Go to Original
By Peter Schwarz
A week following the collapse of the investment bank Lehman Brothers the extent and consequences of the international financial crisis still remain incalculable. Not a single country or continent is exempt from the crisis.
In Australia, the largest investment bank Macquarie is threatened with bankruptcy, Russia is experiencing its deepest financial crisis in 10 years, the Asian stock exchanges have registered huge losses and in Europe one piece of bad news follows the next. While government spokesmen seek to spread optimism, facts provide a different picture. The losses suffered by German and French banks following the collapse of Lehman Brothers is already estimated at several billion euros.
The German weekly paper Die Zeit has pointed out that the complex nature of modern financial instruments means that it could take weeks for the real extent of losses to emerge. “It is likely that the worst is still to come because many loss makers only make themselves known after a period of time,” it writes.
All serious economic commentators agree that an end of the crisis is not in sight. “The most frightening aspect of the past 24 hours is that any faith that central bankers and finance ministers could get a grip on the crisis has evaporated dramatically,” wrote the daily Die Welt last Thursday. And the British business paper, the Financial Times, wrote on the same day: “We are without question in the worst financial crisis since 1929. We still do not know how many banks and institutions will collapse.”
Last Thursday and Friday the stock markets moved upwards after the US central bank pumped $180 billion into the markets. But some analysts judged this enormous financial injection an “act of despair,” and one that says more about the extent of the crisis and the panic exerted by it than providing any sort of solution.
While the financial crisis continues to unwind its effects are making themselves increasingly felt on production, trade and consumption. Even if it does not come to a complete implosion of the financial markets, a profound recession of the entire world economy is now considered probable.
The shortage of liquidity and increase in interest rates will drive numerous companies into insolvency and in turn intensify the financial crisis. Increasing unemployment, rising prices, sinking wages and further bankruptcies will be the result—a vicious circle.
In addition, the three-figure billion sums pumped into the stock markets by governments and central banks must be financed by the taxpayer. The rapid increase in budget deficits will lead to further cuts in social and public expenditures.
The development of an enormous speculative bubble in recent years was accompanied by an unprecedented social polarisation between the wealthy and the masses of the population. Now this process will experience a further quantum leap with the collapse of this bubble.
The result will be a worldwide intensification of class struggle. The ideology of the free market, which was raised to the rank of a state religion after the collapse of the Soviet Union, has suffered irreparable damage in the wake of the collapse of major Wall Street banks. Under these conditions social opposition will invariably tend to take an anti-capitalist and left-wing form.
Shock and fear
It is against this background that one must understand the debate now taking place in the European media over the consequences of the financial crises. This debate is characterised on the one hand by a sense of shock at the collapse that has taken place, and on the other by fears that reaction to the crisis could assume revolutionary forms.
Even in the traditional conservative media, which has up to now praised the free market as the highest achievement of human civilisation, articles are appearing that read as if they were produced by the editorial boards of anti-globalisation movements.
Die Zeit poses the question: “Is finance-capitalism finished?” and predicts “the end of world domination by the Anglo-Saxon finance industry.”
Writing in the Frankfurter Allgemeine, Frank Schirrmacher declares: “There must be some madmen walking around who up until Monday had not been spotted because their madness was identical to the logic of the established system. They destroyed fortunes equivalent to entire national budgets...”
Die Welt complains: “Greed and stupidity have plunged the market into chaos—managers and financial supervisors have failed.” The paper continues: “Any economics student in his first semester could have concluded that the American economic model is not tenable.”
However, while these commentators blame responsibility for the crisis on “predatory capitalism,” “Anglo-Saxon finance capitalism” and the “greed and stupidity” of individuals, they spread the illusion that there could be a better, more regulated and reasonable form of capitalism.
Die Welt writes: “The current crisis is the product of a complete failure in many instances in the state and economy ... however to conclude that the market economy itself cannot function is mistaken. It is not the free-market economy that is responsible for the financial crisis, but rather the fact that important market players and those who supervise the market have failed to follow established economic laws or believed that such laws no longer applied.”
This form of reasoning is most clearly expressed in a commentary in the Süddeutsche Zeitung on Friday, titled “An enlightened capitalism.” The author, Heribert Prantl, proclaims the end of “turbo capitalism.” “The form of capitalism known as turbo capitalism has refuted, dissected and conquered itself. The turbo was greed,” he writes. “Turbo capitalism consumes its children, its clients and their share holdings.”
Prantl goes on to praise “the social market economy in the form in which it was developed in the federal republic after the Second World War” as “the most successful economic and social order in economic history.” Because he realises that the “regulating hand” of the nation state has lost its influence with the globalisation of the world economy, he proposes elevating the social market economy to an international level: “It must be regulated in such a way that the international economic and financial order is compatible with social requirements.”
And who is to undertake this “Herculean task”? According to Prantl: “the United Nations, the G-8—and thus the governments of the industrial nations.... The task is to establish a legal system that coordinates the anarchy of the markets and then to implement it step by step. Needed is a new contrat social.”
Prantl fails to explain to his readers why precisely those governments of leading industrial nations that made “turbo-capitalism” their programmatic and political trademark for the past 20 years should now undertake a different course. His remarks are an attempt to find a way out of the crisis that is not based on the living struggle of social forces. This, however, is an illusion, and a dangerous one at that.
In Germany the economic crisis of 1929, as is well known, led within the space of four years to the seizure of power by the Nazis. Hitler was able to succeed because of the abject failure of the workers’ parties. The SPD paralysed the working class by binding it to the impotent institutions of the Weimar Republic while supporting Brüning’s emergency laws; and the German Communist Party paralysed the working class by hiding its fatalism behind left-wing phraseology, rejecting a united front to oppose the Nazis. The bourgeois parties all capitulated to the Nazis, even agreeing to their own disempowerment by voting for Hitler’s Enabling Act.
Prantl, who is thoroughly versed in historical questions, evokes Jean-Jacques Rousseau’s contrat social (social contract). But he forgets that it was the French Revolution, one of the greatest revolutions in world history, which led to its realisation.
“Turbo-capitalism,” if one accepts this category, cannot be explained as a product merely of individual greed. It is based on class interests, which are embodied in the private ownership of the means of production.
Already at the beginning of the 1980s, the opening and liberalisation of the financial markets was a reaction to the economic recession and the violent class struggle of preceding years. It was bound up with an international offensive against the working class, which culminated in the smashing of the US air traffic controllers union PATCO and the defeat of the yearlong British miners’ strike. Since then wages and social benefits have stagnated while profits and fortunes have soared.
The notion that the financial oligarchy will voluntarily yield up its booty and conclude a contrat social is ludicrous. Prantl interprets the intervention of the US government in the financial crisis as a step in this direction. In fact the opposite is the case. It has plundered the treasury in order to cover the risks of speculators, while workers, homeowners and the socially weak will be required to foot the bill.
Monday, September 22, 2008
The Paulson-Bernanke Bank Bailout: Will the Cure be Worse than the Disease?
Go to Original
By Michael Hudson
By Michael Hudson
Saturday’s $700 billion junk mortgage bailout is the largest and worst giveaway since a corrupt Congress gave land grants to the railroad barons a century and a half ago. If it goes through, it will shape the coming century by giving finance unprecedented power over debtors - homebuyers, industry, state and local government, and the federal government as well.
But what threatens to be even worse is the government’s move to let the financial sector make even higher, unprecedented gains by working its way out of negative equity to "make taxpayers whole" by repaying the government’s bailout by bleeding the economy at large. Anticipating congressional capitulation in this license to engage in predatory credit, the latest Sunday evening surprise is that Treasury Secretary Henry Paulson’s own firm, Morgan Stanley, is to become bank holding company picking up the financial wreckage now that the government is covering the bad loans and investment gambles Wall Street has made.
What did Mr. Paulson not say in his weekend TV interviews, organized as what he hoped would be a series of victory laps. Neither he nor Fed Chairman Ben Bernanke nor any other Wall Street spokesman has acknowledged that the government has helped promote today’s $46 trillion debt bomb. This enormous overhead consists of the product that banks are selling - interest-bearing debt that is being added to real estate, corporate industry and personal income to price the U.S. economy out of world markets.
We have heard nothing about how Wall Street lobbyists have succeeded in killing the financial cops on Wall Street - and done the same with the consumer cops on Main Street. There is no public recognition of the fact that more money in tax cuts went to the top 1% than the bottom 80% combined.
So how much credence should we give the newest proposals for the United States to commit economic suicide by turning over the powers of government in effect to Wall Street? When they talk about "making taxpayers whole," what really is their game?
At first glance it may sound appealing to taxpayers for banks to be told to use their future earnings to pay back the $700 billion dollars in junk mortgages, bad hedge-fund bets and other gambles that the Treasury promised on September 20 to pick up at face value, no loss incurred. To provide a sense of proportion, this money could have funded the next forty or fifty years of Social Security. It could have funded health care for all Americans. It could have made a big step toward rebuilding the nation’s crumbling infrastructure. But that is another story. For now the major question is just how the banks, insurance companies and financial conglomerates are to raise the money to pay off this bailout.
The last time the government let banks earn their way out of negative equity was in 1980. Interest rates to bank customers topped 20 percent, driving down prices for real estate, stocks and bonds so low that the leading U.S. banks saw their net worth wiped out. Their debts to depositors and bondholders exceeded the collateral they held in their reserves to back these deposit obligations. But as soon as Ronald Reagan led the Republicans back into office, the Federal Reserve began to flood the economy with free credit, driving down the interest rates that banks had to pay. They were allowed to act as a monopoly and keep credit-card interest rates high, at 20 percent, and above 30 percent with penalties, thanks to the fact that America’s high post-Vietnam interest rates led state after state to repeal anti-usury laws to keep credit flowing.
So the banks did "earn their way out of debt." But if you were a taxpayer who needed to use a credit card, you paid through the nose. The banks earned their way out of debt at your expense. And by the way, if you really did pay an income tax, you probably did not own commercial real estate or significant financial assets. The Internal Revenue Service made commercial real estate and a large swath of finance (at least for the wealthiest investors) income-tax free by generating tax credits that could be applied against income across the board. The capital-gains tax was lowered to a fraction of the income tax, leading investors to pay out whatever income their investments generated as interest on loans to buy property they expected to sell at a markup. And with Alan Greenspan appointed the head the Federal Reserve Board in 1987, the age of asset-price inflation had arrived.
