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TechnoratiNew Crisis, Old Isms
The Federal Reserve Bank's decision last week to address the housing crisis by extending $200 billion of taxpayer-financed credit to Wall Street banks was met with a stunned reaction typical of surprising events. But really, the move was the expression of longstanding isms that routinely package corruption as sound public policy.
Some background: During the housing boom, banks doled out home loans to financially strapped borrowers, often on predatory terms. On the creditor side, these same banks packaged many of the loans as complex securities and sold them off to unwitting investors, generating a handsome profit on the paper transactions. At the same time, Wall Street used campaign contributions to coerce Congress into blocking anti-predatory-lending bills and repealing a landmark law regulating how banks could buy and sell securities.
Predictably, many borrowers are now defaulting on their loans, meaning losses for financial institutions that hold mortgages and mortgage-backed securities. The Fed responded with what author Naomi Klein calls disaster capitalism-the age-old practice of using a crisis to enrich corporate interests. In this case, the Fed is using the housing emergency to justify giving taxpayer cash to Wall Street in exchange for its worthless mortgages.
"What the Fed really did was lend money to banks and accept the counterfeit currency as collateral, treating it just as though it were real money," says Dean Baker, the co-director of the Center for Economic and Policy Research.
But this is not only disaster capitalism, it is also Big Boy Bailout-ism-the kind we've become accustomed to since the savings and loan scandal of the 1980s. It is an ideology that rewards wealthy political donors for irresponsible behavior and ignores the real victims.
If you are a banking executive whose risky loans go bad, your industry's campaign donations get you Big Boy Bailout-ism that makes taxpayers "take the bad loans off the banks' books," as one financial analyst gushed this week. If you are a regular Joe who can't pay your home loan, you get foreclosed on.
The Fed's scheme also embraces Feed-the-Beast-ism-an ideology that prescribes pumping taxpayer money into a crisis, rather than demanding reforms.
Confronting an energy and climate emergency, Republicans' answer was not massive alternative energy investments, but a 2005 energy bill giving tax breaks to the carbon-belching fossil fuel companies that finance the GOP. In the face of a health care catastrophe, the Bush administration's 2003 Medicare bill didn't crack down on pharmaceutical industry profiteering, but instead created a system that effectively subsidizes drug industry campaign donors. The list of examples goes on, and now includes the housing crisis.
The Fed's action says the solution to the credit crunch is not to re-regulate the banking industry or force it to clean house, but to loan Wall Street your hard-earned taxpayer money, allowing the same destructive system to remain and permitting the same vultures to stay in their jobs-and, of course, to keep writing big campaign checks.
But worst of all is the Trickle Down-ism. For three decades, our government has said economic challenges can be solved with tax cuts for the wealthy-the same people who, not coincidentally, underwrite political campaigns. Trickle Down-ism claims that the wealthy will spend the tax cuts and the benefits will "trickle down" to us commoners.
It's the same nonsense with housing today. The root of the financial crisis is mortgage defaults-brought on, in part, by Trickle Down-ism's original failure to raise wages. Yet, rather than help borrowers pay or restructure their mortgages, the government is covering the banks' losses, claiming that aid will eventually "trickle down" and benefit the rest of us.
During the Great Depression, Eleanor Roosevelt said, "We need not fear any isms if our democracy is achieving the ends for which it was established." It's the "if" part that has become the problem.
David Sirota is a bestselling author whose newest book, "The Uprising," will be released in June of 2008. He is a fellow at the Campaign for America's Future and a board member of the Progressive States Network-both nonpartisan organizations. His blog is at www.credoaction.com/sirota.
© 2008 CREATORS SYNDICATE, INC.
12 Comments so far
Show AllDavid Sirota makes good points here, but shouldn't have left out the fact that Bill Klanton is the person who deregulated banking, thus put on the inexorable path to the housing mortgage crisis we're now in. He also threw out the social safety net. Both of these were protections were creations of Franklin D Roosevelt's New Deal.
PS I did not mean to imply I agree with the military's deployment under Bush, what I meant to suggest was that we had a virtual standing around army with nothing to do... with ghettos in need of rebuilding.
"BEYOND THE NEW DEAL" posted on CD suggested a new "back to works" program for US citizens who are jobless. As was the case 60 years ago, it put people to work in jobs that REBUILT our nation's infrastructure, i.e. a win: win (as opposed to "Disaster Capitalism" style) solution.
