Bush and Paulsen have indicated that they are not interested in a “punitive” bailout.

But there is absolutely no choice about that. A trillion dollars is real money, and shoveling it around involves real pain.

The question is who is punished, not whether somebody is punished.

Will everyday taxpayers who were already screwed by all this reckless misconduct be punished to bailout their abusers, or will the actual culprits be punished?

– quote from Dale Carrico

Guest editorial by Dale Carrico, followed by a provocative analysis by John Robb who calls the Paulson plan a formula for a hollow state creation.

Note that Dale does offer a way forward within the system through political struggle, while Robb’s hypothesis calls for a retreat in resilient communities. Also note how John Robb’s confirms the recent analysis by James Galbraith on the Predator State.

1. Dale Carrico: re-regulation and nationalization are needed

“One of the reasons our criminally neglected anti-trust laws are so important is that they help keep enterprises from growing so large and so ubiquitous that they come to seem, or even actually to be, indispensable to society. In their presumed indispensability such enterprises acquire a catastrophic immunity from the terms of reality altogether because they are insulated from the possibility of failure. Since they will always be able to claim that their failure would undermine the economy as a whole and so that general welfare demands their protection — however reckless, wasteful, fraudulent, stupid, profligate, uninspired, short-sighted their conduct — they will never be checked in their excesses by the corrective force of failure.

This is not, of course, the attitude of enterprise, properly so-called, but of aristocracy.

Needless to say, if an enterprise truly is so indispensable to general welfare that we cannot risk its failure and so must exclude it from the corrective forces of competition in the first place then that exclusion should be made consistent and the enterprise nationalized altogether. Otherwise, such quasi-aristocratic monopolistic enterprises derive their status and their profits more from their relationship to the supportive state they disdain in theory (in their paeans to free enterprise and innovative risk-taking ruggedly individualistic CEOs and so on) than from their performance in the interplay of competition they disdain in actual practice (in demanding endless supports, deregulation, subsidies, and bailouts from government, come what may).

At the very least, one would think that whenever enterprises are bailed out from the consequences of their recklessness by the state they should be nationalized and subject thereafter to a strict regime of state auditing and austerity measures until such time when they actually can function competitively again. At that point, it seems to me perfectly reasonable to propose that they should be sold back to private interests, but only at a profit the benefits of which should then be distributed back to the people from whom the resources for the bailout was taken in the first place.

Banking, energy provision, insurance, and healthcare clearly need to be radically re-regulated for conflicts of interest and fraud incubated by the market fundamentalist looting spree of the last twenty years, and some of their key institutions nationalized altogether and permanently so. That taxation demands representation creates a structural guarantee of corrective feedback against corruption and error in the provision of genuinely needed services at least as reliable as market signals under systems of rigged crony capitalism. Notice that I did not say “perfectly reliable” and so all you dot-eyed Randroidal handwavers and libertopians can keep your straw men to yourselves.

Zealous free marketeers who will want to respond to this critique by bemoaning the impurity of our system rather than actually learning any kind of lesson at all from our catastrophic generational experiment in neoliberal deregulation, financialization, and regressive taxation need to realize the basic fact that there is no, nor can there be any, more pure and less cronyist kind of capitalism whose more puritanical implementation would somehow circumvent the pathologies that have brought us to the brink of financial ruin, ecological disaster, and the tyrannical aftermath of failed democracy. I will expand on this more general point a bit in my next post.”

2. John Robb: what is a hollow state scenario?

“The modern nation-state is in a secular decline, made inevitable by the rise of a global market system. Even developed nations, like the US, are not immune to this process. The decline is at first gradual and then accelerates until it reaches a final end-point: a hollow state. The hollow state has the trappings of a modern nation-state (“leaders”, membership in international organizations, regulations, laws, and a bureaucracy) but it lacks any of the legitimacy, services, and control of its historical counter-part. It is merely a shell that has some influence over the spoils of the economy. The real power rests in the hands of corporations and criminal/guerrilla groups that vie with each other for control of sectors of wealth production. For the individual living within this state, life goes on, but it is debased in a myriad of ways.

The shift from a marginally functional nation-state in manageable decline to a hollow state often comes suddenly, through a financial crisis. This crisis typically has the following features:

* Corporations and connected individuals systematically loot the nation-state of financial assets and natural resources through a series of insider/no cost deals. These deals are made to “save” the nation’s economy or financial system from collapse.

* Once the full measure of the crisis is known, the nation-state’s currency falls precipitously, it’s debt becomes expensive, and it is forced to submit to international oversight/rules.

* The services the state provides rapidly evaporate as its bureaucracy is starved for cash/financing. This opens up a window for the corruption of government employees unused to deprivation.”

3. John Robb: the Paulson Plan seen as looting

“It’s instructive to view the US Treasury’s plans for a bail-out of the global financial system through the lens of the hollow state. By this measure, the bailout as it stands today, is a form of financial looting of the US Treasury (it isn’t socialism, since the government isn’t nationalizing the financial system). Trillions of dollars in government monies ($700 billion to begin with) will be infused directly into the coffers of corporations and wealthy individuals (via hedge funds). Specifically, the plan buys toxic assets at inflated prices and sells them back for nearly nothing — no equity or assets of real value are provided in exchange for the purchase. The national debt will likely grow 20-30% in a single year, with obligations extended to many trillions more in guarantees.

Given this, one potential next step forward is a decline the credit rating of US debt (which radically increases the costs of US borrowing), a collapse in the dollar relative to more stable global currencies, and a rapid decline in government services. Other scenarios achieve the same result with different timing. Regardless, our (the US and the UK) journey to a hollow state has officially begun.”