Thursday, September 25, 2008

The Economic Hurricane and the Looting
of the U.S. Treasury.

Remember in July, when someone surrepetitiously videoed President Bush’s telling a small group of Houston supporters that Wall Street had a little drinking problem? “There’s no quesion about it,” he said, “Wall Street got drunk...and now it’s got a hangover. The question is, how long will it sober up?” (See clip below.) Did he mean how long will it take to sober up, or was he speaking as an experienced binge drinker? Alcoholics and druggies have a bad habit of “projection,” as psychologists call it, which is pointing out the flaws and crimes of others of which the acuser is actually guilty. Sometimes both are guilty. Not long after Bush referred to Wall Street’s intemperance, the government took over Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Company), which sound more like moonshiners than titan housing lenders, but Bush, at least in front of TV cameras, insisted that the economy was sound.

video

Last night George W. looked more sober than usual. But as far as Wall Street goes, it won’t have to sober up if Secretary Paulson gets $700 billion for his bailout plan for those naughty financial drunkards who had a habit of power drinking. Bush told us what might be the understatement of the decade: “This is an extraordinary period for America’s economy.” Most of us knew he had been lying every time he claimed the economy is sound. How could it be when he, Congress, and the Pentagon have been throwing money into the winds of war and war profiteers, and Wall Street execs behaved like mice who play when the cat’s away. Mice with drinking problems given the keys to the liquor cabinet (and cocaine bin), partying like it’s the 1980s. People on Wall Street took umbrage over Bush’s remark, blaming the shady lenders who made bad loans, and said to blame Wall Street for the subprime mortgage crisis was “unconscionable.” Political analyst David Gergen’s response was, “For a lot of people, the question is, ‘Where was the government? Why didn’t the government take the bottles away?’” Since Bush’s gaff in Houston the securities firm Lehman Brothers filed for bankruptcy protection, Merrill Lynch sold itself to Bank of America, and the Federal Reserve agreed to bail out the insurance sprawling insurance company A.I.G. (American International Group), while Wall Street bankers were, as the NY Times reported, “huddled in meetings at the behest of Bush administration officials to try to avoid a downward spiral in the markets stemming from a crisis of confidence.”

President Bush’s Address to the Nation on the Financial Crisis
September 24, 2008



But it’s the American taxpayers who are supposed to suffer the hangover, while Wall Street execs get to wake up to drink the hair of the dog and brag about what a wild ride they had had the night before, knowing that their ole bud Hank is there to pour the drinks. Secretary Henry Paulson announced last week that it was imperative that $700 billion be paid to bail out Wall Street in order to save the economy from a full meltdown. This administration, the Pentagon, Congress, and Wall Street have spent down the treasury like drunken sailors, the sort who are bona fide alcoholics, with the accompanying pathological symptoms that go with alcoholism—lying and codependancy. Wall Street and members of Congress, some more than others, have been codependent. Congress is talking tough love now, but will it ultimately stand down and allow the massive looting of the treasury, that is, the taxpayers’ money? Last night Bush said the bailout plan Congress hammers out “should make certain that failed executives do not receive a windfall from your tax dollars,” leaving us to wonder why they should receive anything at all, and why the plan wouldn’t include provisions that penalize the executives who are responsible for precipitating what is potentially the gravest financial disaster in our lifetime.

Rep. Marcy Kaptur of Ohio (see below), says they should be penalized, and that the plan will include assistance, if not a bailout, to those whose homes are being foreclosed at a rate of 10,000 per day so they can avoid losing them. Short of the necessary reforms, which will take months to years to implement, depending on the political and personal financial will of members of Congress and who holds the veto pen come January, those Wall Street executives should not be able to walk away with their wealth intact.

If there’s anything good about all this it’s that it’s happening just two months before the presidential and congressional elections. Quite a few senators and representatives have some serious explaining to do about how they’ve been enablers of Wall Street’s chronic debauchery, and taxpayers now have the chance to hold their feet to the fire. Who could blame some if they want to do that quite literally?
Yesterday Senate Majority Leader Harry Reid held a press conference alongside Sen. Chris Dodd, Chairman of the Banking Committee. He first expressed his appreciation to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke for their patience and stamina: “They just spent many many hours before the House Banking Committee. They came right over here. Frankly, there was one break so Paulson could go to the bathroom, and that was about it.” Dodd grimaced and looked a little embarrassed. I thought it an oddly impolite and inappropriate thing to say. But then I realized that Sen. Reid, the consummate politician, had referred to Paulson’s bodily functions to put him in his place, so to speak. There had been a terse message published on Steve Clemons’ blog, “The Washington Note,” that has been circulating in internet forums, which he had likely seen: “Treasury Secretary Absolute Monarch?” said the heading, with the image of a monarchal throne below it and a quote from Section 8 of Paulson’s bailout plan:

“Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

Perhaps Sen. Reid had seen it and was slyly meta-messaging to the blogosphere that, no, Paulson wasn’t a monarch. In fact he had to have Reid’s permission to go to the only sort of throne he would be visiting during the rest of his tenure as Secretary of the Treasury.