Cities and states vied with each other to slash property taxes, replacing them with income and sales taxes that fall mainly on labor and consumers. The upshot is that wealth has polarized to an unprecedented degree. According to statistics collected by the Congressional Budget Office, the wealthiest 1% now own 57% of the nation’s returns to wealth (interest, dividends and capital gains) and the richest 10% own no less than 77%.
With this background in mind, it looks like the Paulson-Bernanke plan for the Wall Street investment banks and other predatory lenders - and insurers such as A.I.G. - to "earn their way out of debt" will be at the economy’s expense. The bailout is to be achieved by letting Wall Street’s post-Glass-Steagall financial conglomerates charge their customers exorbitant financial charges. As Britain’s Conservative Party leader Margaret Thatcher put it in her favorite phrase, TINA: There is no alternative. And as Lady Macbeth said, if the deed is to be done, let it be done fast. After all, it is a once-in-a-lifetime chance for every financial institution in America to cash out with a fortune!
For Mr. Paulson this means not giving Congress a chance to represent the public interest in designing the terms of this giant bailout. Sec. 8 of the Treasury plan bans any Congressional review, giving him unprecedented power by: "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." Under cover of emergency force majeur conditions, the plan is to take the money and run, preferably without permitting any Congressional debate.
It is bad enough for the government to buy $700 billion of bad bank investments at prices that no private-sector investor has been willing to approach. This itself is an undeserved giveaway to the financial institutions that caused the problem by living recklessly in the short run. But making them - and indeed, helping them - pay back this gift with the aid of favorable tax and deregulatory policies will simply shift the cost off their shoulders onto those of bank depositors, credit-card users, mortgage borrowers and hapless pension-fund contributors to the money managers who have taken most of the current income in the form of commissions, salaries and bonuses to themselves. This will sharply add to the price of doing business in the United States, and specifically to the economy’s debt overhead by the banks making even more predatory loans.
It gets worse. In order for the existing junk mortgages to be "made good," real estate prices must be raised further above the ability to pay for this year’s five million homeowners in arrears and facing default. Is this a good thing? Is it good to raise access prices for housing even more, forcing new homebuyers to go further into debt than ever before to gain access to housing? Mr. Paulson has directed the Federal Reserve, Fannie Mae, Freddie Mac and the FHA (Federal Housing Authority) to re-inflate the real estate market. They are to pump nearly a trillion dollars into the mortgage market.
Fiscal policy is also to be brought to bear to turn the real estate market around by pressuring cities and states to "help homeowners pay their mortgage debts" by cutting property taxes. The idea is to leave more revenue available for property owners to pay mortgage bankers. Unfortunately, this will oblige cities to make up these cuts by taxing labor and sales, running deeper into debt than they already are, or cutting back their spending on basic infrastructure, education and public services and continue shortchanging their pension funds. This is the price to be exacted to "protect the taxpayer’s interest" by bailing out irresponsible banks. The solution is to let them make even more money by acting in a yet more predatory way.
This is not industrial capitalism; it is asset stripping. The closest analogy I can think of would be to give the Mafia free reign to start a new crime wave "in the taxpayers’ interest" so as to raise enough money to pay its fines to the Justice Department. Imagine how our world would look like if the economy had been turned over to Al Capone as head political capo and to Mafia financial manager Meyer Lansky as Treasury Secretary in the 1930s, with the pyramid schemer Carlo Ponzi heading the Federal Reserve and bank robber Willie Sutton as Attorney General.
The last thing the economy needs is a new real estate bubble. To prevent it, local property taxes need to be raised, not lowered. But this is not the Treasury’s plan. Instead of representing the national interest, it is representing the banking sector whose profits come from making more and bigger loans. This is just the opposite from what a well-run economy needs to recover its growth and competitive power. It needs debt write-downs to what homeowners can pay.
But Mr. Paulson has made it clear that aid for homeowners is not part of the Treasury’s plan. On Sunday, September 21, he resisted suggestions that his program be amended to include further relief for homeowners facing mortgage foreclosures. Because financial markets remain under severe stress, he claimed, there is an urgent need for Congress to act quickly without adding other measures that could slow down passage. "We need this to be clean and to be quick," he said in an interview on ABC’s "This Week." He expressed concern that debate over adding all of those proposals would slow the economy down, delaying the rescue effort that is so urgently needed to get financial markets moving again. "The biggest help we can give the American people right now is to stabilize the financial system," Mr. Paulson said.
If you doubt that this is the government’s ideal plan, just look at what it is rejecting. You hear no talk from Mr. Paulson or Mr. Bernanke about bailing out homeowners by writing down their debts to match their ability to pay. This is what economies have done from time immemorial. Instead, the Republicans - along with their allied Wall Street Democrats - have chosen to bail out investors in junk mortgages presently far exceeding the debtor’s ability to pay, and far in excess of the current (or reasonable) market price. The Treasury and Fed have opted to keep fictitious capital claims alive, forgetting the living debtors saddled with exploding adjustable-rate mortgages (ARMs) and toxic "negative amortization" mortgages that keep adding on the interest (and penalties) to the existing above-market balance.
The question to be asked is just how much will the economy’s debt overhead grow, and what will it cost debtors (a.k.a. "taxpayers")? And how will the economy look when the dust settles?
Economically the act gives a new meaning to the classical concept of circular flow. The traditional textbook meaning has referred to the circulation between producers and consumers, from wage payments by industrial companies to their employees, who use their wages to buy what they produce. This is why Henry Ford famously paid his workers the then-towering $5 a day. This was Say’s law: Income paid for production is finds its counterpart in consumption to maintain equilibrium in a way that enables the economy to keep on growing. The new circular flow runs from the Fed and Treasury to Wall Street in the form of bailouts, and then back to Republicans in Washington in the form of campaign contributions. The money circulates without having to go through the "real" economy of production and consumption at all.
The Treasury Department issued a fact sheet on the proposal on Saturday evening: "Removing troubled assets will begin to restore the strength of our financial system so it can again finance economic growth." In everyday language the euphemism "removing troubled assets" means buying junk mortgages at way above current market price, as if the banks didn’t know all along that they were junk but hoped to pawn them off on their clients. The problem is that the banks have not been financing growth in the form of tangible capital investment, but have found their quickest profits to lie in a combination of asset stripping and asset-price inflation.
On Sunday a BBC World Service reporter asked me to list three things that the financial sector would like to see. Taking the open-ended question on the highest philosophical plane, I said, first of all, the banks would love to free themselves of all deposit liabilities - simply to keep the money for themselves. That is their objective when they see a client, after all: How much of the client’s earnings and money can they shift into their own pockets. Second, they would like to see politicians elected directly by the amount of money they could raise, thereby doing away with the actual problem of elections. If politics is going to be privatized, this is the way to do it. Rome’s voting system was organized along these lines. Third, the financial sector prefers not to have to report any data at all or pay any taxes. It has lobbied Congress to block collection of statistics, on the premise that what is not seen will not be taxed. And at present, banks and brokerage houses are still screaming to repeal Sarbanes-Oxley bill calling for full and honest accounting. For financial ideologues this is an equivalent watershed dragon to Rowe vs. Wade, now that they have repealed the Glass-Steagall Act that had separated banks from casinos.
Somewhat taken aback by the rawness of these principles, the reporter asked what outcome was most likely. If Congress does what it is supposed to do, there should be quite a showdown. But how unlikely to be achieved is the above scenario? A few hours earlier on Sunday my friend Eric Janszen of itulip.com sent me a note he had received from a fund manager attesting to the lack of care for clients of financial institutions, giving a flavor of the predatory spirit guiding the bailout’s planners and its beneficiaries:
RAIDS OF INDIVIDUAL ACCOUNTS
This is so important a topic, that it deserves top billing!!! Hidden inside the AIG bailout funding package, surely hastily cobbled together, but carefully enough to include a totally corrupt clause, was a handy dandy clause that permits raids. The conglomerate financial firms are permitted at this point to use private individual brokerage account funds to relieve their own liquidity pressures. This represents unauthorized loans of your stock account assets. So next, if the conglomerate fails, your stock account is part of the bankruptcy process. ...
The actual evidence for legalized stock account raids by the financial firms can be found in recent articles in Financial Times and Wall Street Journal. So this is not a wild claim. The September 14th article on the Wall Street Journal entitled "Wall Street Crisis Hits Stocks" was the first exposure.
The runs on US banks are in progress. See Washington Mutual, where private email messages have been shared by WaMu bank officers. WaMu alone could deplete the entire Federal Deposit Insurance Corp fund for bank deposit coverage. Eventually the FDIC will compete for USGovt federal money for bailouts and nationalizations, which would be funded by the US Govt because they will not let FDIC run dry.
My Kucinich-campaign colleague David Kelley and I agree on how Wall Street’s action plan ideally would work. The Republicans will take the $800 billion of U.S. Treasury securities presently earmarked for the Social Security Administration accounts, and achieve the privatization that Pres. Bush and his backers have been pressing for so hard for the past eight years. Under emergency conditions - today’s 9/21 as the modern analogue to 9/11 just seven years ago (the well-known natural lifespan of locusts) - will swap these Treasury bonds for junk mortgages, at face value of course. Then, a few months from now (after the new president takes office in February, or perhaps a few days before to achieve the usual political clean slate) the government will tell prospective retirees and workers who have been suffering FICA withholding all these years, "Oops, the government has just lost all your money. Well, that just shows how government planning is the road to serfdom. Next time save yourself by handling your own accounts - or at least choosing whether to consign your forced retirement savings to Lehman Brothers, Bear Stearns or kindred predatory money managers. If only we could have done this a few months ago, there would have been no meltdown and Wall Street would have been doing just fine."
If you are going to take such a step, you of course say you are doing it to "save" the economy. You even proclaim yourself to be a hero. This is how the nation’s newspaper and TV media responded after news of the bailout of AIG and, more to the point, the Wall Street gamblers and derivatives traders whose gains and losses - that is, the ability of trillions of dollars worth of computer-driven trading gambles - to collect their winnings and avoid losses.
Today’s financial markets are well personified in the classic Hollywood westerns. They typically are about towns taken over and run by a banker ("Wall Street" in miniature), for whom a retinue of outlaws and their gangs work (the boys in the back room). The banker runs the town, usually doing business from its biggest building, the local saloon or casino where most of the action occurs. It has a brothel upstairs (the usual Hollywood simile for Congress). The good-hearted prostitute (sometimes the madam) with a heart of gold usually is the movie’s only honest secondary character (a stand-in for one of the bleeding-heart Congressmen on the finance or mortgage-credit committees lisping well-scripted lines promising that all new legislation will benefit homeowners, not predatory mortgage lenders).
