Thursday, October 2, 2008
Repugs Save the Day
I thought they were good for nothing, but here they’ve saved the Dems from their congenitally capitulative need to worship at the feet of the Bush.
Leading Democrat David Obey, in reference to the Repugs failure to back the bailout, summed up the problem thusly, “these guys would rather lose an economy than lose an election”. Within that little statement is a grand assumption – that the $700 billion will actually do the job – and a slap at Democracy – signifying how far the Dems have gotten from the real world.
Legislators are receiving mail against the giveaway in a ratio of 200:1 and higher. They could try to justify their vote against the wishes of their constituents by saying they are just citizens and really don’t know what’s good for them. They might also try to pass off their vote in favor by saying that Wall Street knows best what’s good for Wall Street: absolutely true and the very reason why the people are so solidly and vociferously against this plan.
The plan, after all, comes from Henry Paulson, former CEO of Goldman Sachs who earned hundreds of millions during his tenure there. Of course he would look at the health of Wall Street first. Where has he been while millions have been losing their homes? Or the Dems for that matter? The most they could come up with was a mortgage relief plan limited to helping a mere 5% of people facing foreclosure.
Ah but this is different, this is an emergency, a calamity waiting to happen and a bill must be passed ipso facto or the economy will grind to a halt and the taxpayer will suffer. Speaker of the House Nancy Pelosi tried to make it sound like the bill was designed to protect the taxpayer. Now I know that politics is all about spin and hype and bluster but that was risible: Borrowing $700 billion from the Chinese to give to the same fat cats who created this mess in the first place is all about Joe Taxpayer.
As far as saving the economy, the bailout is a total crap shoot, a Hail Mary pass with no grounding in reality. The $700 billion number was pulled out of a hat. They didn’t want to ask for anything less because it would have had a negligible effect. They couldn’t ask for a trillion, that would’ve boggled the mind.
If the legislation does pass it will be good money after bad: the toxic assets causing the problem are far in excess of the bailout number. Consider, while the total housing mortgage market is about $10 trillion, the derivative market based on housing is $45 trillion. How can that be? you ask. Well, it can’t, not in the real world, not in a financial system that actually made sense.
I’m not going to try to get into a long winded explanation of what derivatives are, except to say that they represent pure speculation: ultimately no different than casino gambling. To society they have no redeeming value. They are a means for high flying banks and hedge funds to play with money - the spectacular amount of money that’s been thrown at them through 30 years of neo-con policies of feed the rich.
The bigger problem than saving Wall Street’s ass is fixing the property market. If it isn’t stabilized first, the value of those assets is going to continue to tumble. And continue to bring down the system. If we take care of the little people then the banking system can begin to repair itself. If it seizes up, it won’t stay that way for long. If credit rules are tightened up as a result, then it’s about time. For a generation the American economy has been based on compulsive consumption by borrowing from the future. Any Econ 101 student will tell you that is not sustainable.
The Senate has just approved a tweaked version of the bailout rejected by the House. It includes raising deposit insurance from $100,000 to $250,000. I don’t know how stupid you can get to have more than $100,000 in one institution, but if you’ve got money in the bank then you deserve to get protection for your stupidity. On the other hand, if you are being kicked out of your house, whether through your own stupidity or the mendacity of mortgage lenders, well, in a free market there are winners and losers.
The revised bill also includes tax breaks for small business and the middle class. Great. We’re adding a trillion dollars to the national debt, so what we need is tax breaks for people who are already doing well, or at least well enough. How about a small transaction tax to help pay for the bailout and curb the rampant speculation that got us into this fix in the first place? Not a chance, Wall Street wouldn’t like that. How about a ban on derivatives, short selling and other market gambling, or at a minimum, a firm statement to the effect that institutions that indulge in such speculation are absolutely excluded from future government help?
No way. This is about feeding the rich, a easy purpose to accomplish. As for saving the economy, ostensibly the reason for this corporate welfare plan, if it does pass the House, look for a temporary uptick in the stock market and a bit less fear and panic, but don’t imagine that it’s actually going to solve any fundamental dysfunction in the system. At most, it’ll be a temporary respite in a long downward slide.
It took 25 years after the 1929 crash for the stock market to return to its former level. That’s what it’s going to take to fix the American economy and bring personal and public debt down to reasonable levels.