Last week US Treasury Secretary Henry Paulson unveiled a dramatic plan to arrest the present financial crisis and prevent future economic catastrophe.
A financial catastrophe engineered by the financial sector, aided and abetted by the mitiarist and political power brokers. Originated by companies such as Goldman-Sachs (oops…we shouldn’t speak badly of Paulson’s former employer, should we). A catastrophe that could be seen miles away, and yet we happily sailed into the metaphorical iceberg.
The root of the problem lies in the ‘sub-prime’ (read toxic) mortgages. In the heady years of the ever-rising house price bubble these mortgages were sold by swindlers to poor people who, they knew perfectly well, couldn’t afford them. Then they were bundled up as financial instruments and sold all round the world. This was described as ‘financial innovation’. So the sub-prime mortgages became ‘assets’ that the banks could use to lend out still more money. The trouble is, they are not assets to the banks if the mortgagees are no longer paying because they have been evicted for non-payment. There may be millions of sub-prime mortgages ticking away like a time bomb below the surface of the banking system.
Actually, the root of the problem lies in the particularly vile form of Capitalism we’ve been foisting upon the world for the past quarter century or more. Neoliberalism. Learn to despise the word (more so what it stands for) in the same manner we despise its worthless cousin, neoconservatism.
Many of these borrowers have already had their homes foreclosed on. They are sleeping in cars or doubling up in trailer parks. Frankly, who cares? Capitalism has never cared about homelessness. If you can’t afford the goods (a roof over your head), then you can’t have them. That’s capitalism. You have to rely on yourself, not depend on handouts from others.
Economic good times, particularly for many companies, depend upon consumers being able to consume. Real wages have stagnated over the years, while many high paying jobs were either outsourced offshore or lost altogether. The only way consumers could ‘afford’ to consume in any meaningful fashion was to take on debt. And the debt built up until it was a major component in our financial system. And now that debt is getting ready to eat us alive.
That philosophy is neo-liberalism. It has been dominant in the capitalist world for the past 25 years. Suddenly it is stone dead. Paulson has announced a sudden and dramatic reversal of policy. He has presented Congress with a plan to buy up the dodgy mortgages and lodge them in a ‘bad bank’ he calls the Resolution Trust Corporation. It’s a bail-out. The idea is that the ‘bad bank’ should gradually acquire all the toxic mortgages from the other banks and financial institutions. Sellafield in Cumbria processes all the nuclear waste that is a by-product of our (totally stupid) nuclear power programme. In the same way the Resolution Trust Corporation will process and store the financial ‘plutonium’ and other poisonous isotopes that have been generated by the present financial crisis.
The bailout is a plan by the financiers and the architects of neoliberalism. That should make us wary of the plan just on principle. What makes us think that they have changed their spots in the past few weeks?
Processing financial waste products doesn’t sound like a way of making much money, any more than handling nuclear waste is a way to profit. Indeed Sellafield costs us taxpayers vast sums of money. Naturally Paulson has pencilled in the US taxpayer to stump up the requisite cash. It’s likely to cost – wait for it – $700bn. If he gets away with it, Paulson will have the capitalist world in the end returned to its natural harmony, with the private banks making all the profits and the taxpayers holding all the losses.
Exactly. We’re going to save neoliberalism from itself, and it will get to continue on it’s merry way as if nothing had happened. It’s the sort of plan you would expect from the financial wizards who’ve created this mess. And, we may be just about ready to fall for it.
It sounds like a breathtaking break from neo-liberal philosophy. It’s not really. Neo-liberalism was always a giant lie. Homeless people don’t matter. People in danger of losing their jobs in a recession don’t matter. But, when it comes to banks and billionaires, self-reliance is for the birds. These people are hapless bums. As Michael Roberts wrote a few days ago, “Most of the money (for the Paulson plan) will go to help the fat cats of Wall Street get out of their mess. You see, when it comes down to the impending collapse of capitalism, suddenly socialism is a good idea. It’s just this is socialism for the rich, while the rest of us have to continue to live under capitalism.” (http://www.socialist.net/socialism-rich-capitalism-poor.htm )
I still say it’s state capitalism rather than socialism for the rich (a term, no doubt, in use to blacken the name of socialism). We’ve been headed in this direction for years. The insidious marriage of the financiers, the militarists and the political class is going to leave the bulk of the society high and dry. Better to have the system collapse than have the bosses having even greater control over our lives.
Two weeks ago Fannie Mae and Freddie Mac, the giant mortgage insurance companies, were effectively nationalised. The US government effectively took over responsibility $5.3trn (yes, trillion) in mortgages. Then insurance behemoth AIG was nationalised for another $85bn. Effectively Paulson has socialised the entire US mortgage asset base. He had no choice.
The US government is now the biggest mortgage broker in the world, and owns the worlds largest insurance company. Word is that part of the proposed bailout has the Treasury Secretary being able to designate banks as organs of the US government. If so, we’re about to see the nationalization of the banking industry (and probably the financial sector later), with the head of Treasury being an economic Czar in the worst sense of the term.
