Time flies when you are having fun, but it’s been a little over a year since then- Treasury Secretary Hank Paulson staggered over to Capital Hill from the warrens of the Treasury building and threatened fire and perdition unless he received $700 billion dollars – immediately – from the taxpayers’ grandchildren.

It’s important to consider the context: Lehman, AIG, the GSE’s were bust and much of the world banking business had stopped. Paulson was confused about what to do, so he panicked:

Then again, maybe not. Mike Whitney @ The Market Oracle uncovered evidence that Lehman was purposefully allowed to fail in order to provide some ‘incentive’ to lawmakers and others. To demonstrate what a real financial crisis would look like:

Whitney goes on to describe – with material from Dean Baker and Joe Nocera – how the banking industry manipulated the Treasury and the Fed into blackmailing Congress:

So it goes. Now comes the US military commander in Afghanistan before the US and demands … a large bailout … a commitment of resources presumably from the taxpayers’ grandchildren or else!

This is how the greatest nation on Earth makes policy. The leadership cadre is blackmailed by the cadre’s employees! Here we go again.

As with Paulson and his pet TARP, the redoubtedly clever and conniving McChrystal will get his allotment. By leaking his report to the press – as did Paulson during the firestorm last September – the General ties the President’s hands. Nobody in America will tolerate failure and the media conspires to paint the leadership into a corner.

Unurprisingly, the same media is filled with news stories of Al Qaeda terrorists in America. The big fear button that President Bush left behind in the Oval Office is pushed by the ‘change agent’ who refuses to surrender the perk of any predecessor.

Keep in mind that all the resources that any combat expansion in landlocked Afghanistan will have to be borrowed from the future. Our grandchildren cannot deny us this loan, just as they did not deny the funding for TARP. They certainly can refuse to pay for it.

The American war in Afghanistan will go on until it becomes prohibitively expensive. Ironically, the prosecution of the war accelerates the economic pressures that result in that prohibition taking root. Our entire establishment is in denial. Call it the ‘Federal-Reserve-I-Zation’ of the American administrative mind. The Fed believes in magic. It can endlessly create more and more of its ‘product’ at near- zero cost. Certainly all other aspects of productive American society can do the same?

While Iraq has been lately quiescent, the conflict has not been ended there, either. We have natural allies, the Kurds, but the entire country is at odds over oil reserves. This is the ‘Great Game’: both wars together, threaten America’s solvency. The superpower fantasy is grinding on the rocks of hubris, bad credit and peak oil.

It is beyond the grasp of President Obama to simply announce that the costs of the wars are too great in relation to any possible return and cease operations. Similarly, President Bush was incapable of telling the business establishment they had made their beds – and bad loans – and had to sleep with the consequences. The greater world will still spin if US forces leave Afghanistan to the Afghans and Iraq to its own devices. Just the same way, a replacement business structure would form from the well deserved wreckage of the credit bubble economic infrastructure.

The geopolitical triangulating toward access to Central Asian oil supplies and the idea of encircling Iran are unreachable militarily. The US lacks the manpower and the commitment of the citizenry as a whole to pursue this venture. Yet, the President cannot admit it. Instead of pushing failure into the future, the mis- investment pulls the future into the present. This being the future where the US must abandon its adventures on other than its own terms.

In the same manner, TARP pushed the pain of restructuring into the future, without addressing the structural defects. The fee for TARP – as well as the price tag for US military efforts – amplifies the overall costs of the deferrals. While our grandchildren will refuse to pay for our dishonesty, we ourselves cannot begin to afford it. It is one thing to mortgage an alternative future but our futures are foreclosing our present. Conflicted policy becomes another divergence in whatever markets policy is traded.

This process is the ongoing expression of moral hazard; one bailout leading to the next and to others, the total is ruinous. Our enemies conspiring cannot do the harm that we do to ourselves with our intellectual dishonesty!

In a perfect world the President would pick up McChrystal’s report, glance at it, then toss it into the trash can. All of this could be done on television. The President would then fire McChrystal on the spot. He would order the Pentagon to draft a plan to remove all US forces from Afghanistan in six weeks. The President would inform all and sundry that the efforts begun in 2002 were successful and additional efforts are unnecessary. To outmaneuver the fear mongers, he would propose a large tax increase to pay for added military activities if the public was so inclined.

I’ll let you know if the President takes any of these steps.