There also is a good-hearted investigative newspaper publisher-journalist. He almost always gets killed and his printing press destroyed. (Today his paper is simply bought out by a conglomerate and merged into the pro-Wall Street mass media.) The banker’s gang appoints the sheriff (on today’s larger scale, the Federal Reserve and Justice Department), and also the mayor (who rarely is seen except to sign papers). The sheriff’s job is the same as in today’s world: to evict debtors from homes and properties on which the land-greedy banker is foreclosing. This is the common theme of westerns, after all: They are all about the great American land grab - situated out West so as to protect the identities of the guilty here in the East on Wall Street.
Attentive readers will notice that I have left out of this script the hero. His role is to fight the banker/land grabber and the gang he has brought into town. Wearing a white hat, he rides into town to clean it up, and in the final showdown shoots the head gunslinger (or perhaps the banker himself, who is done for in any event). This is the position that Mr. Paulson portrays himself. But what the audience doesn’t see (at first) is that the bullets he is shooting are merely blanks. It is in fact only a movie after all! The showdown is staged! He works for the banker himself!
Goldman Sachs turns itself into a big-fish bank and gobbles up all the little fish in a great financial squeeze.
An alien class of financial mock-heroic poseurs has taken over - land grabbers and banksters of various stripes. Almost unnoticed, an invasion of government snatchers, bank snatchers, money snatchers pretending to be Main Street, pretending to be "the economy" and now claiming to need to be rescued - at the cost of saying goodbye to public finance as we have known it, goodbye to Social Security, to peoples’ hope for upward economic mobility.
It looks like Wall Street will receive government support at Main Street’s expense. This is hardly surprising when you look at who the major campaign contributors are - to both parties. Understandably, Mr. Paulson and Mr. Bernanke are trying to muddy the issue for their financial constituency. Hedge fund traders and kindred banksters have metamorphosized into "the financial system to be saved" and hence "the economy" itself. As if it is necessary to save peoples’ savings deposits and bank accounts by rescuing the casino companies with which the banks have merged - the predatory mortgage brokers, the insurance companies with their fraudulent accounting, the crooked asset-management firms, all of which have merged into conglomerates "too large to fail." If they are too large, simply un-merge them. Restore Glass-Steagall, which worked for 65 years to prevent this kind of problem from erupting.
The most egregious pretense is that the problem is only temporary, not structural. We are merely "freeing up" the market for new loans. This is precisely the opposite of what the classical economists meant by "free markets." What America has is a bad debt problem, not a "liquidity" problem. There is no "illiquidity" when people refuse to buy a junk mortgage on a property worth only a fraction of the mortgage’s face value. Many of these bad mortgage loans are fraudulent. The Treasury bailout seeks to make $700 billion of fictitious financial claims "real" - that is, way overvalued as compared to their actual worth(lessness).
What is reducing real estate and corporate stocks and bonds to junk is the exponential growth in the economy’s debt overhead. Debts that cannot be paid have little market value at any price. The nation must make a choice: If the government bails out the large financial institutions for having made bad loans - or to be more precise, for not being able to pawn off these bad loans on foreigners or other financial prey in a timely fashion - then the only way in which the government (or other new creditors) can be paid back is by not forgiving the debts owed by strapped homeowners. This would tighten the debt terms on debtors at the bottom of the food chain - those against whom the bank-sponsored new bankruptcy has been aimed. This is why I deplore the government bailout of Fannie Mae and Freddie Mac for the junk mortgages it has been packaging from predatory lenders such as Countrywide Financial, Washington Mutual and other deceptive lenders. The wrong parties have been gifted.
I should add that the solution does not lie simply in creating a new regulatory system, much less a single regulatory agency. After all, it was at Wall Street’s command that the Bush Administration installed deregulators in all the key regulatory positions. This meant that regulations didn’t matter at the Environmental Protection Agency (EPA), at the Fed under Alan Greenspan, at the Securities and Exchange Commission (SEC) under Mr. Cox (after William H. Donaldson resigned when the White House would not let him regulate as much as he thought necessary) or at the Department of Justice under Bush yes-men such as Alberto Gonzales. Politics and people have turned out to be more important than the law. We have seen the Supreme Court scrap the Constitution in the 2000 election - with acquiescence from the Democrats, starting with Mr. Gore’s refusal to contest Florida.
To appoint a single regulator would prevent all other regulators - and law enforcement officers, attorneys general, the SEC and so forth - from enforcing honest financial policies in the event that an incoming president should appoint another Greenspan, Gonzales or other ideological extremist averse to the idea of applying existing regulations and honest laws. Under these conditions "consolidated regulation" would mean a free ride for crooks much like J. Edgar Hoover gave the Mafia under his tenure.
My alternative solutions are as simple as Mr. Paulson’s, but of course are quite different. The public interest does indeed call for maintaining the economy’s basic credit, money-transfer, credit card and depository checking and savings functions. But not under the current venal and predatory management practices. It is this management that has lobbied so hard for deregulation, and whose industry representatives have insisted so strongly to place extremist ideological deregulators into the economy’s major positions. Therefore, the Treasury only should buy junk mortgages at current market price. The losses should be taken in order to re-even out the wealth pyramid that has become so much steeper under the Greenspan-Bernanke ploys. The banks knew full well that these mortgages lacked underlying value. The price of making use of this borrowing facility is to forfeit all equity stock to the government. The Treasury should prohibit any financial institution that sells or swaps securities to the Fed from paying any dividends to shareholders or stock options and bonuses to managers. It also should give the government priority over other creditors. Otherwise, firms that have negative equity will benefit purely at public expense, using the money to pay dividends, bonuses and exorbitant salaries.
Second, we need to restore the Glass-Steagall separation of commercial banks from risk-taking investment banks, mortgage brokers and other financial-sector flotsam and jetsam. Break up the mergers between banks and casino sell-side financial and real estate institutions. Just the opposite is occurring: On Monday, Sept. 22, the financial universe was transformed by the announcement that Mr. Paulson’s Wall Street firm, Goldman Sachs, was transforming itself into a bank holding company. The casinos are to take over the banking system as big fish eat little fish in the present financial emergency. It looks like new giants are emerging, already larger than the government in terms of the magnitude of the debts they have run up - and certainly in their earning power. Indeed, who is to say that extracting interest from the U.S. economy will not emerge as the new form of taxation?
Third, re-write the bankruptcy laws to favor debtors once again, not creditors. This means reversing the current bankruptcy code sponsored by lobbies from the credit-card companies. The interests of the five million mortgage debtors faced with foreclosure and expropriation this year should rightly be placed above the interest (literally) of predatory creditors.
Fourth, sharply increase property taxes, shifting them back off labor and sales. We need to return to the classical idea of taxing unearned and unproductive income instead of adding to the price of labor and industry. What has been freed from the tax collector by the shift of taxes off property has not lowered the cost of housing and other real estate, or corporate costs of doing business. The income "freed" has ended up being paid to the banks as interest. The government still has had to raise money - but in the form of taxes that fall on labor’s wages and industry’s profits. So labor and industry now pay twice for what they formerly paid only once. They still pay the same overall amount of taxes, but also pay an equivalent amount of interest. The financial system is crowding out the government.
In the fifth place, we need to start discussing whether we really need a banking system that behaves in the way the present one does. In recent decades banks have made loans mainly to inflate asset prices by loading real estate and industry with interest-bearing debt. What if all banks were to be organized along the lines of savings banks, with 100% reserves. This is the Chicago Plan from the 1930s (currently revived by the American Monetary Institute, which holds its annual meeting this week in Chicago, by the way). This at least would go back to basics to provide a foundation from which to re-begin to discuss just what kind of credit the economy needs and what would be the best terms on which to structure financial markets.
Any solution does indeed need to be radical. But it can be much less radical than Mr. Paulson’s power grab for his Morgan Stanley firm and the rest of Wall Street in the closing days of the Bush administration just before the Republicans look like losing power. The indicated solution is to reverse predatory finance, not bail it out at permanent taxpayer expense. Government funds are not unlimited. Is it worth wiping out hopes for Social Security and public health care, for renewed national infrastructure spending and industrial restructuring in order to bail out a banking and financial system that has not contributed to economic growth but has weighed it down with reckless debt regardless of the economy’s ability to pay?
Is it right to blame the five million homeowners now in arrears and facing foreclosure, but rewarding the irresponsible bankers and outright fraudulent institutions who have used Enron accounting to make a once-in-a-lifetime rip-off? That is what Mr. Paulson would do in insisting that Congress pass his legislation without taking time to discuss the issue and above all without "assigning blame." But without such assignation, how do we know where to go from the current mess caused by financial deregulation, repeal of Glass-Steagall, the financial system’s Enron-style accounting and predatory mortgage lending?
Before leaving from his post as Federal Reserve Chairman, Alan Greenspan’s speeches sounded like "Apres moi, le deluge." We are living in a world whose economic and political pressures are much like those in the interregnum between Louis XIV and the French Revolution. Where are the revolutionists today?
Bush Brings WMD Line to Wall Street
Go to Original
By Dean Baker
Remember how President Bush got Condoleezza Rice and Colin Powell to run around warning about Saddam Hussein's nuclear bombs? This phony scare tactic got Congress to give him the authorization he needed to start the Iraq war.
Even though his credibility has vanished, in large part because of the Iraq war, President Bush is again using a lie to cow Congress into giving him a huge blank check. This time, the check is for $700 billion, to be handed over to Treasury Secretary Henry Paulson, to spend pretty much as he wants.
Also see below:
Dean Baker | Progressive Conditions for a Bailout •
The lie in this case is that if Congress doesn't cough up the money immediately, the banking system will collapse and the economy will fall into depression. To be fair, there is more truth to this story than the Iraq WMD line.
The policies of President Bush and the recklessness of the Wall Street crew really have brought the financial system to the edge of an abyss. There was a near meltdown last week as Lehman Brothers, the huge investment bank, collapsed; and AIG, the nation's largest insurer, followed suit. Banks stopped lending to each other, creating a situation in which our system of payments (e.g. checks and electronic transfers) stopped functioning.
