The $700 billion boondoggle has been passed, with a virtual carte blanche for the Treasury secretary and the Federal Reserve chairman, the foxes, to pay their canid friends whatever they want - for their mistakes. The original proposal gave the secretary unlimited power to spend the $700 billion, not just on mortgages, but on any "financial instrument" he liked. This was tightened somewhat, with two boards, including an "independent" congressional panel, an "independent" inspector general (shades of Gogol) and an oversight board staffed by the treasury and housing secretaries and the Federal Reserve chairman. Yes, oversight by the foxes and a Congress beholden to lobbyists. This will be sure to do the trick.
Absolutely no mention was made of the more than $500 billion which the Iraq war has cost in the past five years, the $600 billion in tax cuts since Bush came to power, the $650 billion military budget, or the $850 billion trade deficit. Cumulative borrowing from abroad during the six years of the Bush administration amounts to $5 trillion. The $700 billion figure begins to pale in comparison to this profligacy and mismanagement.
In these final months of his presidency, Bush has pulled another weasel out of his hat, pushing through a policy that rewards his criminal friends and avoids any need to reverse his disastrous foreign and domestic policies. Yet commentators feel sorry for him, calling it a hollow victory. He is finally being forced to eat some crow, they say, made to preside over the biggest government intervention in decades, largely abandoned by his fellow Republicans in the House. His CEO friends will find their wings clipped and their golden parachutes taken away. And, if the plan has lost money after five years, his successor must submit a plan to Congress for recouping those losses from the financial industry, perhaps through new fees or a tax on securities transactions.
The ultimate irony here is that the Titanic took the lives of the rich as well as the poor. At least in those days, there was a sense of honour which allowed the innocent women and children to escape. Imagine the Titanic today: as the ship sinks, all are scrambling without any sense of shame for the lifeboats, abandoning any attempt to patch the huge holes - which could easily be done given the will - resulting in one and all being swallowed by the abyss.
A real rescue plan
The financial bailout is not a plan that fundamentally alters the relationship between government and business, as is being touted. It will not solve the underlying crisis that the US finds itself in. It will fundamentally alter the relationship between the US and the world, but more because of the panic it precipitated and the accumulated effects of the other disastrous policies of the Bush era - the wars, the deficits in trade and the budget. Therein lies the golden lining. The neocon con is over. The public outrage should be mobilised to push for a real solution. What would a sober plan look like?
- For starters, it would require the government to renationalise Freddie Mac and Fannie Mae, paying the current market value for the bad assets, not a penny more, and taking all loans, both good and bad. Why should the government only take over the culprits' bad loans? After all, the management of these once-upon-a-time government agencies - intended to help the poor purchase homes - having filled its pockets, has left behind a mess. But many of these bad debts are made up of such fraudulent "investments" as CDOs, and are now so convoluted, they could well be worth nothing. The foxes insist that when the market rebounds, the government will magically be able to sell the bad loans at a profit. This sounds suspiciously like the strategy in the early 1990s during the Savings & Loan scandal, which rewarded the culprits and cost the taxpayer $350 billion. Caveat emptor.
- The Glass-Steagall Act, passed in the wake of the stock market crash of 1929, and designed to separate banking from securities activities, should be immediately reinstated. It was repealed by Congress in 1999 (guess who lobbied for its repeal?), allowing banks to make fast money from risky investments in securities and derivatives, and led to the subprime scandal earlier this year. The entire swamp of "financial services" should be drained and strictly controlled in future.
- As part of a clean-up of the financial sector, the failed and failing banks should be put under direct government control, their records opened to independent investigators. Culprits should be prosecuted and lose their ill-gotten gains (in as much as they are accessible, considering the ubiquitous offshore banking system). Salaries of CEOs and management would be adjusted in line with government salaries.
- There should be a moratorium on housing foreclosures. Instead of handing $700 billion over to the banks, the government should use it to pay off all delinquent mortgages. This is the proposal of the Yale School of Management's Jonathan Koppell and William Goetzmann. Mortgage rates should be capped, and lenders should take part of the beating by agreeing to renegotiate mortgage values in light of the falling values.
- Taxes should be increased - returned to their pre-Reagan progressive rates - rather than decreased. The negative savings rate in the US is the elephant in the room, with few people producing real goods, and virtually everyone living on credit. US citizens must own up to their flight from reality.
- The deindustrialisation of America must be stopped. If the country produces only arms and dubious pieces of paper, there is no way it will be able to pull itself out of the hole it has dug.
- The poison that is euphemistically called the international financial system must be radically reformed. The G8 (sorry, G7) should be mobilised to enact legislation ending offshore banking - used to launder money and keep illegal earnings out of the hands of investigators. British Prime Minister Gordon Brown has called for a new global financial regulatory system and he should be given an immediate "yes".
- Speculation on "floating" currencies, which rakes in billions every day for speculators, must end. For 30 years, even mainstream economists such as James Tobin have been urging the taxation of earnings made from speculation on currency fluctuations, the so-called Tobin tax, with the goal of reducing this practice and the instability it causes. In effect, it allows speculators like George Soros to rob the broad citizenry of the world. Tobin's idea is to tax the Soroses and give the proceeds to third world development. Better yet, exchange rates could be fixed and adjusted in an orderly fashion to prevent such speculation and the undermining of economies it leads to.
- Most important, the US government must be forced to abandon its reckless policy of war and militarism, and reign in its profligate spending, issues which so far have been entirely absent from the debate.
To those that howl that all this amounts to socialism, so be it. Remember Northern Rock, the British building society that suffered a run on it last year and was nationalised? With more and British banks needing rescues these days, public confidence has become so fragile that Northern Rock is now seen as the best place for savings because its deposits are fully guaranteed by the government. Socialism works. There Is No Alternative - TINA - as former prime minister Margaret Thatcher loved to spout about capitalism. While private pension funds fold, Social Security plods on. By going too far in filling their pockets, banks have proved the bankruptcy of the entire system.
Some of this sense has "trickled down" into the revised plan. The FBI has opened 26 investigations into fraud by the failing giants, though as with the investigation of the Enron collapse in 2003 there is little likelihood that - leaving aside sudden mysterious death - any culprits will suffer more than a handslap. Finance Services Committee Chairman Barney Frank said he plans to rewrite housing finance laws, broaden executive pay limits to more corporations and pursue new regulations to rein in excessive risk-taking on Wall Street.
Such rearguard actions are mere crumbs. What is most shocking of all in this latest Bush-induced crisis is that the neocons created a worldwide panic to railroad through a bailout which leaves the criminals in control of the world's financial system and their rules of play intact.
http://www.rense.com/general83/bankers.htm