The Politics of Upward Redistribution

Henry C.K. Liu

The Bush Administration is totally consistent in the economic policy of
its war on terrorism. Taking care of business is the core of the
supplyside ideology of market fundmentalism. It is consistent with the
strategic thrust of its geo-political war on terrorism, through a
coalition of state power, notwithstanding that, terrorists of all
different stripes generally identify social injustice with state power,
both domestically and internationally. Radical, or extremist Islam
fundamentalism considers both the secular Islam states as well as the
theocratic Islam states part of the regime of nation states that has
given birth to the politcal and socio-economic-cultural imperialism that
acts as the midwife of political terrorism. In this respect, it is not
much different from other religious funamentalism. The Church of Rome
went through the conflict between Church and State, and reached a
compromise of spearating the two conflicting institutions in the
spiritual and the political spheres. Religous fundamentalism has yet to
completely accept this separation, even in the US, where the intrusion
of religion into state supported education remain active. Islam
fundamentalism, insulating from Western liberalism, continues to reject
secularism in politics and culture.
Thus a key part of the US war on terrorism is the protection of the
governments of "moderate" oil
states from grassroot Islamic fundamentalism. A neo-colonialism made
necessary by alleged "failed" state is at the center of the US's
geo-political war on terrorism. On the economic front, the
administration's strategy of sustaining normalcy and domestic security
is built on keeping business from bankruptcy, either from terrorist
disruption or from market excess. Selective government intervention
into markets to relieve business of external costs will be the
cornerstone of the new normalcy.



The selction of Lockheed over Boeing as contractor of the new $200
billion JSF (Joint Strike Fighter) program is reportedly based on the
consideration that Lookheed could not survive a disappointment, while
Boeing could. Thus the sustainance of two military suppliers is not
based on issues of merit or competition, but on the need for security
redundancy - a standby manufacturer.



Enron, which has lost 80% of its market capitalization value in 12
months, wiping out $50 billion of wealth ($89.63 on 9/18/2000 to $15.4
on 10/26/2001), is finally and suddenly attracting much attention in the
media. It faces serious cashflow problems not from the fall of energy
prices alone, but from its role as a major trader of energy futures,
leading to a $618 million third quater loss, not to mention SEC
investigation on creative accounting and financial reporting that
resulted in a $1.2 billion equity dilution. If Enron should go under,
and all the smart money is betting on it if market forces are allowed to
govern, the counterparty risk fallout threatens to drawf the LTCM
crisis. Enron incidentally receives $250 million from Congress's
stimulative package that Krugman criticised, but that will not help it
in its multi-billions debt exposure and trading losses. Last week,
Enron bought back $2 billion of its commercial papers, depleting its
$3.3 billion bank credit, because commercial papers are traded in the
open credit market and Enron may not be able to roll them over. Its
bank loans are only tradable in the private debt market. Corporate
redit lines are generally not expected to be drawn down without
signalling to the market that the borrower is in serious trouble. The
higher resultant cost of higher interest payments from this desparate
move only adds to Enron's cashflow problem. The press reports that the
company is negotiating with its banks for additional $2 billion new
credit. Enron's connection to Texas and the Bush political network is
well known. It remains to be seem if Enron will be allowed to go
bankrupt or will be bailed out by the too big to fail principle..



The equity markets since 9:11 are no longer free markets. They are now
a scam operated in the name of patriotism to transfer through managed
volatility the losses that have already occurred but yet hidden by the
Plunge Prevention Team to unsuspecting small investors who are too
patriotic to sell immediately. The new financial normalcy is a totally
new system. We have enetered a new phase of state capitalism with the
government deciding who survives and who falls. The American system is
being attacked by both terrorism and the war on terrorism.