The Federal Reserve Board and the Treasury then took a variety of extraordinary measures to patch things together and get the financial system working again. Nonetheless, there is no doubt that the system really is on edge at the moment and that the collapse of another giant financial institution can set off another panic. Still, Congress has some time in this story to deliberate about how a bailout should be structured rather than just handing over a blank $700 billion check to Henry Paulson, as the administration requested.
Just to be clear, we are in this mess for two reasons. First, the financial regulators, both in the Bush administration and more importantly at the Fed, were completely asleep for most of the decade. As the housing bubble grew to ever more dangerous proportions, and lenders adopted increasingly questionable lending practices, the regulators did nothing.
The other reason we are in this mess is that the Wall Street banks got themselves hugely leveraged in real estate and other assets. In many cases they had no appreciation of the value of the underlying assets. They also apparently did not understand the complex financial derivatives that they had themselves created.
Now this situation has exploded in their faces, sinking several of the country's largest financial firms and bringing dozens of others near the cliff. As a result of the recklessness of the Wall Street gang, the economy is now facing a recession, with the unemployment rate rising rapidly. Millions of families are losing their homes.
So what is President Bush proposing? He is telling Congress that everything can be put back in order if they just give $700 billion to Henry Paulson, with no strings attached.
Keep in mind that Henry Paulson is himself one of the Wall Street gang, a former head of Goldman Sachs who pocketed hundreds of millions from the sort of deals that have wrecked the economy. He also managed to get just about everything wrong in his assessment of the economy. He missed the housing bubble altogether and then underestimated the seriousness of the financial crisis at every turn.
We cannot afford to give Paulson a blank check. Congress must first insist on some serious accountability in the bailout process: that means a board that involves Congressional appointees and a high level of transparency.
Congress should also insist that the Wall Street crew pays for its incompetence. An absolute cap of $2 million in annual compensation for any executive of any firm taking part in the bailout seems fair. The taxpayers should also be compensated for their support. The government should acquire an ownership stake in the companies that it bails out. For example, for every $10 billion in bad debts it buys, the government should get $2 billion in stock. That way, the taxpayers stand to get back some of their money.
There are more conditions that should be imposed as part of the bailout, but the key point is that Congress has time to structure the bailout to serve the country's interest. It should not allow itself it to be bullied into again giving the Bush administration a huge blank check.
By Dean Baker
Remember how President Bush got Condoleezza Rice and Colin Powell to run around warning about Saddam Hussein's nuclear bombs? This phony scare tactic got Congress to give him the authorization he needed to start the Iraq war.
Even though his credibility has vanished, in large part because of the Iraq war, President Bush is again using a lie to cow Congress into giving him a huge blank check. This time, the check is for $700 billion, to be handed over to Treasury Secretary Henry Paulson, to spend pretty much as he wants.
Also see below:
Dean Baker | Progressive Conditions for a Bailout •
The lie in this case is that if Congress doesn't cough up the money immediately, the banking system will collapse and the economy will fall into depression. To be fair, there is more truth to this story than the Iraq WMD line.
The policies of President Bush and the recklessness of the Wall Street crew really have brought the financial system to the edge of an abyss. There was a near meltdown last week as Lehman Brothers, the huge investment bank, collapsed; and AIG, the nation's largest insurer, followed suit. Banks stopped lending to each other, creating a situation in which our system of payments (e.g. checks and electronic transfers) stopped functioning.
The Federal Reserve Board and the Treasury then took a variety of extraordinary measures to patch things together and get the financial system working again. Nonetheless, there is no doubt that the system really is on edge at the moment and that the collapse of another giant financial institution can set off another panic. Still, Congress has some time in this story to deliberate about how a bailout should be structured rather than just handing over a blank $700 billion check to Henry Paulson, as the administration requested.
Just to be clear, we are in this mess for two reasons. First, the financial regulators, both in the Bush administration and more importantly at the Fed, were completely asleep for most of the decade. As the housing bubble grew to ever more dangerous proportions, and lenders adopted increasingly questionable lending practices, the regulators did nothing.
The other reason we are in this mess is that the Wall Street banks got themselves hugely leveraged in real estate and other assets. In many cases they had no appreciation of the value of the underlying assets. They also apparently did not understand the complex financial derivatives that they had themselves created.
Now this situation has exploded in their faces, sinking several of the country's largest financial firms and bringing dozens of others near the cliff. As a result of the recklessness of the Wall Street gang, the economy is now facing a recession, with the unemployment rate rising rapidly. Millions of families are losing their homes.
So what is President Bush proposing? He is telling Congress that everything can be put back in order if they just give $700 billion to Henry Paulson, with no strings attached.
Keep in mind that Henry Paulson is himself one of the Wall Street gang, a former head of Goldman Sachs who pocketed hundreds of millions from the sort of deals that have wrecked the economy. He also managed to get just about everything wrong in his assessment of the economy. He missed the housing bubble altogether and then underestimated the seriousness of the financial crisis at every turn.
We cannot afford to give Paulson a blank check. Congress must first insist on some serious accountability in the bailout process: that means a board that involves Congressional appointees and a high level of transparency.
Congress should also insist that the Wall Street crew pays for its incompetence. An absolute cap of $2 million in annual compensation for any executive of any firm taking part in the bailout seems fair. The taxpayers should also be compensated for their support. The government should acquire an ownership stake in the companies that it bails out. For example, for every $10 billion in bad debts it buys, the government should get $2 billion in stock. That way, the taxpayers stand to get back some of their money.
There are more conditions that should be imposed as part of the bailout, but the key point is that Congress has time to structure the bailout to serve the country's interest. It should not allow itself it to be bullied into again giving the Bush administration a huge blank check.
Mushroom Cloud over Wall Street
Go to Original
By Mike Whitney
These are dark times. While you were sleeping the cockroaches were busy about their work, rummaging through the US Constitution, and putting the finishing touches on a scheme to assert absolute power over the nation's financial markets and the country's economic future. Industry representative Henry Paulson has submitted legislation to congress that will finally end the pretense that Bush controls anything more than reading the lines from a 4' by 6' teleprompter situated just inches from his lifeless pupils. Paulson is in charge now, and the coronation is set for sometime early next week. He rose to power in a stealthily-executed Bankster's Coup in which he, and his coterie of dodgy friends, declared martial law on the US economy while elevating himself to supreme leader.
"All Hail Caesar!" The days of the republic are over.
Section 8 of the proposed legislation says it all:
"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."
Right; "non-reviewable" supremacy.
Congress, of course, is more than eager to abdicate whatever little authority they have left. They're infinitely grateful for their purely ceremonial role, the equivalent of Caligula's horse, albeit, with considerably less dignity. Has even one senator spoken out against this madness, which--according to informal internet polls--is resoundingly rejected by the voters? Does it concern the members of congress at all, that the present financial crisis was brought on by the proliferation and sale of trillions of dollars of mortgage-banked garbage which were fraudulently represented as Triple A rated bonds by the very same people who now claim to need unprecedented and dictatorial powers to fix the problem? Or are they more worried that the steady torrent of contributions which flows from Wall Street to congressional campaign coffers will be inconveniently disrupted if they fail to ratify this latest assault on democratic governance? The House of Representatives is one big steaming dungheap that should be leveled and turned into an amusement park instead of a taxpayer-funded knocking shop. What a pathetic collection of cowards and scumbags.
Bloomberg News: "
"The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets. Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.
"He's asking for a huge amount of power,'' said Nouriel Roubini an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy." (Bloomberg)
The banksters own this country, always have; only now they've decided to strip away the curtain and reveal the ghoulish visage of the puppet-master. It ain't pretty.
Paulson decided that the financial markets needed an emergency trillion dollar face-lift just weeks before his former business partners at G-Sax were dragged off to the chopping block. Was that the reason? Everyone on Wall Street knew that the bulls-eye had already been ripped from Lehman's bloody back and was about to be fastened on Goldman's. Now, it looks like they will escape their day of reckoning due to Paulson's eleventh-hour reprieve. Nice touch, eh?
From the proposed legislation: LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS
"(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them."
Market Ticker's Karl Denninger summed this up best:
"This is the de facto nationalization of the entire banking, insurance and related financial system..That's right - every bank and other financial institution in the United States has just become a de-facto organ of the United States Government, if Hank Paulson thinks they should be, and he may order them to do virtually anything that he claims is in furtherance of this act.....The bill gives Paulson the ability to nationalize unlimited amount of private debt and force you and your children to pay for it."
Denninger again:
"The claim is that this is intended to 'promote confidence and stability' in the financial markets.
It will do no such thing. It will instead strike terror into the hearts of investors worldwide who hold any sort of paper, whether it be preferred stock, common stock or debt, in any financial entity that happens to be domiciled in the United States, never mind the potential impact on Treasury yields and the United States sovereign credit rating.
I predict that if this passes it will precipitate the mother and father of all financial panics." (Market Ticker)
Amen. The transformation from a free market to a centralized, Soviet-style economy run by men whose judgment and credibility is already greatly in doubt; does not auger well for the markets or the country. Anyone with a lick of sense would cash in their chips first thing Monday and look for capital's Elysium Fields overseas or as far as possible from the circus sideshow now run by G-Sax ringleader, Colonel Klink.
Paulson's Chicken Little routine might might have soiled a few senatorial undergarments, but let's hope the American people are made of sterner stuff and will reject this charade. The conversation should be shifted from conceding more authority to hucksters in pin-stripes to indictments for securities fraud. Even the most economically-challenged nation ought to be able to afford a few sets of leg-irons and a couple hundred jail cells. That's all it will take. That, and a couple brisk dunks on the waterboard. Glub, glub.
Paulson's plan to revive the banking system by buying up hundreds of billions of dollars of illiquid mortgage-backed securities (MBS) and other equally poisonous debt-instruments; ignores the fact these complex bonds have already been "marked to market" in the recent firesale by Merrill Lynch. Just weeks ago, Merrill sold $31 billion of these CDOs for roughly $.20 on the dollar and provided 75 percent of the financing, which means that the CDOs were really worth approximately $.06 on the dollar. If this is the settlement that Paulson has in mind, than the taxpayer will be well served. But this will not recapitalize the banks balance sheets or mop up the ocean of red ink which is flooding the financial system. No, Paulson intends to hand out lavish treats to his banker buddies, while interest rates soar, pension funds collapse, the housing market crashes, and the dollar does a last, looping swan-dive into a pool of molten lava. Thanks, Hank.
