Obama may stir summer mayhem

SUBHEAD: Obama's trust of the financiers, military and oil barons, if unchecked, will lead to widespread social unrest. Image above: Gun owners at 'Open Carry' demonstration in national park as near White House as is legally possible. From (http://womenonguard.blogspot.com/2010/04/open-carry-gun-activists-rally-near.html). By Ilargi on 22 May 2010 in The Automatic Earth - (http://theautomaticearth.blogspot.com/2010/05/may-22-2010-as-goes-nose-so-go-toes.html) It's possible that unequalled-in-our-times historian Simon Schama carries sufficient authority to have people heed his words. It’s probably more likely, though, that those for whom Schama’s bell intends to toll will react in the spirit of Joey Ramone's best rock 'n roll lines ever, the equally unequaled:

"I don’t care about history; 'cause that's not where I want to be."

For all the talk about the Great Depression and its self-professed scholars, experts and historians, precious little seems to have truly sunk in that has the weight to counter the "This time it's different" meme. Which is a bad idea, since, as Schama knows like few others, when it comes to rhyming, history can rival Shelley, Keats and Shakespeare sonnet for sonnet. We would all do well, our politicians and wealthiest most of all, to heed the picture Schama paints:

The world teeters on the brink of a new age of rage

[..] in Europe and America there is a distinct possibility of a long hot summer of social umbrage. Historians will tell you there is often a time-lag between the onset of economic disaster and the accumulation of social fury. In act one, the shock of a crisis initially triggers fearful disorientation; the rush for political saviours; instinctive responses of self-protection, but not the organised mobilisation of outrage. [..] Act two is trickier. Objectively, economic conditions might be improving, but perceptions are everything and a breathing space gives room for a dangerously alienated public to take stock of the brutal interruption of their rising expectations. What happened to the march of income, the acquisition of property, the truism that the next generation will live better than the last? [..] [..] the psychological impact of financial regulation is almost as critical as its institutional prophylactics. Those who lobby against it risk jeopardising their own long-term interests. Should governments fail to reassert the integrity of public stewardship, suspicions will emerge that, for all the talk of new beginnings, the perps and new regime are cut from common cloth. Both risk being shredded by popular ire or outbid by more dangerous tribunes of indignation.[..] Those on the receiving end of punitive corrections - in public sector wages or retrenched social institutions - will lash out at their remote masters. Those in the richer north obliged to subsidise what they take to be the fecklessness of the Latins, will come to see not just the single currency, but the European project as an historic error and will pine for the mark or franc. Chauvinist movements will be reborn, directed at immigrants and Brussels dictats, with more destructive fury than we have seen since the war.[..] Claims that Washington has been captured for socialism are preached on right-wing talk radio as gospel truth. As they did in the 1930s with Father Coughlin, the radio demonisers are pitch-perfect orchestrators of hatred for listeners in bewildered economic distress. Against this tide, facts are feeble weapons. [..] if his government is to survive the November elections with a shred of authority, it will need Barack Obama to be more than a head tutor. It will need him to be a warrior of the word every bit as combative as the army of the righteous that believes it has the Constitution on its side, and in its inchoate thrashings, can yet bring down the governance of the American Republic.

Hear, hear. Unfortunately, Obama has elected to sit on his hands for over a month, and only then call a commission together to look into the true impact of the gusher in the Gulf of Mexico that threatens to be a disaster like few before, both within the United States and internationally. How he wishes to explain his four weeks not doing much of anything at all to the people of Louisiana, Alabama, Florida, Cuba and Mexico is hard to envision. The modus operandi prevalent in Washington, to let the well-to-do culpable police themselves, whether they be Goldman Sachs or BP, carries an enormous political risk. And rightly so, because there is no indication anywhere to be seen that says this line of -in-action is in the best interest of the people who put their trust in the man. White House Press Secretary Robert Gibbs may stammer some incoherent syllables on what the law does and does not allow the president to do, but none of that will amount to zilch once nobody can deny any longer that 10 or 20 times as much oil has been leaking, and still is, than both BP and the American government have been claiming all the way back to April 20. Obama himself should have been on site from the earliest possible moment, taking advice from the best people he could find in the entire world, just in case BP was not telling the truth (for which it had great incentives), and just in case a worst case scenario would unfold when it came to closing the leak. Exactly in the same way that he has shown while dealing with the financial quagmire the nation, and indeed the world, is sinking ever deeper into, Obama has proven one thing to everyone who cares to look and listen: He is not a leader. He simply lacks the qualities and the instinct required for the position. Which is a shame, for his voters, his followers and the nation as a whole; nonetheless, it's time to stop kidding ourselves. And since the hopeful White (House) lies about an economic recovery are these days falling apart faster even than the oil can gush from the well-head, the lack of leadership looks set to have grave consequences for Americans, especially the most vulnerable among them. The finance crisis is like a viral affliction that attacks everywhere in the body at the same time. Keeping just the head intact and ready for TV is useless. To wit: Robert Wenzel at the Economic Policy Journal, quoted by ZH's Tyler Durden, has assembled a series of stats that Durden interprets as:

