A Fundamental Restructuring at Hand? American capitalism could be in for another fundamental restructuring as a result of the current financial crisis.

The core question is whether private financial institutions will resume lending for "normal" business, consumer, real estate, and home mortgage operations.

After the Sept. 15 meltdown of Lehmann Brothers, credit was frozen as major financial institutions were unwilling to take risks and sought to hoard cash to pay off demands from their own creditors.

As a result, Congress passed legislation authorizing the federal government to spend $700 billion in efforts to "unfreeze" the credit markets. Initially, the idea was for the federal government to purchase "bad" mortgage-based assets (mortgages, derivatives, credit default swaps, etc.), but the Treasury Department and Fed moved toward purchasing equity in troubled financial institutions as a way to provide them more cash to work with.

So far, they've put almost $350 billion into the effort.

But it hasn't worked. According to a Dec. 16 McClatchey article:

. . . despite the attractive rates, banks aren't lending to most consumers and businesses. Weak financial institutions continue to hoard cash and build their balance sheets, with little appetite for risk in new loans. That's worsening the economic downturn, especially since it hurts consumers, who drive almost two-thirds of U.S. economic activity.

As a result, the Federal Reserve Board is taking a much more aggressive role as a national financial manager.

The Fed already has become the buyer of last resort for financial products that aren't moving in today's frozen credit markets. It's bypassed banks and is purchasing short-term promissory notes issued by big U.S. corporations, called commercial paper. It's also announced plans to buy pooled car loans, student loans and credit card debt, collectively called asset-backed securities. In another creative step to boost the housing market, the central bank also has been purchasing pooled mortgages — called mortgage-backed securities — and debt issued by Fannie Mae and Freddie Mac, the mortgage finance giants that the government seized in September. The senior Fed official said that efforts to purchase mortgages backed by Fannie Mae and Freddie Mac were being ramped up.

It appears that the federal government is also going to get into the business of direct lending.

The Fed's statement also said that it will extend credit to households and small
businesses early next year. Other experts think that the Fed will increase its purchases of troubled assets to unclog credit markets.

But what if the banks, insurance companies, and other financial private institutions don't want to get back into these kinds of businesses. What if the financial institutions don't see enough the rising profits in consumer loans, housing loans, commercial paper, and other kinds of "mundane" banking business that would be needed to justify increasing stock prices? "Shareholder" value was the mantra of the early 2000's. What if the banks don't see that much shareholder value in the financial transactions needed to keep the economy functioning?

Wouldn't they focus their attention on other more profitable kinds of transactions instead?

Not being an economist or banking or financial expert, I don't really know the answer to these kinds of questions. But I can't help but wonder if the economy isn't going to be restructured to give the Federal Reserve Board a more central role in promoting the financial transactions needed to bring business productivity and consumer purchases into sync.

The National Disaster. Obama has very high poll numbers for an incoming president.

A new poll suggests that Barack Obama's high ratings aren't just your average . . . honeymoon, but could effectively be the same as when the people rally around their leader after a disaster.

The new numbers from CNN show 76% of Americans saying that Obama is a strong and decisive leader. This is higher than George W. Bush's 60% when he first took office, and Bill Clinton's 67% in January 1993.

However, the number is nearly identical to George W. Bush's rating on this question right after September 11, 2001.

Obama's gotten such high marks for his appointments that even conservative commentators like William Kristol and Tony Blankley are sanguine about his taking office.

But Obama's isn't getting high ratings "like" the "rally around the flag" effect in times of disaster, he's getting high ratings because the nation is rallying around him in a time of apparent economic disaster. Obama's getting "9-11" ratings because a lot of people who didn't vote for him believe that the country is in crisis.

And they're right.

New Year's Resolutions:

1. Drink more alcohol. I'm mildly allergic to booze and drink very little as a result. But Mrs. RSI and I really should share more wine with each other. So I pledge to drink more in 2009.

And that's the resolution I'm going to focus on the most.

2. Lose 20 pounds. I know this sounds ridiculous. But I did lose 20 pounds last year. The trick for me is to lose 40 pounds really quickly and then work to keep half of it off. I want to be down to 205 by the end of the year.

3. Get my blood pressure down. At my worst last fall, my blood pressure was 159/95 and I felt sick all the time. It's more like 130 over 76 now. But I'd like my blood pressure to read something like 115 over 70 by the end of the year.

Now that I have gotten my romance and health priorities straight, I can think about what I want in relation to my professional life.

More later.