Economist and author Henry Liu summarized the current maneuvering like this: "The Fed is merely trying to inject money to keep prices not supported by fundamentals from falling. It is a prescription for hyperinflation. The only way to keep price of worthless assets high is to lower the value of money. And that appears to be the Fed unspoken strategy."
Indeed. The Fed and Treasury have decided to backstop the entire global financial system (foreign banks can access the Fed's facilities, too!) with paper money which is rapidly losing its value. Watch the greenback tumble tomorrow in currency trading.
Congress is getting steamrolled and the American people are getting snookered. Consumer confidence--already at historic lows--is headed for the wood-chipper feet-first. Something has got to give.
One minute everything is hunky-dory; the subprime meltdown is "contained" and "the fundamentals of our economy are strong".(Paulson) And, less than a week later, congress is forced to surrender their constitutionally-mandated right to oversee spending in order to forestall economic Armageddon. Which is it? Or is the real objective just to keep the country on an emotional teeter-totter long enough for all state-power to be subsumed by the Wall Street Politburo?
No one knows what will happen next. We are in uncharted waters. And no one knows what the political landscape will look like after the dust settles from this outrageous power grab. According to Paulson, things are so dire, the entire nation will be reduced to smoldering rubble and twisted iron. But can we trust him this time after his long litany of lies?
Isn't it about time to send the cockroaches scuttling back to their hideouts and bring in the cleaning crew to hose the whole place down? It sounds like a job for Ralph Nader, a man of vision and unshakable integrity. Give Ralph a badge and let him deploy his Raiders to Wall Street armed with bullwhips and tasers. Let them post a guard in every CEOs and CFOs office and every boardroom on the Street---and if even one decimal is accidentally moved to the right or left on the corporate ledger; clap them in leg-irons and drag them off squealing to Guantanamo. That's how you clean up Wall Street!
Don't let the prospect of a national crisis trick you into giving up your freedom, America. The people behind this scam are the same landsharks and flim-flam men who polluted the global marketplace with their snake oil and toxic sludge. These are the fraudsters who manufactured the crisis to begin with. This is just the latest installment of the Shock Doctrine; engineer a crisis, and then, steal whatever is left behind. Same sh**, different day. Be resolute. Don't budge. Our economic foundations may be crumbling, but or determination is not. This is our country, not Goldman Sach's. The people who destroyed America must be held to account. Their time is coming. Justice first.
By Mike Whitney
These are dark times. While you were sleeping the cockroaches were busy about their work, rummaging through the US Constitution, and putting the finishing touches on a scheme to assert absolute power over the nation's financial markets and the country's economic future. Industry representative Henry Paulson has submitted legislation to congress that will finally end the pretense that Bush controls anything more than reading the lines from a 4' by 6' teleprompter situated just inches from his lifeless pupils. Paulson is in charge now, and the coronation is set for sometime early next week. He rose to power in a stealthily-executed Bankster's Coup in which he, and his coterie of dodgy friends, declared martial law on the US economy while elevating himself to supreme leader.
"All Hail Caesar!" The days of the republic are over.
Section 8 of the proposed legislation says it all:
"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."
Right; "non-reviewable" supremacy.
Congress, of course, is more than eager to abdicate whatever little authority they have left. They're infinitely grateful for their purely ceremonial role, the equivalent of Caligula's horse, albeit, with considerably less dignity. Has even one senator spoken out against this madness, which--according to informal internet polls--is resoundingly rejected by the voters? Does it concern the members of congress at all, that the present financial crisis was brought on by the proliferation and sale of trillions of dollars of mortgage-banked garbage which were fraudulently represented as Triple A rated bonds by the very same people who now claim to need unprecedented and dictatorial powers to fix the problem? Or are they more worried that the steady torrent of contributions which flows from Wall Street to congressional campaign coffers will be inconveniently disrupted if they fail to ratify this latest assault on democratic governance? The House of Representatives is one big steaming dungheap that should be leveled and turned into an amusement park instead of a taxpayer-funded knocking shop. What a pathetic collection of cowards and scumbags.
Bloomberg News: "
"The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets. Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.
"He's asking for a huge amount of power,'' said Nouriel Roubini an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy." (Bloomberg)
The banksters own this country, always have; only now they've decided to strip away the curtain and reveal the ghoulish visage of the puppet-master. It ain't pretty.
Paulson decided that the financial markets needed an emergency trillion dollar face-lift just weeks before his former business partners at G-Sax were dragged off to the chopping block. Was that the reason? Everyone on Wall Street knew that the bulls-eye had already been ripped from Lehman's bloody back and was about to be fastened on Goldman's. Now, it looks like they will escape their day of reckoning due to Paulson's eleventh-hour reprieve. Nice touch, eh?
From the proposed legislation: LEGISLATIVE PROPOSAL FOR TREASURY AUTHORITY
TO PURCHASE MORTGAGE-RELATED ASSETS
"(3) designating financial institutions as financial agents of the Government, and they shall perform all such reasonable duties related to this Act as financial agents of the Government as may be required of them."
Market Ticker's Karl Denninger summed this up best:
"This is the de facto nationalization of the entire banking, insurance and related financial system..That's right - every bank and other financial institution in the United States has just become a de-facto organ of the United States Government, if Hank Paulson thinks they should be, and he may order them to do virtually anything that he claims is in furtherance of this act.....The bill gives Paulson the ability to nationalize unlimited amount of private debt and force you and your children to pay for it."
Denninger again:
"The claim is that this is intended to 'promote confidence and stability' in the financial markets.
It will do no such thing. It will instead strike terror into the hearts of investors worldwide who hold any sort of paper, whether it be preferred stock, common stock or debt, in any financial entity that happens to be domiciled in the United States, never mind the potential impact on Treasury yields and the United States sovereign credit rating.
I predict that if this passes it will precipitate the mother and father of all financial panics." (Market Ticker)
Amen. The transformation from a free market to a centralized, Soviet-style economy run by men whose judgment and credibility is already greatly in doubt; does not auger well for the markets or the country. Anyone with a lick of sense would cash in their chips first thing Monday and look for capital's Elysium Fields overseas or as far as possible from the circus sideshow now run by G-Sax ringleader, Colonel Klink.
Paulson's Chicken Little routine might might have soiled a few senatorial undergarments, but let's hope the American people are made of sterner stuff and will reject this charade. The conversation should be shifted from conceding more authority to hucksters in pin-stripes to indictments for securities fraud. Even the most economically-challenged nation ought to be able to afford a few sets of leg-irons and a couple hundred jail cells. That's all it will take. That, and a couple brisk dunks on the waterboard. Glub, glub.
Paulson's plan to revive the banking system by buying up hundreds of billions of dollars of illiquid mortgage-backed securities (MBS) and other equally poisonous debt-instruments; ignores the fact these complex bonds have already been "marked to market" in the recent firesale by Merrill Lynch. Just weeks ago, Merrill sold $31 billion of these CDOs for roughly $.20 on the dollar and provided 75 percent of the financing, which means that the CDOs were really worth approximately $.06 on the dollar. If this is the settlement that Paulson has in mind, than the taxpayer will be well served. But this will not recapitalize the banks balance sheets or mop up the ocean of red ink which is flooding the financial system. No, Paulson intends to hand out lavish treats to his banker buddies, while interest rates soar, pension funds collapse, the housing market crashes, and the dollar does a last, looping swan-dive into a pool of molten lava. Thanks, Hank.
Economist and author Henry Liu summarized the current maneuvering like this: "The Fed is merely trying to inject money to keep prices not supported by fundamentals from falling. It is a prescription for hyperinflation. The only way to keep price of worthless assets high is to lower the value of money. And that appears to be the Fed unspoken strategy."
Indeed. The Fed and Treasury have decided to backstop the entire global financial system (foreign banks can access the Fed's facilities, too!) with paper money which is rapidly losing its value. Watch the greenback tumble tomorrow in currency trading.
Congress is getting steamrolled and the American people are getting snookered. Consumer confidence--already at historic lows--is headed for the wood-chipper feet-first. Something has got to give.
One minute everything is hunky-dory; the subprime meltdown is "contained" and "the fundamentals of our economy are strong".(Paulson) And, less than a week later, congress is forced to surrender their constitutionally-mandated right to oversee spending in order to forestall economic Armageddon. Which is it? Or is the real objective just to keep the country on an emotional teeter-totter long enough for all state-power to be subsumed by the Wall Street Politburo?
No one knows what will happen next. We are in uncharted waters. And no one knows what the political landscape will look like after the dust settles from this outrageous power grab. According to Paulson, things are so dire, the entire nation will be reduced to smoldering rubble and twisted iron. But can we trust him this time after his long litany of lies?
Isn't it about time to send the cockroaches scuttling back to their hideouts and bring in the cleaning crew to hose the whole place down? It sounds like a job for Ralph Nader, a man of vision and unshakable integrity. Give Ralph a badge and let him deploy his Raiders to Wall Street armed with bullwhips and tasers. Let them post a guard in every CEOs and CFOs office and every boardroom on the Street---and if even one decimal is accidentally moved to the right or left on the corporate ledger; clap them in leg-irons and drag them off squealing to Guantanamo. That's how you clean up Wall Street!
Don't let the prospect of a national crisis trick you into giving up your freedom, America. The people behind this scam are the same landsharks and flim-flam men who polluted the global marketplace with their snake oil and toxic sludge. These are the fraudsters who manufactured the crisis to begin with. This is just the latest installment of the Shock Doctrine; engineer a crisis, and then, steal whatever is left behind. Same sh**, different day. Be resolute. Don't budge. Our economic foundations may be crumbling, but or determination is not. This is our country, not Goldman Sach's. The people who destroyed America must be held to account. Their time is coming. Justice first.
The $700 Billion Bailout: One More Weapon of Mass Deception
Go to Original
By Richard W. Behan
By Richard W. Behan
Not since the Bush administration’s lies about Iraq’s "weapons of mass destruction" have the American people been so despicably misled.
The Bush administration’s proposal to buy, with taxpayers’ money, $700 billion of toxic liabilities from the corporate financial titans of Wall Street is a fraud. It is by no means necessary, as Treasury Secretary Henry Paulson claims in the agency’s Fact Sheet, "to promote market stability, and help protect American families and the U.S. economy."
It is necessary only to assure the financial survival of Wall Street banks and brokerages, the administration’s most loyal supporters and its greatest political contributors -- and in large measure the cause of the financial meltdown the country is facing.