But the Devil’s in the details, as they say, and we have very few of those yet. Paulson and his Wall Street chums won’t be getting the entire $700 billion all at once, but rather in installments. Let’s hope the public stays in persuit of those in Congress who have enabled the Wall Street’s debauchery which has led to the current looting of the treasury.

It’s as amazing to me as it must be to others that we keep hearing from the administraiton, Congress, economists, and market analysts, that they just didn’t see this coming, but for the most part they end up being the very ones who were cheering the process on for decades. But some people did see it coming. Watch Bill Moyers’ interview with Kevin Philips.

After the levees failed during Hurricane Katrina and many of the unevacuated began breaking into looting all the stores for everything they could carry away, Louisiana Governor Kathleen Babineaux Blanco expressed shock and dismay that people were taking advantage of a disaster in that way. What did she expect? I wondered. Was she so naive to think there would not be some New Orleanians who would behave in the same way some people in Baghdad did when the U.S. military invaded? Looting is a crime of opportunity, and white-collar looters are no different than the common street looter. If there’s no one to tell them they can’t do it, no one to stop them, they’re going to carry off everything they can, regardless of who might suffer and how much.

After New Orleans was evacuated in anticipation of Hurricane Gustav, I noticed a sign the door of a Walgreens that said there were no pharmaceuticals on the premises. Live and learn. The mayor and and the sheriff of St. Bernard Parish announced reapeatedly that anyone caught looting would go “straight to the Big House,” Angola, into the general population. Many would-be looters probably believed them. Congresses and presidents from Reagan through the current Bush (and hopefully the last) have not just been reluctant to discipline Wall Street, they’ve been its main enablers who refused to take the bottles away, as Gergen suggested. If it’s time for the Wall Street reckoning, as Rep. Kaptur says, it’s also time for reckoning of Congress, the presidency, the treasury secretary, and the Federal Reserve chairmen, past and present.

“It’s been a bipartisan phenomenon. You can go back to the 1980s and say Reagan and George Bush, Sr. got a bubble started. Clinton got in and got an even bigger bubble going. And then George W. Bush with the biggest bubble of all.”
Kevin Phillips, “Bill Moyers Journal” interview
A week ago, Bill Moyers interviewed political and economic critic Kevin Phillips, who was a former strategist in President Nixon’s administration. “If you read only one book on the route to this financial meltdown,” Moyers says in his introduction to Phillips, “I recommend this one: Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism. The author, Kevin Phillips, has a history of being way ahead of the curve. As a young man working for Richard Nixon, he wrote The Emerging Republican Majority, a book that uncannily predicted how the GOP would regain power in Washington. Kevin Phillips saw our current crisis coming a long time ago. And in one book of historical insight after another, laid out the clues he was tracking. As recently as last spring in the American Prospect magazine, Phillips wrote that what he thought was about to happen would be ‘unusual and potentially tragic.’ In the preface of his book, he has written that these things usually come to fruition in August and September. And sure enough, here we are coping in September with the effects of bad money.”

“...I think what we’re seeing with the actions of the Federal Reserve Board is the people who are the arsonists, the people who pumped it all up, who blew up the bubble are now racing to show up in firemen’s hats and say, ‘We’re gonna solve it. We’re gonna take care of all this. Oh, and by the way, we’re gonna keep pumping in the gasoline that we pumped in before that made a good flame.’ But, you know, nobody knows that.”Kevin Phillips, "Bill Moyers Journal" interview


“Let’s play Wall Street Bailout!”
Game Rules by Ohio Rep. Marcy Kaptur (Dem.)

transcript:
Mr. Speaker, here’s the latest reality game. Let’s play Wall Street Bailout!

Rule One: Rush the decision. Time the game in the week before Congress is set to adjourn and just six weeks before a historic election, so your opponents will be preoccupied, pressured, distracted, and in a hurry.

Rule Two: Disarm the public through fear. Warn that the entire global financial system will collapse and the world will fall into another Great Depression. Control the media enough to ensure that the public will not notice that this bailout will indebt them for generations, taking from them from trillions of dollars they earned and they deserve to keep.

Rule Three: Control the playing field and set the rules. Hide from the public, and most of the Congress, just who is arranging this deal. Communicate with the public through leaks to media insiders. Limit any open congressional hearings. Communicate with Congress via private teleconferencing calls. Heighten political anxiety by contacting each political party separately. Treat members of Congress condescendingly, telling them that the matter is so complex that they must rely on those few insiders who really do know what’s going on.