Why Did Conservatives Abandon Gonzales? Yesterday, the Wall Street Journal ran an interview with former Attorney General Alberto (just "Al" to George Bush) Gonzales. A lot of it is "whoa is me" self-pity on the part of Gonzales--especially this:

"What is it that I did that is so fundamentally wrong, that deserves this kind of response to my service?" he said during an interview Tuesday, offering his most extensive comments since leaving government . . . [F]or some reason, I am portrayed as the one who is evil in formulating policies that people disagree with. I consider myself a casualty, one of the many casualties of the war on terror."

Why was Al Gonzales complaining like this to the Wall Street Journal? If Gonzales had conducted the interview with Glenn Greenwald, Huffington Post, or Talking Points Memo, he would have received definite answers on these points. If he asked any of these media outlets why he "deserves this kind of response to my service," Gonzales would have heard at the very least that he was culpable for crimes against humanity for his role in approving the John Yoo torture memo and participation in the principles meetings that approved specific torture techniques. Gonzales would also have heard about how he committed felonies for his role in promoting warrantless wiretapping and the perjury in his Congressional testimony. I imagine someone would have mentioned his role in politicizing the Justice Department as well.

What would have been even more humiliating to Gonzales is the fact that the left blogosphere does not even rate him that high on the hierarchy of Bush administration "evil." Gonzales may have been White House counsel and Attorney General but he wasn't seen as a major player in the Bush administration's assault on the rule of law. Dick Cheney, David Addington, and John Yoo driving the train--not Gonzales. The left may view Gonzales as a war criminal, but it also views Gonzales strictly as a secondary player.

But it's not the left that's blackballing Gonzales--it's the conservative establishment. As tainted as the Bush administration is by failure and criminality, most Bush figures have found sinecures at conservative institutions. Bush himself is creating a conservative institution in the form of his presidential library while Rove is a Fox, Time, and Wall Street Journal commentator. Dick Cheney can pretty much write his own ticket with the American Enterprise Institute, Fox, or talk radio. He could also make a mint as a paid speaker for conservative audiences. Condoleeza Rice is going to be at the Hoover Institute. Even some of the more reviled secondary players like John Bolton and Doug Feith landed on their feet with think tank and academic gigs. Somewhat unbelievably, they're still sought out by the media as conservative spokesmen.

But Al Gonzales?

Nothing. Not even a book contract from Regnery.

The problem for Gonzales is that he got scapegoated as an incompetent by the conservative establishment. The Bush administration was teeming with cronies and incompetents, but Al Gonzales ended up as the representative figure for Bush incompetence to conservatives as well as liberals. Figures like Dick Cheney and Condoleeza Rice did a lot more harm than Gonzales, but Gonzales was the one that the right ended up throwing under the bus.

Sorry Al.

The New Year. We're home with the RSI daughters watching Matthew McConaughey in Sahara. As always, McConaughey's depth and range as an actor is beyond praise. What a profound entertainment. Even better than Fool's Gold.

Mrs. RSI is in Florida with her mom and I took the girls to a party with lots of live music and good conversation with a tuba player.

The year 2008 was not a great year.

On top of the severe recession, the on-going American wars in Iraq and Afghanistan, and Israel's attack on Gaza, our friend Nancy Peterson died from breast cancer.

But Mrs. RSI is in grad school, I'm on sabbatical and the RSI girls are thriving.

Plus, the world's a better place because of the election of Barack Obama as president of the United States. Whatever progress the incoming Obama administration can make, the world's a better place because the American right has been separated from the levers of power. As long as George Bush was in charge, the American right was the most dangerous source of instability in the world.

With Obama's election, that danger has abated and there's some hope for improvement.

Bobby Rush Plays the Thomas Card. Congressman Bobby Rush of Chicago was playing a race card yesterday when urging people to accept the Rod Blagojevich's nomination of Roland Burris for the Senate seat held by Barack Obama.

"I would ask you to not hang or lynch the appointee as you try to castigate the appointer. Roland Burris is worthy," Rush said.

But which race card was Bobby Rush playing. In mainstream political commentary, "the race card" is viewed as a racial reference that African-Americans unfairly use to gain advantage over whites. But that's ridiculous. What 250 years of slavery, another hundred years of segregation, and a couple generations of racial discrimination means is that America is practically drowning in race cards. So it's important to be specific about which race card Bobby Rush was playing.

John Kass of the Chicago Tribune claims that Rush was playing the Jesse Jackson/Al Sharpton race card.

Grown-ups have seen such theater before. The only things missing were cameo performances by those two prolific race card players, Al Sharpton and Chicago's own Rev. Jesse Jackson.

