Bush’ $700B gamble

Bush and his finance managers seemingly leapt out of the box early this week when they announced an immediate $700 billion plan to buy out dead assets and underwrite the liabilities of the finance and investment sector. In effect, the US government will not anymore be a regulator of the private economic players; it decided to be the commanding player, dwarfing everybody else.

That it put forward such an unprecedented proposal to a Democratic Congress in the year of the presidential elections showed the desperate straits of the US financial (and eventually the economic) system as well as the Republicans’ presidential campaign. Democratic presidential candidate Barack Obama immediately surged in rating, topping 52 percent in some surveys to Republican presidential bet John McCain’s 44 percent. The Palin “good conservative feel” evaporated under the scorching issue of a threatening economic meltdown. Going into the first presidential debate, the Democrats had a legitimate, close-to-American hearts issue that spans across the political divide–the US recession.

The foundations of this recession were laid during the first Bush term with its laid-back, hands-off regulation of the financial system, started to make itself felt in his second term, and is now going into its full-blown phase as the man leaves the office. There is nothing Republicans can do to offset the blame going their way; there’s nothing that Sen. McCain can do to divert the eyes of American voters from the riveting scene of the inexorable destruction, one after the other, of American giant financial institutions.

The Bush $700 billion gamble is solely targeted to prevent this collapse and salvage a developing Republican rout in the coming elections. At most, it will only delay the inevitable as injection of liquidity is only good as the level of fear and loss of confidence among depositors, investors, and among banks themselves. The Democrats–who controls Congress–suspected this and renegotiated the Bush package to include protection of the small people (read: voters), and restrictions on the managements of banks and other financial institutions.

The Bush bluff had been called and he will have no choice but to give in to the Democrats’ position–he has no room to maneuver with the stock markets slide nipping at his heels. At this point, the Obama campaign calls the shot, as shown by McCain’s sudden reversal of a decision not to go on with the presidential debate.

Unfortunately for McCain and the Republicans, the economic crisis is THE ISSUE. And it’s not theirs but the Democrats’ and Obama’s.

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Desperate schemes

Two events stood out in the political field lately. One was the sudden, orchestrated announcements coming from Secretary Favila and from some administration congressmen that charter change is necessary to amend economic provisions. The second was the warning aired by former Secretary of National Defense Nonong Cruz and the organization of Former Senior Government Officials (FSGO) that there exists a plot by the GMA administration to institute some form of a state of national emergency or even martial law.

Of course, these are related events and constitute the last desperate moves of a regime bent on staying in power. There is a closing of this window of opportunity brought about by an early election campaign season, the increasing reality of a lameduck presidency, the widening cracks in the ruling coalition, and the raids by presidentiables. The GMA administration faces an immediate deadline for a decision on whether to stay or leave the seat of power.

Whatever the decision is, there will already be damage to its political standing and risk to its rule. Staying on means it would give the go-signal to Cha-cha and some form of emergency rule. Leaving would mean confronting the possibility of prosecution and the end of the Arroyo family’s political life.

What it cannot do is maintain the present situation of plodding on into the 2010 elections. GMA is sure to be the no. 1 issue . Having GMA still in the seat of power means the sure defeat of her candidate or, if there is none, the humiliation of becoming the target for all candidates trying to outdo each other in riding on her record unpopularity.

Desperate are the times for GMA’s people. Therefore, desperate schemes?

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Reprieve for capitalism

The news was unsurprising. The US Fed and the Bush administration unleashed a series of policy moves including more than US$240 billion in cash for beleaguered investment banks, tighter regulation of the financial sector, and new taxes. The European, Canadian and Japanese central banks followed the US lead in setting up a global fund.

The market reaction was also expected. From gloom to bloom, all stock markets went up.

Is the crisis over? By no means. It bought time but the root causes of the crisis remained. What the measures did was to emphatically underline the end of the free market as Reaganism defined it, and with it, the unmasking of the state underwriting of neo-liberal economic policies of the advanced capitalist countries.

It is a graphic economic lesson of the peril of the financial market far outstripping the limits of the real economy–you cannot forever add artificial value (by trading on uncreated capital) based only on market confidence. When that confidence fell, the whole financial house of cards collapsed.

The current business model of the investment banks has proven to be fragile when measured against the forces of collapsing stock values, illiquid mortgage bonds, and cash shortage to meet panicky demands by its individual investors. In collapsing, the industry threatened the stock values of all its network companies and banks–virtually the entire house of finance capitalism, created rapidly rising pressure on the banking system’s liquidity, stressed loans and investment opportunities and otherwise induced fear and unease among consumers, depositors, and investors.

By invoking the massive intervention by the State, the Bush administration and other governments stood  free market capitalism on its head. What happened almost reached the level of a state capitalist model–far, far beyond a normal capitalist order can expect. The taking over of AIG, Freddie Mac and Fannie Mae–even if temporary–smacks of state capitalism and a complete opposite of the mantra of privatization of state assets.

However, it must be made clear that the beneficiaries are not the small people in America or even its beleguered middle class. The principal beneficiary are the titans of capitalism themselves. The American people will shoulder the costs in terms of higher taxes, higher prices, diminished incomes, and lost jobs. They will have lost the American dream.

