressure, to still see Obama evolve in a more Rooseveltian sense, and carry out structural reforms that are necessary for a new wave of ‘green-capitalist’ expansion based on new structural paramenters and new social compacts. Such a wave of expansion would need, if it wants to be successfull, much more intensive open and participatory social processes (for example for the open design of renewable energy solutions). If such a rebound would not materialize, emergent peer to peer alternatives would manifest themselves quite differently, in the form of emergency-driven resilient communities. In other words, instead of a high road scenario for peer to peer, in a positive global environment of renewed growth and social cohesion, we would face the low-road scenario, amongst general dislocation of the current globalized regime.

An important political consideration is therefore how far any new expansion phase, part of the cyclical evolution of political-economic Kondratieff cycles, can be derailed and/or complicated by the Long Emergency process induced by Peak Oil, Climate Change and other resource depletions, including possible hunger emergencies due to the effects of the neoliberal food production regime, which is still in place.