Rule Four: Divert attention, and keep people confused. Manage the news cycle so Congress and the public have no time to examine who destroyed the prudent banking system that served America so well for 60 years after the financial meltdown of the 1920s.

Rule Five: Always keep in mind the goal is to privatize gains to a few and socialize losses to the many. In thirty years, in one financial scandal after another, Wall Street game masters have kept billions of dollars of their gains, and shifted their losses to the American taxpayers. Once this bailout is in place, the Greed Game will begin, again.

But I have a counter game. It’s called Wall Street Reckoning. Congress shouldn’t go home to campaign. It should put America’s accounts in order. To Wall Street insiders, it says: “No, on behalf of the American. You have perpetrated the greatest financial crimes ever on this American republic. You think you can get by with it because you are extraordinarily wealthy and the largest contributors to both presidential and congressional campaigns in both major parties. But you are about to be brought under firm control.

“First, America doesn’t need to bail you out. It needs to secure the real assets and property, not your paper. That means the homes and properties of hard-working Americans who are about to lose their homes because of your mortgage greed. There should be a new job for regional Federal Reserve banks. We want no home foreclosed if a serious work-out agreement can be put into place. And, if you don’t do it, we want a notarized statement by a Federal Reserve official that they tried and failed.

“Second, taxpayers should directly gain any equity benefits that may flow from this historic bailout. We want the American people to get first priority in taking ownership of the institutions that want to pass their toxic paper on to the taxpayers.

“Third, before any bailout for Wall Street, America needs major job creation to rebuild our national infrastructure. America needs assets, not paper. We need working assets.

“Fourth, the time for real regulatory financial change is now, not next year. A modernized Glass-Steagall Act must be put in place. We need to reestablish locally-owned community savings banks across this country and create within the Justice Department a fully funded unit to prosecute every single high-flying thief whose fraud and criminal acts created this debacle and then forced their disgorgement of assets going back 15 years.

“Fifth, any refinancing must return a major share of profits to a new Social Security and Medicare lockbox, where the monies can go to pay for a dignified and assured retirement for every American. This Member isn’t voting for a penny of it. Those who created and profited from this game of games must be brought to justice. The assets they stole must be returned to the American taxpayers, right down to the tires on their Mercedes.”

Mr. Speaker, I ask my colleagues to join me in cosponsoring my bill to create an independent commission to investigate these well-heeled wrongdoers. Real reform now, or nothing.


Reading Room:

Charles R. Morris
Public Affairs (2008)

“Few writers are as good as Morris at making financial
arcana understandable and even fascinating.”
Floyd Norris, Anatomy of a Collapse,” New York Times Book Review



"Think of Paulson as Mr. Risk. He's one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in their pursuit of profits. By some key measures, the securities industry is more leveraged now than it was at the height of the 1990s boom. It has also extended its global supremacy since then.Goldman, under Paulson's leadership, became one of the greatest and most profitable risk-taking machines ever built."
Michael Mandel
"Mr. Risk Goes to Washington"
Business Week, June 12, 2006

"[B]anks are jumping into the realm of private equity, spending billions to buy struggling businesses as far afield as China that they hope to turn around and sell at a profit. With $25 billion of capital under management, Goldman's private equity arm itself is one of the largest buyout firms in the world, according to Thomson Venture Economics. The moves are not unrelated to trading. In both cases, banks are flocking to exotic and inaccessible markets where there aren't many others to fight for profit. Counterintuitively, they're seeking out the investments that would be the hardest to get rid of in the event of a disaster. They're betting, in other words, that handsome returns when times are good will make up for losses when things turn ugly."

Emily Thornton, with David Henry and Adrienne Carter
"Inside Wall Street's Culture of Risk"
Business Week, June 12, 2006


“The Bush family, in the form of Prescott Bush, has tried a more aggressive coup before in order to install fascism in this country. This treasonous plot was called the ‘Business Plot,’ because the high-level plotters—including Prescott Bush—were Wall Street men who openly supported fascism. It seems this time around, the Bush family is trying the more subtle approach to open bloodshed: first create a crisis, then under the guise of addressing that crisis, overthrow democracy. Yes, it does sound terribly conspiracy-theory-esque when explained just this way. But what else does one call a criminal conspiracy to destroy Congressional powers permanently, alter Judicial powers permanently, and steal public funds?”
Larisa Alexandrova
Huffington Post, September 20, 2008


"This is a once in a century rip-off, and you can only do this kind of thing under emergency conditions, usually with the kind of blood-shed you saw when Pinochet introduced free markets at gunpoint in Chile." —Michael Hudson
Carlo Basilone
"
Once-in-a-Century Rip-Off"
The Real News, September 26, 2008