I'm sure people could find these kinds of references to lynching from Sharpton's involvement in the Tawana Brawley mess. But claiming that the rejection of the kind of ethically questionable and manipulative race play being made by Blagojevich is analogous to lynching doesn't sound like Jackson or anything Sharpton's said since he first ran for President.

Instead, Bobby Rush is sounding more like Clarence Thomas. Here's Thomas from his Senate confirmation hearing after his pathetic conduct toward Anita Hill was revealed.

"This is not an opportunity to talk about difficult matters privately or in a closed environment. This is a circus. It is a national disgrace. And from my standpoint, as a black American, as far as I am concerned, it is a high-tech lynching for uppity-blacks who in any way deign to think for themselves, to do for themselves, to have different ideas, and it is a message that, unless you kow-tow to an old order this is what will happen to you, you will be lynched, destroyed, caricatured by a committee of the U.S. Senate, rather than hung from a tree."

That's one of the many conservative race cards. Conservatives also play "color-blindness," the Bell Curve, and a host of other race cards against African-Americans. "Barack the Magic Negro" is a race card that Rush Limbaugh particularly enjoyed playing. In the case of Clarence Thomas, the conservative idea is that liberals who engage in critical treatment or moral condemnation of African-American conservatives are doing the moral equivalent of a lynching. Bobby Rush and Roland Burris aren't conservatives, but Rush is doing essentially the same thing when he claims that liberal rejection of Roland Burris would be "lynching."

Playing a race card in support of a corrupt figure like Blagojevich is no surprise. How many pro-Blagojevich cards are out there? But it's not the kind of card that either Jesse Jackson or Al Sharpton would play.

No Ceasefire, No Surprise.

The Unsettled CW. Liberal bloggers like Glenn Greenwald and Digby like to stress the unity of the American political establishment or "the village" as Digby likes to call it.

But there could be some shifting going on in the establishment. The RNC's racist farce over "Barack the Magic Negro" is an indication that the Republican Party might not turn out to be a credible opposition to the incoming Obama administration.

There's so me signs that the leadership of Republican institutions might be worried about their credibility. For example, the American Enterprise Institute (AEI) has forced out two of their most vociferous neo-cons--Michael Ledeen and Reul Marc Gerecht. No institution that employs John Bolton, Charles Murray, and Newt Gingrich could be very credible in the final analysis.

But it appears that AEI is trying.

There's some signs of the repositioning of the Democrats in relation to the mainstream media as well.

The media might be softening its embargo of the left as well. On Face the Nation last Sunday, CBS invited Paul Krugman to provide critical perspective on Obama's stimulus package rather than any kind of conservative figure.

It appears that Democratic elites are getting fed up with media stupidity. Caroline Kennedy improved her stock with me by asking if her insipid New York Times interviewers had ever thought about writing for "women's magazines." Actually, Kennedy wasn't being fair to women's magazines which are generally superior to political journalism. She should have compared Times political correspondents to entertainment or sports reporters instead.

And today, Zbigniew Brzezinski actually referred to Joe Scarborough to Scarborough's face as "stunningly superficial" in discussing Israel and Hamas.

None of this is an indication of any kind of big structural shift, but it does appear that the conventional wisdom is fairly unsettled right now.

Israelis Consider French Proposal. It appears that Israel is considering a French proposal for a 48 hour cease-fire "to see if Palestinian militants will stop their rocket attacks on southern Israel . . . . Any offer would be coupled with a threat to send in ground troops if the rocket fire continues."

Who knows. The Israelis may decide that they've made their point about the invincibility of their military and accept.

But that doesn't seem likely.

French President Nikolas Sarkozy made the cease-fire proposal within the framework of the Quartet--a group of international powers trying to stabilize the Middle East. Incorporating the U. S., UN, EU, and Russia, the formation of the Quartet is yet another sign of the failure of the Bush foreign policy vision. Much of American policy during the early Bush years had been geared toward freeing the U. S. from the "constraints" of global institutions like the United Nations and the traditional NATO alliance with European countries.

But with the formation of the Quartet, it appears that the U. S. is involved in a new kind of global institution that will once again constrain American policy. Far from being the "new Roman empire," the U. S. is just a very large element in the global institutional picture.

John Bolton must be rolling over in his grave (not that he's actually dead).

The other important consideration here is that the U. S. is not the lead element in international political initiatives either.

That honor is going to the French.