These financial corporations lobbied ferociously to be free of government regulation. Had they not succeeded, they could not have done what they did next: They created and leveraged trillions of dollars of complex "derivatives" -- mortgage-backed securities, collateralized debt obligations and credit default swaps -- all riding on an unprecedented real estate bubble stimulated by their frenzy of creative finance. When the bubble burst, as bubbles do, many of these financial titans faced bankruptcy, their obligations far exceeding their assets.
The $700 billion of taxpayers’ money, in the plan suggested by Paulson, will buy enough of the toxic obligations to allow the companies to avoid bankruptcy. Not coincidentally, a major beneficiary of the scheme will be the investment bank Goldman Sachs. Paulson resigned as CEO of Goldman Sachs to become the Treasury secretary in 2006, having amassed a personal net worth of $700 million during his 32-year tenure at the bank (on average, $21.9 million per year).
We need to "remove the distressed assets from the financial system," Paulson suggests. Relieved of the burden, the great Wall Street banks can then regain, presumably, its folksy function: assuring that "money and capital flow to and from households and businesses to pay for home loans, school loans and investments that create jobs."
For the good of the American economy, Paulson is correct that credit needs to flow and the distressed assets need to be removed. He is not correct that credit needs to flow from Goldman Sachs and other Wall Street financial houses. And the distressed assets do not have to be assumed by the taxpayers.
There are other, far more equitable and justified ways to accomplish both.
The distressed assets -- that is, the losses -- can and should be absorbed by the executives, directors and stockholders of the corporate banks and other institutions that propagated the financial firestorm. They can and should, as the dictates of the free market insist, stand accountable for their actions and accept bankruptcy. It is not the responsibility of the American taxpayers to shield them.
Paulson wants to rescue Wall Street so Wall Street, he assures us, can get back to lending. That is certain to save Paulson’s former firm and the others, but it is by no means certain that credit will then flow to "home loans, school loans and investments that create jobs." The Wall Street firms are far more likely to revive their lucrative trade in complex and esoteric financial "products."
Seven hundred billion dollars is a lot of money. It is more than we’ve spent so far on the administration’s fraudulent "war on terror" (See "The Mega-Lie Called the ’War on Terror’: A Masterpiece of Propaganda".) Is it not better public policy to channel the money to "households and businesses" in some other, more direct, more effective and far more reliable way?
There are hundreds, if not thousands, of Main Street banks and thrift institutions that played no part in the real estate securitization/derivatives game. Certainly the $700 billion could be made available to them instead, at low but positive interest. Or, special publicly held banks could be set up in statute and capitalized with the $700 billion.
The crisis is real, but there are ways to serve the nation’s interests at large and even to earn a modest return on its assets. We do not need to subsidize the failure of Wall Street and hope thereafter for better days.
The welfare of the Wall Street financiers should not be the focus of public policy, and this clever attempt by the Bush administration is a perversion of decent governance. We should not be stampeded into the greatest corporate theft of public assets, arguably, in the nation’s history. Instead, to paraphrase one of our presidential campaigns, we need to put our country first and stop Paulson dead in his tracks.
Meltdown and Bailout: Why Our Economic System Is on the Verge of Collapse
Go to Original
By Joshua Holland
By Joshua Holland
The immediate cause of our financial meltdown is unchecked, unbridled greed. Mainstream newspapers and the business press are doing a fairly good job of explaining how the lack of regulatory oversight led us into this nightmare.
But you have to dig down one layer to find the cause of that situation. Under cover of the ideological euphemism known as the "free market" and with enormous cash investments over the past four decades, business elites have captured the regulatory organs of powerful democratic states -- nowhere more so than the United States -- and promoted their own narrow economic agendas for short-term gain.
There’s an enormous amount of discussion about that in the independent media. But to drill down a layer deeper, to the bedrock of the crisis, you have to go to some deep thinkers who don’t get much play in our mainstream economic discourse.
As foreign policy analyst Mark Engler notes in his new book, How to Rule the World, declining returns on traditional investments in manufacturing and industry since the 1970s go a long way toward explaining today’s highly speculative economy -- pushing capital into developing countries and into bubble after speculative bubble in search of a better profit margin.
It’s important to understand what’s going on at all three levels, because we may have come to a fork in the road, a point at which the decisions made now may determine the future of the global economy.
We may or may not also be on the verge of another Great Depression.
The Bush Bailout: Privatizing Gains and Socializing Risk
On Saturday, hoping to stave off that dark possibility, the Bush administration proposed an unprecedented bailout for investors, a scheme that would authorize the Treasury Department to spend as much as $700 billion in tax dollars over the next two years to buy up bad securities, with little Congressional oversight save for a semiannual report on the process.
The move came after the federal government had already sunk a total of $900 billion into America’s financial institutions this year, potentially bringing the total value of the Fed’s tinkering to $1.6 trillion over three years.
The White House, Congressional leaders and Treasury officials are haggling over the details. Things are moving quickly, with a mammoth intervention that was unspeakable in economic circles a month ago now looking more and more inevitable.
The structure of the proposed bailout may change during those negotiations -- Democrats in Congress are pushing to save more homeowners and tie the package to some sort of limits on CEO pay for institutions that get a lifesaver -- but the deal outlined in the brief document released on Sept. 20 epitomizes the principle of privatizing gains while socializing risk. In other words, we’re splitting an oil well with the Big Boys on Wall Street: They get the oil, we get the shaft.
It is, in short, a draft of what could be one of the greatest rip-offs in history. Bush, on the way out of power, is trying to create a publicly financed honeypot for the private sector on a scale never before imagined.
Those who played fast and loose with newer, ever shakier investment instruments in order to squeeze a few more bucks out of the markets’ "irrational exuberance" about the housing sector would get a payday that would save their bacon. According to the New York Times, this huge pile of taxpayers’ cash may even be available to foreign investors.
Home prices would continue to tank, though, as banks shed their bad loans at discounted prices to the government. Those subsidized assets would then be liquidated -- on the cheap because they’re so overvalued -- to resuscitate the financial system. Rick Sharga, a senior officer with RealtyTrac, which monitors the housing market, told Reuters, "We’ve seen fewer and fewer properties go through the auction process because there’s either little equity in them or even negative equity. So there’s no incentive for people to buy them at the auctions."
Sharga added that "bank repossessions continue to grow at a pretty rapid clip," but an analyst told me recently that he knew of banks that simply weren’t taking possession of foreclosed properties because they didn’t want them on their balance sheets.
As those assets are disposed of, the value of all Americans’ homes will continue to fall, because sales of comparable properties determine their worth. That would, in turn, leave a greater number of Americans with mortgages worth more than the amount of equity in their homes, and the cycle would continue. Things are already bleak on that front; the rate of U.S. foreclosures increased 75 percent in 2007 and 55 percent in the year ending this June. The Associated Press reported, "More than four million American homeowners with a mortgage, a record nine per cent, were either behind on their payments or in foreclosure at the end of June."
Many more will lose their homes, and all of us will get the tab: higher taxes, swelling deficits, higher interest rates and a moribund economy.
The plan doesn’t specify what, if anything, U.S. taxpayers will get in return for their largesse. The government isn’t spending more than a trillion dollars to nationalize failed institutions in order to protect stakeholders and liquidate those overvalued assets in an orderly manner. That might make a lot of sense, and it would essentially make Joe and Jane taxpayer owners of something that might rebound in value down the road.
Instead, Bush’s proposal would take bad paper off the books of institutions that are ailing but haven’t yet gone belly-up, and we wouldn’t necessarily get a stake in those institutions; they’d only become "financial agents of the government," according to the draft released Saturday.
As Paul Krugman notes, "historically, financial system rescues have involved seizing the troubled institutions and guaranteeing their debts; only after that did the government try to repackage and sell their assets."
The feds took over S&Ls first, protecting their depositors, then transferred their bad assets to the (Resolution Trust Corporation, founded in the wake of that crisis). The Swedes took over troubled banks, again protecting their depositors, before transferring their assets to their equivalent institutions.
The Treasury plan, by contrast, looks like an attempt to restore confidence in the financial system -- that is, convince creditors of troubled institutions that everything’s OK -- simply by buying assets off these institutions.
Making matters even worse is the fact that it’s almost impossible to put a fair market value on this massive pile of bad debt. As Peter Goodman of the New York Times notes, "no one really knows what this cosmically complex web of finance will be worth, making the final price tag for the taxpayer unknowable. One may just as well try to predict the weather three years from Tuesday."
There will be a fight in Washington, and much debate, about which ideological direction the bailout should lean, and the version offered up by the Bush administration is -- no surprise here -- tilted heavily in favor of those at the top of the economic pile.
What’s clear is that there is going to be a massive transfer of public wealth to the private sector, and at least the lion’s share of that cash, if not all of it, will end up in the hands of an investor class whose recklessness got us into this mess in the first place.
Meltdown
This bailout is a desperate attempt to save the modern economic system from falling under the weight of its deep structural imbalances. As such, it’s unlikely to work over the medium and long terms, even if it has the desired immediate effect of propping up creaky markets and restoring their (largely unjustified) sense of security.
The proximate cause of the financial system’s meltdown is not all that hard to grasp. The decades-long supremacy of the ideology euphemistically called "free trade" resulted in capital being unmoored from national economies and freed to move around the world with few limitations (under the imperative of government not "intervening" in markets). Unconstrained by borders and investment rules, those dollars, yen, euros and what have you roamed the planet seeking a better rate of return. Investors moved in packs, rushing lemming-like to whatever hot up-and-coming market the Economist was writing about in a given month, and a series of bubbles resulted.
Those bubbles made some people incredibly rich, and hurt others badly.
Of late, real estate was the can’t-miss investment, and as enormously overvalued housing bubbles sprang up, notably in the United States, Wall Street’s financial whizzes started offering newer and more "creative" investment vehicles, bundling mortgages and selling them off to investors from around the globe.
That was driven by an era of relentless deregulation, both at home and abroad. Here in the United States, the trend of deregulation culminated in 1999 with the death of the Glass-Steagall Act, the New Deal-era legislation that had forced financial institutions to choose between investment banking and commercial lending. Meanwhile, international bodies like the WTO and the IMF were pressuring the governments of all countries to drop their controls on the flow of cash and goods.