32 US States Now Officially Bankrupt

[..] we now know that the majority of American states are currently insolvent, and that the US Treasury has been conducting a shadow bailout of at least 32 US states. Over 60% of Americans receiving state unemployment benefits are getting these directly from the US government, as 32 states have now borrowed $37.8 billion from Uncle Sam to fund unemployment insurance.

Personally, I would prefer "functionally bankrupt”, so as to avoid any discussion of the legal meaning of the term "officially" in this context, but, frankly, that wouldn't change anything of substance in the debate. The system is rotting from the inside. And, to use a metaphor, the head surgeon, who should be applying and inserting all the anti-biotics available to him, is focusing on a nose-job instead, so to speak. You better look good than feel good. What's good for Wall Street is good for the nation. As goes the nose, so go the toes. If the president could hold off the unemployment benefit calamity for a while longer (and we have to wonder how long that will be), he would still be -almost- instantly confronted with the next gusher. As the Financial Times reports:

Unfunded state pensions face prospect of becoming federal issue

Illinois used to have a plan to pay off the gaping shortfall in the pension funds that pay retired teachers, university employees, state workers, judges and politicians [..] ... back in 1994, the state laid out a proposal that would have paid off most of what was then a $17 billion gap by 2011. But Illinois could not stick to the plan. With financial year 2011 less than six weeks away, the pension arrears of the 1990s look quaint. Instead of a balanced system, the state faces unfunded liabilities of about $78 billion, the biggest pension hole in the US, and contributions of more than $4 billion for 2011, the largest single element of its $13 billion budget deficit. Illinois is the poster child of unfunded pensions in the US. But state retirement systems could become a national concern, new research shows. Joshua Rauh, associate professor of finance at the Kellogg School of Management at Northwestern University said that, without reform, some state pensions might run out within the decade. [..] Mr Rauh said subsidising pension borrowing would cost a net $75 billion with new contributions to the national Social Security programme offsetting some of the subsidies. By his calculations, which assume [an] 8 per cent return, Illinois would run out by 2018 followed by Connecticut, New Jersey and Indiana in 2019. Some 20 states will have run out by 2025.

First, about the 8% return on investments: that is of course a preposterous assumption, akin to the desire to believe that the Deepwater Horizon well pumps only a few buckets per day into the ocean, and it will all go away by itself if only we close our eyes to it. Over the past 2-4 years, pension plans all over haven't gained 8%, they’ve lost enormous amounts of double-digit percentages of the money that pensions are supposed to be paid with. Without that ludicrous assumption, and with a more realistic zero percent return, Illinois pensioners are simply out of luck a handful years from now. That is the real world. The one a leader deserving of the name would live in. The one there is, however, elects to have the nation continue to live in the hologram of extend and pretend and hope and change and belief we see crumbling all around us today. If the stock markets tank for another week or month the way they have lately, the crumbling will reveal cracks, which, once exposed to daylight, will become fissures, which in turn will cause the walls to start falling in on themselves. If the president continues to deal with these things the way he has so far with Wall Street and the Gulf of Mexico, Simon Schama's fears of summer mayhem will close in on all of us ever more. Not just those of us in the US, but on both sides of the Atlantic, and who knows in what other places around the globe. .