I think I’m being converted.

For a good part of my intellectual life, I’ve been skpetical of Neo-Marxist understandings of power. As an urban politics student in graduate school, I rejected the views of urban scholars like Harvey Molotch, Ira Katznelson and David Harvey that claims that the dictates of capital proceeded unabated in urban space. The zeitgeist at the time was that urban power (an power in general) was a more open, fluid process. The capital accumulative class might have strong advantages in the U.S. policy process, but the process was open and by no means was the state simply a handmaiden of capital like neo-Marxists might presume. Policy was a contest, the outcome was not predetermined.

Then AIG happened.

Matt Taibi has a particularly effective and scathing piece in Rolling Stone that guides the reader through the impenetrable minefield of new terms that help us unpack the crisis we face: collateralized debt obligations, credit default swaps, The Glass-Steagall Act, Commodity Futures Modernization Act. Taibi lays the blame for the credit crisis on the combination of a lax regulatory system that allowed companies like AIG to become “too large to fail” and a risk-taking culture within the financial service industry that rewarded immediate profit above all else. As Taibi points out, the state could have stepped in a brought order to this chaos before it was too late, but they demurred:

There’s this notion that the regulators couldn’t do anything to stop AIG,” says a government official who was present during the bailout. “That’s bullshit. What you have to understand is that these regulators have ultimate power. They can send you a letter and say, ‘You don’t exist anymore,’ and that’s basically that. They don’t even really need due process. The OTS could have said, ‘We’re going to pull your charter; we’re going to pull your license; we’re going to sue you.’ And getting sued by your primary regulator is the kiss of death.

All of this could simply mean the “capture” of the state by the financial system. A good public policy scholar would tell you that in the 1990 the financial regulatory system had been “captured” by an iron triangle of interest groups, congressional staff and bureaucrats that agreed on a laissez faire approach to the financial services industry. Not unusual…nothing to see here.

But a good public policy scholar would also tell you that that policy capture is not permanent. A good shock to the policy system, a punctuated equilibrium if you will, would re-open the policy space the include new actors and ideas. Once a major catastrophe happens, policy areas are subject to major shifts. The cessation of constructing nuclear power plants after the Three Mile Island accident is a classic example of a radical shift in the policy space.

So what happened with the financial services equivalent of Chernobyl…. Taibi calls it Paulsonism:

The state is now being asked not just to call off its regulators or give tax breaks or funnel a few contracts to connected companies; it is intervening directly in the economy, for the sole purpose of preserving the influence of the megafirms. In essence, Paulson used the bailout to transform the government into a giant bureaucracy of entitled assholedom, one that would socialize “toxic” risks but keep both the profits and the management of the bailed-out firms in private hands. Moreover, this whole process would be done in secret, away from the prying eyes of NASCAR dads, broke-ass liberals who read translations of French novels, subprime mortgage holders and other such financial losers.

Rather than open up the policy space for a broader consideration of policy alternatives, our response to the financial crisis has been significant bailouts of investment firms with few strings attached. Sure there are some rumblings about the need for new regulation and overblows assessments of our current political climate, like Newsweek’s silly presumption that “We’re all Socialists Now.” But in the main, our policy discourse space remains firmly neo-liberal, even with a seemingly progressive president.

I don’t know about you, but I’m dusting off my Urban Fortunes and City Trenches Social Justice and the City. They have more to tell us that we’ve been willing to hear in urban studies and policy analysis for quite some time.

So it’s time to admit it: We’re fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we’re still in denial — we still think this is some kind of unfortunate accident