Without fear of a regulatory backlash, the banks pushed their new investments hard, and investors gobbled them up with glee. Writing in the Columbia Journalism Review, Dean Starkman cited reports from the business press about loan agents at Ameriquest being ordered to watch "Boiler Room," the film about sleazy financial brokers pushing bad investments on gullible retirees (Ameriquest was a predatory subprime lender that went down last year). Starkman quoted an executive with Morgan Stanley’s mortgage unit as saying, "It was unbelievable. We almost couldn’t produce enough to keep the appetite of the investors happy. More people wanted bonds than we could actually produce."
In the end, investors were basically buying up paper that had only a distant relationship with anything concrete. The link that had long existed between homeowners and lenders was broken, and debt -- in this case debt tied to housing, but also commercial and consumer debt -- became a hot investment vehicle.
Convinced that the market would continue to grow indefinitely -- or maybe that they’d get bailed out if things headed south -- investors leveraged their assets further and further, in effect buying on margin just like the bad old days before the Crash.
The banks and investment houses worked hard to find new ways to make their own pounds or rubles, creating not only new types of debt-based securities, but also coming up with new forms of insurance to (supposedly) shield investors against the risk those loans represented.
That was all well and good for them, if not for the rest of us, until the housing market started to tank. Despite assurances from the government earlier this year that the disaster had been "contained" to the subprime market, it began to spread. As the Associated Press reported, the tanking real estate market "shifted from subprime loans made to borrowers with poor credit to homeowners who had solid credit but took out exotic loans with ballooning monthly payments." Bloomberg reported that 3 million American homeowners are holding prime (or, actually, semi-prime) "alt-A" loans (don’t ask) worth about $1 trillion, or $150 billion more than the entire outstanding subprime market.
As those loans -- many of which were taken on investment properties by people expecting a nice, quick turnover -- started to go belly-up, a panic ensued. As the rot spread, banks started going down and investors essentially began a stampede on an already weakened financial sector. It was the modern-day equivalent of a bank run, but on a global scale.
That posed a risk to the mammoth and wholly unregulated market in insurance on bad loans that had grown up around these new kinds of investments. The market in what are known as "credit default swaps" is of unknown size, but it’s estimated to be worth as much as $60 trillion, most of it essentially paper backed by too little in the way of hard assets.
The government knew that if that market tanked, it could take down the global economy. That threat was, in large part, the thinking behind the $85 billion dollar bailout of AIG less than a week ago -- AIG was a key player in this huge but hazy market, and it did business with banks around the world.
At that point, a feeling of panic was spreading, and lawmakers in Washington felt that they had to do something, anything, to stop the meltdown. The banking sector’s crisis threatens the entire economy, as the capital needed for new investment and expansion has begun to dry up. Jared Bernstein of the Economic Policy Institute told the New York Times that "Wall Street isn’t this island to itself" and warned that if the finance sector "gets worse, we’re going to be stuck in the doldrums for a very long time, because that directly blocks healthy economic activity."
Global Capitalism’s Crises of Poverty and Overproduction
The financial meltdown in the United States is huge, but it isn’t unique. Think of the Asian financial crisis, Mexico’s "peso crisis" or the dot com crash. All had one thing in common: an investor class that at one time valued thrift, limited risk and steady growth plunged trillions with almost suicidal abandon into one bubble after the next.
All of which begs the question of what it is about our modern economic system that creates this cycle of inflating and bursting bubbles.
The answer, in large part, comes down to a decline in profitability in investments in concrete things, which has sent investors scurrying for abstract financial instruments in search of a fat return.
That shift, in turn, results from a simple aberration: a small fraction of the planet’s population is tied to an economic system in which productivity is effectively an end unto itself. It makes tons and tons of widgets, always seeking new widget markets (and sucking up most of the planet’s raw materials). At the same time, the powerhouses of the global economy -- the United States, Europe, Japan and the "Asian Tigers" -- have given woefully low priority to economic development in the rest of the world. They’ve essentially relegated it to NGOs and an underfunded United Nations, and in their own development funding they’ve prioritized geopolitics -- their "national interests" -- over poverty relief.
That’s left much of the rest of the world’s population (and this includes people in the wealthiest countries as well as the poorest) with barely enough money to feed their families, much less buy all those widgets. According to the UN, 80 percent of the people on the planet live on $10 dollars a day or less, and they’re not going to take many flights on Boeing’s shiny new airplane, buy GE’s dishwashers or use Nortel’s broadband. Over just the past two years, the number of people living on the "edge of emergency" -- in imminent danger of starvation or death from disease epidemics -- has doubled, zooming from 110 million people to 220 million, according to CARE International.
In other words, at the heart of the current crisis, like those that preceded it in recent years, is a massive imbalance inherent in the modern system of capitalism. It is caused by twin crises inherent in the structure of our global economy: a crisis of overproduction in the "core" states with advanced economies, and soul-crushing poverty in much of the "periphery."
In the booming years after World War II, the wealthy countries, led by the United States, did very well manufacturing goods for the entire planet. But as Europe and Japan rose from the ashes, and later, as production in countries like Taiwan, South Korea and Singapore increased, the industrial world simply started making more crap than there were consumers to purchase it.
Capitalism’s tendency toward overproduction has been something with which thinkers dating back to Karl Marx have wrestled. If, as one definition holds, capitalism is all about maximizing efficiency, what happens when meaningful production becomes so efficient that the system ends up cranking out more goods than the population needs -- more than it can absorb?
The answer is simple. Since the middle of the last century, investors’ returns on real production -- manufacturing -- has been in steady decline. Economist Robert Brenner described it as a "long downturn" in the world’s most advanced economies. He noted that the seven leading industrial economies grew by a steady rate of 5 percent or more annually from the end of World War II through the 1960s, but in the 1970s that fell to 3.6 percent, and it has averaged around 3 percent since 1980.
The social critic Walden Bello has arguably been the clearest voice connecting the problem of overproduction to the rush of speculation that has led to today’s financial crash. Bello noted that in the 1990s, the heyday of corporate globalization, the "U.S. computer industry’s capacity was rising at 40 percent annually, far above projected increases in demand."
The world auto industry was selling just 74% of the 70.1 million cars it built each year. So much investment took place in global telecommunications infrastructure that traffic carried over fiber-optic networks was reported to be only 2.5 percent of capacity. Retailers suffered as well, with giants like K-Mart and Wal-Mart hit with a tremendous surfeit of floor capacity. There was, as economist Gary Shilling put it, an "oversupply of nearly everything."
A report in the Economist, cited by Bello, found that the world of Clinton’s "New Economy" was "awash with excess capacity in computer chips, steel, cars, textiles and chemicals," and noted that "the gap between capacity and output was the largest since the Great Depression."
An inevitable result of that imbalance was a massive migration of capital from real, productive industry to the "speculative sector" run by financial giants like AIG and Lehman Brothers. As Bello noted:
So profitable was speculation that in addition to traditional activities like lending and dealing in equities and bonds, the ’80s and ’90s witnessed the development of ever more sophisticated financial instruments such as futures, swaps and options -- the so-called trade in derivatives, where profits came not from trading assets but from speculation on the expectations of the risk of underlying assets.
Exacerbated by a relentless assault on public interest regulation and economic nationalism under the guise of "free trade," the increasingly speculative tendencies of global investors created fertile ground for the growth of that pile of bad paper to which the Bush administration is reacting with its trademark brand of top-down reverse socialism.
In a nutshell, our modern economic system has become divorced from what an "economy" is supposed to do in human terms. It was anthropologist Karl Polanyi who argued that the term "economics" has both a formal meaning -- a system of exchange of goods and services designed to maximize efficiency -- and a "substantive" one: the survival strategy of humans in their natural environment. It’s a concept that transcends conventional economic concepts of supply and demand, markets and states, and it’s one that we’ve ignored for too long.
As the financial sector threatens to fall apart around us, it’s important to understand the crisis on all of these levels, or we run the risk of losing sight of the forest for the trees. One has to keep in mind that this is all happening during the era of the $100-plus barrel of oil, with the global economy integrated more than ever before and during a period of deep environmental peril due to global climate change and related problems of drought and desertification.
With the Bush administration pumping more than a trillion dollars into the private sector, Jim Bunning, the junior senator from Kentucky, lamented that the "free market for all intents and purposes is dead in America." As more mainstream economists talk about the possibility of sliding into a full-blown depression, we may well be in the grip of a kind of economic "Grotian Moment." The term, named for the 17th century Dutch legal philosopher Hugo Grotius, describes an event that has such a great impact that it results in fundamental changes to the prevailing system.
Slavoj Zizek wrote that "One of the clearest lessons of the last few decades is that capitalism is indestructible. Marx compared it to a vampire, and one of the salient points of comparison now appears to be that vampires always rise up again after being stabbed to death." That’s true; for a generation, we’ve been constrained from even discussing the fundamental structures of the prevailing system -- its excesses and shortfalls. This may be a moment in which we can do so, and should.
If we are at such a juncture, then we as a society have a serious question to answer: Will we bail out the speculator class so that it can regroup and move on to the next bubble, precipitating the next crisis of capitalism, or will we address the underlying problems of underdevelopment and overproduction in a way that’s adequately sustainable in an era of serious environmental peril?
So far, Bush and the Congress appear to have the wrong answer.
The Evolution of John McCain
Go to Original
By Chip Ward
Why He Picked Sarah Palin, Carbon Queen
By Chip Ward
Why He Picked Sarah Palin, Carbon Queen
Despite the media feeding frenzy, we still may be asking ourselves, "Just who exactly is Sarah Palin?" Mixed in with the Davy-Crockett-meets-SuperMom vignettes -- all those moose hunting, ice fishing, snowmobiling, baby-juggling, and hockey-momming moments -- we’ve also learned that she doesn’t care much for her former brother-in-law and wasn’t afraid to use her office to go after his job as a state trooper; that she was for the "bridge to nowhere" before she was against it; that she’s against earmarks unless they benefit her constituents; that she can deliver a snappy wisecracking speech, thinks banning books in libraries is okay, considers herself a pit bull with lipstick, and above all else, wants to drill the ever-lovin’ daylights out of every corner of her home state (which John McCain’s handlers have somehow translated into being against Big Oil, since she insisted on a marginally bigger cut of the profits for Alaskans).
Oh, and -- not that this is very important to Americans or the planet -- she now thinks that global warming might possibly be human-made… sorta… though she didn’t before, despite the fact that the state she governs is on the frontline of climate change. And, of course, she’s a classic right-wing, fundamentalist Christian: against abortion -- check; against same-sex marriage -- check; against stem-cell research -- check; favors teaching Creationism in public schools -- check.