"The Wall Street meltdown is not only due to greed and to the lack of government regulation of a hyperactive sector. This collapse stems ultimately from the crisis of overproduction that has plagued global capitalism since the mid-1970s."
Walden Bello
Foreign Policy in Focus, September 26, 2008


"Admittedly, there were times in August, particularly during the Olympic Games, when the public's interest in the economy waned, and also when Hurricanes Gustav and Ike came ashore in early September. But for months leading up to the Wall Street collapse, there were clear signs that Americans were starved for news about the economy, news that the press simply refused to provide because it just wasn't a story the press wanted to chew on, to chatter about, and to pontificate over. (It wasn't fun like the campaign.)"
Eric Boehlhart
Media Matters, September 23, 2008


"But, despite his political near-death experience as a member of the Keating Five, McCain continued to champion deregulation, voting in 2000, for instance, against federal regulation of the kind of financial derivatives at the heart of today's crisis."
Rosa Brooks
Los Angeles Times, September 25, 2008


“‘Government is not the solution to our problem; government is the problem...It is my intention to curb the size and influence of the federal establishment.’ That statement, in Ronald Reagan's inaugural address on January 20, 1981, was the opening shot in what became known as the Reagan Revolution: small government, low taxes, deregulation, a belief that the markets know best.”
Bernd Debusmann
Reuters, September 22, 2008


"Franklin D. Roosevelt, as part of the New Deal, put into place a series of rules to discourage speculation and promote investment, including maintaining—and doubling—the Securities Transaction Excise Tax. Other countries followed our lead, and the UK, France, Japan, Germany, Italy, Greece, Australia, France, China, Chile, Malaysia, India, Austria, and Belgium have all had or have STETs."
Thom Hartmann
"
How Wall Street Can Bail Itself Out Without Destroying The Dollar"
Common Dreams, September 26, 2008


"The lobbyists and corporate lawyers, the heads of financial firms and the crooks who control Wall Street, all those who spent the last three decades assuring us that government was part of the problem and should get out of the way, are now busy looting the U.S. treasury. They are also working feverishly inside the Democratic and Republican parties to blunt any effective regulatory reform as they pass on their distressed assets to us. The process is stunning in its hubris and mendacity, and two of the most potent enablers of this unprecedented act of corporate welfare are John McCain and Barack Obama."
Chris Hedges
Truth Dig, September 21, 2008


"I wrote The Shock Doctrine in the hopes that it would make us all better prepared for the next big shock. Well, that shock has certainly arrived, along with gloves-off attempts to use it to push through radical pro-corporate policies (which of course will further enrich the very players who created the market crisis in the first place...)."
Naomi Klein
Huffington Post, September 22, 2008


"How did we get to this point? It’s the culmination of many past betrayals."
Paul Krugman
New York Times, September 26, 2008


"To understand whether the U.S. Treasury proposals make sense one should first analyze what are the problems that an increasingly complex and globalized financial system faces and what are the shortcomings of the current system of financial regulation and supervision, in the U.S. and around the world. Only a detailed consideration of such problems and shortcomings can lead to the recognition of the appropriate reforms of the system."
Nouriel Roubini
RGE Monitor, March 31, 2008


"Finally, we need to protect ourselves from being at the mercy of giant companies that are 'too big to fail,' that is, companies who are so large that their failure would cause systemic harm to the economy. We need to assess which companies fall into this category and insist they are broken up. Otherwise, the American taxpayer will continue to be on the financial hook for the risky behavior, the mismanagement, and even the illegal conduct of these companies' executives."
Senator Bernie Sanders
"The Middle Class Must Not Be Forced to Bail Out Wall Street Greed"
Common Dreams, September 21, 2008


"We were in this huge credit crisis, out of money. Then the Fed goes, We'll give you a trillion dollars, and all of a sudden Wall Street is like, 'I can't believe we got away with it!' Can you imagine if someone said, 'I shouldn't have bought that sports car because it means I can't have my house,' and the bank just said, 'All right, you can have your house. And you know what? Keep the car.' [He throws up his arms joyfully and shouts] 'Yeaaaaah, I get to keep the car! Wait, do I have to give the money back?' 'No, it doesn't matter.' 'Yeah, I'm gonna get another car! I'm gonna do the same thing the same way, except twice as f---ed up!'"Jon Stewart
Josh Wolk interview
EW.com, September 25, 2008


"We should be looking at the Franklin Delano Roosevelt blueprint. People were in despair after the stock market crashed in 1929 and the Great Depression slowly settled in. They lost hope until FDR took office in 1933 and told Americans in his first inaugural address that we had nothing 'to fear but fear itself.'"
Helen Thomas
Hearst Papers, September 24, 2008


"We thirst for leadership, vision, someone who can speak to us in a way that refuses to avert its eyes from the crisis but shines a light of truth upon the problem, then offers hope and possible solution."
Michael Winship
Consortium News, September 26, 2008