Boxed in by its commitment to support Israel, the Bush administration does not have the interest or the will to actively pursue cease-fire proposals. That's making us secondary players in a region where we have something like 150,00 troops and the EU, UN, Russians, and everybody else has none.

Only the Bush administration is ineffective enough to turn such overwhelming military superiority into such pathetic diplomatic weakness.

No Surprise There. The federal government has announced that its committing 6 billion out of the TARP fund to support GMAC--the financial arm of General Motors.

The Treasury will purchase a $5 billion stake in GMAC and lend $1 billion to GM so the automaker can contribute to the lender’s reorganization as a bank holding company, according to a statement issued yesterday. The loan is in addition to $13.4 billion the Treasury agreed earlier this month to lend to GM and Chrysler LLC.

It's the logical thing to do. GMAC is a financial institution that's oriented toward making loans for people to purchase automobiles. They're a better bet for TARP funds than banks that want to buy other banks.

If the Anti-Bush Tide Turns. Like Matthew Dowd and Harriet Miers, Condoleeza Rice views George Bush more in terms of love than anything else. So, it's not much of a surprise that Condoleeza Rice is defending the Bush presidency by saying that "I think generations pretty soon are going to start to thank this president for what he's done. This generation will . . ."

Personally, I don't think Rice should hold her breath.

But Rice does raise an interesting question. Conventional historical wisdom rates George Bush as a presidential bottom feeder along with Buchanan, Pierce, and Hoover. How would we know when the tide of judgment is beginning to turn? What would be a sign that historians are starting to look at Bush more like Harry Truman and less like James Buchanan?

Would it be books by well-known conservative historians like Niall Ferguson? Probably not. Writers like Ferguson would come off as being biased towards Bush in the same way that Amity Schlaes' work on the Depression is biased against Roosevelt.

One measure of a turn toward Bush would be the reputation of Jefferson Davis, the president of the Confederacy. The last generation of historians has stripped the Confederacy of its "Gone with the Wind" aura and the reputation of Jefferson Davis has suffered immeasurably. Just as Abraham Lincoln has been on a reputational escalator going up, Davis has been going down a very steep slope.

And deservedly so.

Besides being Southern by choice, George Bush has many of the same traits that animated the Confederates--an exaggerated sense of his own masculine prowess, a taste for showy aggression, a disdain for knowledge and investigation, and an intolerance for disagreement. Bush has also been a "rebel" against the Constitutional system of checks and balances, international law, regulation of the stock market, the environment, and worker's health.

If Jefferson Davis and the Confederates make a comeback, it's pretty likely that historians will look on George Bush with a kindly eye.

If not, Bush will keep getting what he deserves.

Israel: War Crime as the Only "Winning" Strategy. It's tempting to view Israel as starting a Friedmanesque war to make Hamas "Suck. On. This." But the Israelis aren't quite as stupid as American warmongers.

At least not yet.

Instead, the Israelis have a two point preference schedule in relation to Hamas. What Israel most prefers is to intimidate Hamas into acting as an agent of the Israeli government in the Gaza strip. That's what they think they have with Abbas and Fatah on the West Bank. But, the Israelis have not been able to accomplish this goal with Hamas. As a result, the Israelis moved to Plan B and have decided to attack Gaza with the dual aim of taking out the Hamas government infrastructure and collectively punishing the Palestinian population for its support of Hamas.

As Glenn Greenwald emphasizes, collective punishment is a war crime.

I don't see how the Israelis can succeed with this. It's easy to bomb government buildings, kill militants, and target prominent activists. If the Israelis launch a ground offensive, they'll probably capture a significant percentage of the Hamas leadership.

But so what? What's most likely to happen is that the Israelis will launch a ground assault that will destroy part of the Hamas political infrastructure with the rest of Hamas reasserting control as the Palestinians dig out of the rubble.

That can only be called victory if Israel acknowledges that the collective punishment of knocking out the government infrastructure, destroying the economy, and killing a lot of civilians was the main goal of the attack. In this sense, the Israelis might claim that they want to keep the Palestinians digging out of the rubble as a way to distract them from attacking Israel.

Call that the Grozny approach.

But if that's the case, the Israelis are just war criminals in the same way that the U. S. has been engaged in on-going war crimes in Iraq.

But it's still likely to be counter-productive. Robert Farley of Lawyers, Guns, and Money (and the Patterson School of Diplomacy at the University of Kentucky) argues that Hamas sought to trigger the Israeli attacks as a way for them to take over the West Bank from Fatah.

There's also the possibility that the Israelis could get bogged down in Gaza City the same way that they got bogged down in Lebanon during the 2006 war.