It’s that last item, her willingness to put Creationism up against the teaching of evolutionary science in the classroom on a he-says-she-says basis, that’s far more revealing of just who our new Republican vice presidential candidate is than we generally assume. It deserves the long, hard look that it hasn’t yet gotten. Most Democrats and progressives tend to think of the teaching of Creationism as a mere sidebar item on their agenda of political don’t-likes, but it’s not. Sarah Palin’s bias towards Creationism is a window into her political soul and a measure of John McCain’s hypocrisy.
It’s possible that the public has been fooled into thinking of McCain as a "maverick" when it comes to his party’s abysmal record on the environment, but his selection of Palin as his running mate sends quite a different message. In fact, he’s potentially put future generations on a "bridge to nowhere" (or perhaps to the fourteenth century). Whether we know it or not, we should now be duly warned: The Palin nomination is the equivalent of launching a "surge strategy" in the Republican war on the environment.
The Republican Holy War on Nature (Continued)
For the past eight years, the Bush administration’s assault on environmental quality has been so deliberate, destructive, and hostile that the usual explanations -- while not wrong -- are hardly adequate. Yes, Republican animosity to government regulation is long-standing. Yes, they believe in the power of an unrestricted marketplace to shape our collective behaviors. And yes, they emphasize property rights over notions of the commons and have often been comfortable sacrificing wildlife, air, and water quality in the pursuit of profits. In addition, despite recent claims, they are indeed the party of Big Oil. But none of this quite explains the Bush administration’s shameful record on the environment. In the final analysis, the only explanation that fits the nightmare of the last eight years is this: It has been on a holy war against nature -- and the nomination of Sarah Palin is essentially an insurance policy taken out on its continuation.
The idea that the environment matters is ingrained in Americans, even those who don’t think of themselves as environmentally inclined. Democrats and Republicans alike have learned the hard way that the decisions we make about what we allow into our air, water, and soil gets translated into our skin, blood, and bones. We now sense that we all live downwind and downstream from one another, and that it is prudent to practice restraint and take precautions when making environmental decisions.
This unspoken consensus is one of the great accomplishments of the modern environmental movement. The policies of the Bush regime have been shocking and shameful exactly because they fly in the face of these shared values and beliefs. Only when we grasp that the narrow Republican base both Bush and McCain pander to no longer shares these basic values and beliefs, does their war on the natural world make sense.
If you believe that a look-alike God made the world for you to dominate and use, that you are among God’s chosen few, and that He will provide for you no matter what you do to your surroundings, then you are likely to see yourself as above the natural order. If you believe that the world will be ending soon anyway, that you will be "raptured" while non-believers are "left behind" (as fundamentalist Tim LeHay so vividly describes the process in his bestselling novels), then precaution and restraint are moot. Remember, more than 60% of the nation’s 60 million evangelicals believe that the Bible is literally true, every last word of it, and more than a third believe the end of the world will occur in their lifetime.
That’s why a pro-Creationist stand is no sideline issue, but the litmus test that reveals whether a politician shares the religious right’s ideology -- a literal interpretation of the Bible, a disparaging attitude towards science, belief in mankind’s unfettered dominion over the natural world, and a willingness to impose its religious doctrines on others.
Both of Sarah Palin’s churches -- the Wasilla Assembly of God where her faith was shaped as a child and the Wasilla Bible Church that she attends today -- believe in just such a literal interpretation of the Bible. From Biblical study, Creationists have calculated that the Earth is only about 6,000 years old. That this is contradicted by the fossil record matters little to those who also think Revelations is a reasonable guide to foreign policy in the twenty-first century. Asked during her run for governor if Creationism should be taught in the public schools, Palin responded that the theory of evolution and Creationism should be taught side by side, and then "the students could debate" which is true.
Why Evolution Matters
When many Americans think "evolution," they probably recall that illustration of an ape, then a Neanderthal, then a hairy caveman, and finally, a modern homo sapiens walking in a line and growing ever more upright as they proceed. That illustration crudely highlights the aspect of evolutionary theory that pinches the nerves of Christian zealots who prefer a creation scenario like the one painted on the roof of the Sistine Chapel -- God tagging Man with life, finger to finger. But the human common ancestry with primates is just a fraction of what evolutionary theory is all about.
Evolution is largely about connection and interaction -- the linear connection of one species evolving into another (speciation), but also how species fill niches created by one another, how they interact, exchanging energy and information, how they compete as well as cooperate, and how all of them -- from microbial soils to migrating birds -- form dynamic communities that, in turn, are also woven together, web within web within web. Pull one thread of that living tapestry and you tug at so many others, which is why precaution is so wise.
Evolutionary theory does not preclude God. It uncovers the how of life, but leaves the why of it quite open. Many devout Jews and Christians, even evangelicals, believe in evolution, just not Biblical literalists.
Evolutionary theory shapes and informs the ecological sciences that are the very basis for our environmental laws and policies. The emerging, European-led global movement -- so far lacking U.S. participation -- that aims to deal with global climate chaos and restore the earth’s vital operating systems is premised on understandings gained through the evolutionary sciences. Cast doubt on those sciences and you undermine the basis for changes that are urgently needed.
The Creationist campaign means to dumb-down and confuse our kids by pushing the evolutionary sciences off the educational stage. America’s Taliban want to make room for Creationism’s dull sister, Intelligent Design, in order to undermine the emerging environmental consensus that is our best hope for a sustainable future. According to that consensus, we humans are embedded in natural systems that are in crisis; our well-being, even our survival, depends on the vitality of those systems.
Kiss the Polar Bear Goodbye
So how does all this translate into actual behavior? As governor, Sarah Palin recently sued the Interior Department to keep the polar bear -- the iconic symbol of her state -- from being listed as a threatened species under the provisions of the Endangered Species Act. Additional protections, she argued, might inhibit oil and gas drilling and pipeline construction in the region.
The Endangered Species Act is a favorite target of the religious right since they are convinced it elevates lowly creatures to, or above, the status of human beings. They see "charismatic carnivores" and other protected species as the means used by conservationists to pursue broader protections for whole ecosystems. And that’s true enough, in that "keystone species" like the polar bear regulate a wide network of relationships within a whole ecosystem. Those bears, for example, keep a lid on seal populations that could otherwise devastate fish populations and skew the arctic food web. Numerous animal and bird species depend on scavenging bear kills for food. But without reference to ecological science, the role of a keystone species and the value of biodiversity itself are hard to appreciate.
Palin, of course, also wants to drill for oil in the ecologically fragile Arctic National Wildlife Refuge and has expressed her hope that she can convince McCain to abandon his opposition to it. She is an active promoter of Alaska’s aerial hunting program where wolves and bears (again, keystone species) are shot from the air or chased until exhausted, after which the pilot lands the plane and a gunner can shoot them point blank. She tried to raise the bounty on wolves to encourage more killing and strongly opposed a ballot initiative to end the aerial hunting program. In the Lower 48, we learned the hard way that eliminating top predators upsets a chain of relationships in their ecosystems. No wolves in Yellowstone meant big, lazy herds of elk trashing streams, driving away beavers, and thus eliminating the wetlands that beavers create -- a cascade of unintended, harmful consequences. That’s why naturalists are reintroducing wolves in parts of the West, and health is returning to the land with them. Under Palin, Alaska is going to relive our old mistakes at a time when Alaskans -- and humanity -- can ill afford it.
The Carbon Queen
Even in Alaska, known oil reserves are dropping. Nonetheless, Palin is determined above all else to keep the current flow of energy moving, explore and develop new oil fields, and ramp up natural gas and coal production. She gave special permission to Chevron to triple the toxic waste it can pour into the waters of the Cook Inlet, despite scientific research concluding that the Beluga whale population there is endangered. She has refused to pressure Exxon to pay-up for damages caused by the infamous Exxon-Valdez oil spill. She has supported virtually every mining proposal that has landed on her desk, including one for a vast gold mine in the Bristol Bay watershed that would risk the world’s largest run of sockeye salmon. She favors open-cast mining for coal in the pristine Brooks Range. She has refused to enhance safety measures for trans-Pacific shipping along the Alaskan coast. All that and she’s been governor for barely two years!
Her deplorable environmental record was such common knowledge that John McCain couldn’t have missed it, even if he napped through his vetting committee’s report.
So if the McCain/Palin ticket is elected, you should know what to expect. Although John McCain may once have openly refused to subscribe to the beliefs of the Republican Party’s religious right, famously describing them as "agents of intolerance," his selection of Sarah Palin is a message (and not just to the Party’s fundamentalist right): If you thought that he understands the need to kick our fossil-fuel addiction and address global warming, if you believed his promises to build a green economy, forget about it. A McCain/Palin administration, just like the one before it, will continue -- and this is the best-case scenario -- to fiddle while the planet burns.
Driving Into the Future Without a Map
Ed Kalnins is Sarah Palin’s former pastor at the Wasilla Assembly of God Church which she attended for 26 years. He sees powerful signs that the end of the world is drawing nigh and assured a London Times reporter that Biblical scripture specifically mentions shortages of oil and wars for its control. When the end comes, he expects to be "raptured" with other righteous Christians and spared the suffering of those of us who will be left behind. He believes the apocalyptic destruction of our planet will happen in his own lifetime; in fact, that is exactly the future he hopes for. He has urged his congregation to make ready a "refuge" for good Christians fleeing northward in "the Last Days." Although Kalnin’s orientation may seem -- to be polite -- extreme, it is typical enough of those who push a Creationist agenda. And it’s a perspective Sarah Palin knows well, having spent a lifetime in Kalnin’s Pentecostal church, and even now, she is in no hurry to disown it.
We need environmental science in our schools more than ever. An ecologically illiterate generation of students will be ill-prepared to meet our real, less than rapturous future. They won’t have a clue about what’s happening around them or how to deal with the damage we’ve done. They won’t be able to create new technologies that mimic nature’s models for recycling waste and energy. They will drive blindly into the future, burning fossil fuels, without a map they can read. They may even let the Ed Kalnins of our world take the wheel.
The Evolution vs. Creationism debate appears to be an argument over the distant past. But it’s actually about the future. It’s about, in fact, who will define the cultural mindset that will generate that future. Let us pray it is not defined by a pit bull with lipstick who thinks she is "tasked by God" to drill for oil.
Subscribe to:
Posts (Atom)