What a brutal week for democracy. The Bush administration ordered the US Treasury to step in and bailout threatened financial institutions in order to avoid another Great Depression. It was the most aggressive intervention in the economy since the 1930's by the same party that pushed its agenda and George W. Bush and a whole era of spin by spitting venom against big government and FDR's New Deal. It's the New New Deal. And still no recession.
The smooth operation of the US economy relied on representative democracy; that the various branches of government, like gears that mesh, advance the public will and the public good to the betterment of the individual and society. In the past two decades-- really, starting with the shift in wealth creation from hard assets (ie. factories) in America to low-cost labor nations-- representative democracy began to transform into another form of gearing, protecting wealth creation through debt.
The apogee of this transformation was the George W. Bush "ownership society", hyped by production home builders and Wall Street financiers and legislators, from lowly municipal and county officials to Congress and the White House. Most of the distortion was advanced by the party of so-called fiscal prudence: Republicans. Here in Miami, where developers dominate local legislatures, the protection racket is through the calamity of "parochial politics" (expressed strenuously through the Miami Dade Charter Review Commission and the influence of the unreformable majority, lead by County Commission Natacha Seijas).
Last week's markets left millions of Americans sick with worry. It was the unintended consequence of the aphorism turned into a book by NY Times columnist Tom Friedman: "the world is flat". Friedman meant the term, in respect to how America now competes in a world economy where even low-cost labor nations that match American capacity for innovation and ingenuity. But back in the centuries where navigators really thought the world was flat, there was a perceived edge beyond which adventurers could fall into an abyss. It was a belief based in ignorance because science and fact were lacking. Today, it is arguably the case that stupid ignorance has prevailed, because we should have known better-- notwithstanding how much money was made in the process of turning Americans into passive consumers unquestioning of authority.
Last week, the party of fiscal responsibility stared into the abyss and blinked. The Bush White House and Republicans blinked hard. They will ask Congress to approve $700 billion to remove the toxic debt from private corporations' balance sheets and put it where taxpayers are responsible. But every estimate of major expenditure by this White House (the wars in Iraq and Afghanistan) have been shredded by reality. The market for credit default swaps alone is estimated to be $62 trillion; how much of that will taxpayers bear?
How much health care could a couple of trillion dollars in new debt on taxpayer shoulders pay for? How much public education? And what if social security had been privatized and eligible for investment in the 'secure' stock market: that's what the Republicans have wanted to do. Who remembers when Senate Environment and Public Works chairman James Inhofe (Oklahoma-R) ridiculed climate change and rejected the $300 billion cost estimated to address global warming as too expensive and that it would "bankrupt the US economy"? Now we have a trillion dollar financial meltdown and wars costing trillions.
But back to the financial crisis: why should ordinary American taxpayers be forced to pay for something we didn't ask for and that conferred immense wealth on a few? And why shouldn't the people who got rich in the creation of toxic debt, like US Treasury Secretary Henry Paulson former chairman of Goldman Sachs, be required to give riches drawn from debt we now own, back to the Treasury?
The US taxpayer is now being asked to shoulder all the mistakes in the operation of the economy that nonetheless already put billions of dollars in the bank accounts of Wall Street titans, bank executives, and the Growth Machine apparatchniks who prevailed in gearing derivative finance to platted subdivisions and condo madness. What a stupendous misallocation of resources.
On this blog, right wing trolls have called our posts "socialist" and worse. But nothing I could ever conceive as a liberal would have put the US taxpayer in the way of such trouble as the so-called conservatives have done. A lot of conservatives are on my side of this dispute.
Obama is right: what happened in the financial markets last week is a repudiation of failed politics that stretch back decades through a strain of so-called conservatism. The Wall Street Journal today notes, "The last 20 years saw people actually mouthing the idea that government should keep its hands off," says Richard Sylla, a financial historian at New York University. "We had this free market ethos: Reagan's 'government isn't the solution, government is the problem.' Now people are saying, 'The market is the problem. The government is the solution."
It is remarkable to hear Republicans NOW call for bipartisanship, when the cronyism, insider-dealing, and especially the K Street Project all were geared to the rankest partisanship. These people wrecked the US economy and now they want to share the blame.
Last week's events are a spectacular result for which the only conceivable response by taxpayers is disgust.