The Philippine economy, particularly the stock market and affected businesses, will immediately benefit from this development. However, the contraction of the American market and economy will penalize the domestic economy in the medium term, in terms of less investment, withdrawal of foreign capital and closing of marginal businesses. There is also the negative impact on the Filipino overseas labor market, foreign trade, and foreign direct investment. The Filipino dream may be lost as well.

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US sneezes, Philippines catches cold

The riveting drama gripping Filipino urban-based businessmen and yuppies now is not the forthcoming Ateneo-La Salle legendary basketball championship games. It is the game of markets, specifically the US stock market and companies who got burned (and are still burning) in the US subprime bond market.

Bear Stearns, Freddie Mac and Fannie Mae, Lehman Brothers, Merrill Lynch, AIG–a who’s who of giants in the bond market (and also in the stock market) toppled or are toppling like dominoes. Others are teetering on the edge. Some may be bailed out by huge Federal funds, some may merge into the banks, but some will fold up.

Hard times are ahead for the Americans and their economy. The US economy is almost sure now to go into recession. Some analysts are even saying a depression is already a possibility, in the horror tradition of the 1929 Great Depression. The world stock market has taken note, and global stock markets started their sympathy dives.

How fare the Philippine economy and businesses? The US remains the country’s biggest trading partner, largest source of overseas Filipino remittance, and largest concentration of overseas Filipinos. Most of our foreign currency is in US dollars. Though Philippine economic relations have diversified in a globalized economy, the biggest share is still with the US economy. When the latter sneezes, we will still get the colds. Due to globalization, other economies (or Philippine trading partners or job markets) will feel the US recession. We will doubly feel their pain and still get the colds.

Assurances from the President, the Central Bank, the banks, and the affected businesses here are not much different from Bunraku, the ancient Japanese shadow theater–the puppeteer is in full view of the public but the puppets are what the audience see, thanks to the skills of the former.

Credibility however is paramount. GMA’s assurances are worrying because the more she insists on the economy’s strength or capability to withstand the US recessionary pressures, the more people will believe the opposite. More often than not, the people are correct.

The only prudent thing for our people to do is to hope for the best but prepare, prepare, and prepare for the worst. Prepare to deal with local stock market losses, bank fold-ups, disappearing insurance plans, dissipating foreign and local investments, company bankruptcies, job insecurity, decreased remittances, decreased jobs, and labor repatriation. Prepare to deal with poverty on top of poverty.

The nearest thing to recall is the 1997 Asian crisis. That was a hiccup. The situation now is threatening to be a flu, even possibly a pneumonia.

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Shrinking charter express

The mutual fiasco of the Cha-cha adventure’s interweaving with the MOA-AD has not deterred increasingly-pressured Malacañang’s strategists from attempting–for the umpteenth time–another try. Sec. Peter Favila’s feeble citing of the need to change the 60-40 Filipino ownership in the Constitution is the new rationale.

I do not know if this is in response to the reported demand of the Chinese partners in the Mt. Diwalwal mining venture with a newly-organized Filipino mining company controlled by cronies close to the Palace. Mr. Favila was accused of signing earlier a memorandum of understanding (MOU) on this with the ZTE corporation of the NBN fame. His call for Cha-cha is suspiciously close to the announcement by the Philippine Mining Development Corporation (PMDC), the mandated government corporation, for bids on joint ventures on developing the Mt. Diwalwal gold area. The Mt. Diwalwal motherlode, estimated to amount to more than US$5 billion, has been supposedly discovered recently. Strangely, the area is part of the Category B areas listed in the MOA-AD.

In the light of Mr. Favila’s call, the initiative for charter change once again exposed another objective for the attempt to maintain GMA beyond her 2010 end of term. Huge, lucrative contracts and superprofits, as well as possible largesse from political corruption, awaits the new president as the opening of mining and oil ventures swamp the country in the next decade.

When former Sec. Nonong Cruz (and the Former Senior Government Officials-FSGO) warns of possible martial rule or state of emergency, he was actually saying–in the subtext–that those in power are quite desperate now as the window of opportunity for Charter change inexorably narrows and all attempts to do so fail.

Federalism, even if Sen. Pimentel’s resolution has started its committee hearing, lost steam as Cha-cha vehicle. Even Sen. Gordon, the chairman of the Senate Committee on Constitutional Amendments, Revision of Laws has said that Charter change can only come about after 2010. The corresponding House Committee on Constitutional Amendments has vacillated on holding national consultations, leading to suspicions that it is only dribbling the Cha-cha ball. Of late, there is rumbling from Speaker Nograles’ erstwhile GMA loyalist allies to unseat him for suspicion of disloyalty.

The only card left is the attempt to create a situation of national emergency, stage a palace coup, declare some form of martial rule, disorganize cha-cha opponents, and railroad Cha-cha. Will she do it?

Certain people close to her wants it and are mightily moving the AFP and the Moro rebels to enter the prepared script for a martial law declaration. Will she play along?

The situation generally points to the holding of normal elections in 2010; the Charter change express train shrinks by the day to being an irrelevancy. It was Alice of Wonderland who said, “If it had grown up, it would have made a dreadfully ugly child; but it makes rather a handsome pig, I think.”

Any other scheme faces big difficulties in execution. However, the current situation also says anything can happen because all political forces are moving, including the people’s movement against GMA’s Charter change.

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