So the financiers screw up spectacularly by engineering a gigantic crisis. They are to blame. Even George W. Bush has described them as “irresponsible individuals.” Then they are bailed out. Meanwhile ‘little people’ are left to go hang in the recession triggered by financial collapse and, to add insult to injury, have to stump up to cover all the damage the wasters have caused.
It’s so pathetic a ploy that, naturally, the Democratically controlled Congress looks like it’s going to go along with it. Think about that for a moment (or, preferably even longer). If you are really in any way what could be called ‘progressive’ or leftist, how can you support such a Party???
Surely Paulson must have thought long and hard about his proposal to demand $700bn from the American people with menaces? Not really. The written ‘plan’ is just 2½ pages long! Congress has been given till Friday 26th September to agree and, in so doing, take responsibility for the tax hike. Take it or leave it. They have to sign a blank cheque. It’s bail-out blackmail!
Bail-out Blackmail. The interesting thing about this black-mail is that we’re not really sure it’s going to work! What a sad spectacle.
The sheer arrogance of it is breathtaking. Naturally Congress is abuzz with talk along the lines of, ‘Didn’t we chase George III out for behaving like this?’ But they’re all at sea. In debating the plan there is the normal log rolling, horse trading and special pleading you get in capitalist democracies. There is also the natural tendency for the Democrats to tell the Republicans (correctly), ‘There’s another fine mess you got us in to.’
Yeah, right! Pot, meet kettle! The society, as a whole, is being played by both parties and their enablers. Ah…what a country!
And there are practical problems with the plan. The securities to be investigated are fantastically complex. That is one reason why they’re not secure. We now realise that the financial whizz-kids who devised them didn’t have the foggiest idea what they were worth, if anything. They roll up perfectly good financial assets in with the toxins. How is a man in a suit supposed to walk into a bank and identify and sift out as dodgy a specific mortgage in Pennsylvania listed on a piece of paper? At best this is painstaking work that will take years.
But, we told we haven’t got years. The financial system needs saving now – by Friday! Warren Buffet, the world’s richest man, threw his weight behind the programme in order to avoid “an economic Pearl Harbour.” He went on, “Last week, we were at the brink of something that would have made anything that’s happened in financial history pale…I’m not saying the Paulson plan will eliminate the problem but it’s absolutely necessary, in my view, to avoid going off the precipice.”
It’s a quagmire, and we’re the one’s who will be carrying the bosses through the muck.
So the pressure is on Congress. ‘You don’t have to agree,’ they are being told by big business, ‘But, if you don’t, the world will come to an end next Monday.’ Ordinary Americans can see that Main Street is being hammered for the benefit of Wall Street. Flint car worker Lew Rough, interviewed by the ‘Financial Times’ (24.09.08) declares, “We’re not losing sleep over a few people losing their jobs on Wall Street…People who can’t pay their mortgages are going to look at Wall Street and say, ‘If they got bailed out, why not me?” Even John McCain has joined the refrain. “We are not going to leave the workers here in Michigan hung out to dry while we give billions in taxpayer dollars to Wall Street,” he says. The trouble is, Buffet is right. If the banks are not bailed out, we could be looking at economic Armageddon.
Of course, economic Armageddon is probably needed to give ‘we, the people’ a shot at having a say in fixing the mess. Buffett doesn’t want us to have the chance, neither do the other bosses. ‘We, the people’ are going to get shafted, and we’re going to be told that it’s good for us.
It gets worse. If the main thing is for the government to be seen pumping in money – ‘as much as it takes’- then that puts the financial institutions that hold these rotten financial assets in an enviable position. They can pretty well charge what they like. After all, it’s just the poor, stupid taxpayer who ends up bearing the burden. The taxpayers will get their revenge by giving Congress a good kicking if they find they’ve signed up to a dodgy deal. This row could run and run.
This may be what finally gets the servile masses out in the streets for real. I’m not betting on it, but it’s a possibility. The problem is, we see that Congress and both parties are in on it. Is our republic dead enough that we’re willing to take them on?
Though we see all the brinkmanship going on as this is written, it seems likely that Congress will crumble before the deadline. If the deal goes through, that could still put pressure on the dollar and on bond markets, as the burdens are loaded on to the national debt. And if Congress does refuse to sign, then financial markets could get really interesting next week.
If Big Orange posters are to be believed, John McCain may have helped to scuttle the plan. It’ll be interesting to see how the markets react tomorrow. I wouldn’t be surprised to see a bloodbath.
So, if you want to know who has won the Presidential elections, the bankers have won. The banks are too big to fail. That’s before a single person has voted. Whatever the final outcome, this incident is going to leave a very sour taste in people’s mouths. Basically, ordinary American working people have been swindled. They have been shown in the starkest way that the country is run by the rich for the rich. And a lot of them may conclude that it’s time that changed. The banks should not be bailed out for the benefit of the rich but should be taken over as part of the socialist transformation of society.
You may disagree with the socialist transformation of society part, but it’s clear that we’re at a sea change as far as our economy is concerned.