John McCain says he does not know much about the economy; I take him at his word and see no evidence of change from the days when he supported Charles Keating of the savings and loan disaster, whose $150 billion cost to taxpayers is a drop in the bucket in comparison to the real costs to taxpayers of today's crisis.
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Washington Post
Wall Street's Just Deserts
By Harold Meyerson
Thursday, September 18, 2008; Page A21
At the risk of speaking ill of the dead, what good was Lehman Brothers, anyway? And if Merrill Lynch was so bullish on America, why is it that, despite the torrent of foreign investment that flowed in to Lehman, Merrill and their Wall Street peers over the past half-decade, so few jobs were created in America during that period of "recovery"?
During the late, lamented Wall Street boom, America's leading investment institutions were plenty bullish on China's economy, on exotic financial devices built atop millions of bad loans, and, above all -- judging by the unprecedented amount of wealth they showered on the Street -- on themselves. The last thing our financial community was bullish on was America -- that is, the America where the vast majority of Americans live and work.
Over the past eight years, the U.S. economy has created just 5 million new jobs, a number that is falling daily. The median income of American households has declined. Airports, bridges and roads are decaying. Rural wind-power facilities cannot light cities because our electrical grid has not been expanded. New Orleans has not been rebuilt. And as productive activity within the United States has ceased to be the prime target of investment, household consumption -- more commonly known as shopping -- has come to comprise more than 70 percent of our economy.
The banks' underinvestment in America was hardly due to a lack of capital. But even as petrodollars and China's dollars poured into Wall Street, the investment houses directed trillions into new and ever more dubious credit instruments, which yielded massive profits for Wall Streeters and their highflying investors, and put chump change into efforts to improve, to take just one example, American transportation.
It was not ever thus on Wall Street. In the late 19th and early 20th centuries, bankers such as August Belmont and J.P. Morgan invested European capital in American railroads and steel. Moreover, by the 1830s, a major political party, the Whigs, had arisen on a platform of "internal improvements" -- fast-forwarding the nation's development through a public commitment to building roads, rails and canals. Their successor party, the Republicans, continued these commitments, as Lincoln's support for the transcontinental railroad and land-grant colleges makes clear.
By the mid-20th century, the behemoths of American manufacturing reinvested their own resources to meet most of their capital needs, while New Deal-era and subsequent administrations (including that of Republican Dwight Eisenhower) invested heavily in the nation's infrastructure. Wall Street played a diminished role during the golden years of mass American prosperity but came roaring back beginning with the financial deregulation of the Reagan era.
Finance set the terms of corporate behavior over the past quarter-century, and not in ways that bolstered the economy. By its actions -- elevating shareholder value over the interests of other corporate stakeholders, focusing on short-term investments rather than patient capital, pressuring corporations to offshore jobs and cut wages and benefits -- Wall Street plainly preferred to fund production abroad and consumption at home. The internal investment strategy of 100 years ago was turned on its head. Where Morgan once funneled European capital into American production, for the past decade Morgan's successors have directed Asian capital into devices to enable Americans to take on more debt to buy Asian products.
Worse yet, as Wall Street turned its back on America, so did government. The Bush administration and congressional Republicans (John McCain among them) kept American incomes low by opposing hikes in the minimum wage; helping employers defeat unionization; and shunning policies to modernize infrastructure, make college more affordable, and boost spending on basic science and research.
Today, it's the Democrats who sound like Lincoln's Republicans. In recent months, the Obama campaign and liberal think tanks in particular have generated numerous proposals for heightened public commitment to infrastructure and education. Unlike tax cuts, which chiefly bolster our ability to consume imported goods and commodities, infrastructure investments make us more productive and have a multiplier effect that creates more jobs over and above those that the government funds directly. Congressional Democrats have included major infrastructure investments in their pending new stimulus bill, which Bush and GOP leaders oppose.
Someone needs to invest in the United States of America. For the past decade and, in a broader sense, for the entire duration of the Reagan era, both government and Wall Street have opted not to. Should Barack Obama win, the era of neglectful government will probably come to an end. No matter who wins, Wall Street is vanishing before our eyes. And by the measure of their contribution to America's economic strength and well being, both Reagan-age government and Wall Street's investment banks plainly deserve to die.
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