Beyond fiat money, one way to reward citizens in such a program would be to provide them with FREE housing in the form of all those foreclosed or would-be foreclosed homes. Apart from catastrophic illness, housing is usually our # 1 expense. If one adult works for the "new works" program, an FDR 21st century equivalent, another spouse or mature child can take a job to put food on the table.
I always thought (before the Bush wars) that the military provided no useful service, but if during peacetime its soldiers would enter ghettos and teach unemployed men and women construction skills, they could rebuild their communities. Instead of wasting huge sums on TV ads, companies could under-write these projects and for their "altruism" receive permanent LOGOS on the sides of the buildings they financed. Sure beats welfare hotels or letting perfectly good real estate sit idle while rents are paid to those without jobs (welfare, etc.)
We have so many resources and so much latent talent, and so many wasted lived of not always quiet desperation in need of leadership to direct all this raw force in a useful, constructive direction. Instead of thinking poverty/lack, it's a matter of making use of these assets in a manner that has durable usage. Of course the "leadership" now in power could not be counted on to make any sane, valid, just or decent decision... but... perhaps a turn of the wheel has arrived. Let us hope!
This administration's big-boy-bailout mindset did not work the first time...though, in honesty, it was done by the clown prince's father(remember the S&L bailout?...also remember the clown prince's brother, Neil!).
This strategy is classically Bush: meet the needs of the big guys, and give the little guys a pittance that they can immediately give back to the big guys. The problem is it hasn't worked. Has anyone heard of a "Savings and
Loan" recently? Did the clown prince's first "rebate" have any impact on the economy?
Repeating failed behavior and expecting a different outcome is one of the classic definitions of insanity. Need I say more?
"Yet, rather than help borrowers pay or restructure their mortgages, the government is covering the banks' losses, claiming that aid will eventually "trickle down" and benefit the rest of us."
I hate it when an otherwise well-written article on this kind of thing makes such a glaring mistake.
The Fed is NOT, repeat, NOT the Government. It isn't owned by the Government and in every respect is a PRIVATE BANKING ESTABLISHMENT.
SO let's get this straight: the central bank is bailing out the banks. The Government is NOT bailing out ANYONE.
And this surprises people... why?
Bad Bad Banker Boys
bad bad bear banker Ben
priming up the Fed again
the predator power pump
greed fed bottom led
but don't let it be said
guns is our butter bread
nest bubbles.. debt bubbles
frothing with such zest
like a champagned hooker
or a spritzing Mayflower spritzer
evaporate like Deutch marks
or feeble fiat greenbacks
the plenteous public purse
that soon gonna need a hearse
Democracy is only allowed to exist as the servant of capitalism.
Democracy that does not serve capitalism is called tyranny.
Words that end in "y" should be questioned as much as those ending in "ism."
"Trickle down" is just a euphemism (or wordspeak) for "pissed on." Joke's on us.
I'm still waiting to be trickled on. Been waiting since the '80s. Somehow, I just don't think it's going to happen.
This, to a tee describes what is wrong with domestic American politics.
Trickle-down doesn't work. It just enriches profits, which the CEOs soak up by paying themselves 240-300 times what the average worker gets.
Corporate welfare doesn't work, they just soak it up and never change the practices that got them in the shitter.
REFORM and REGULATION ARE THE ONLY SOLUTIONS. Capitalist economies need them because they are subject to greed and abuse from the top. We apparently forgot the lessons of the Great Depression and are on the brink of relearning them at the worst possible time. We've got multiple disasters on our hands right now - Iraq War, peak oil, climate change, soaring food prices, global re-alignment of power, and a falling dollar. To put it succinctly, AMERICA IS ABOUT TO GET OWNED.
Our upcoming leaders are about to walk into a minefield of outstanding problems, and I highly doubt anyone's ability, Democrat or Republican to implement meaningful changes within a four-year term.
Gasoline prices will hit $4.00 a gallon by this summer. It was $1.65 when Bush took office. At this rate, they will be $5.00 within two or three years. When that happens, (provided we are still in Iraq and still bailing out Wall Street) we are screwed and our economy will likely fail.
Guess what year that'll be? 2012 (also the beginning of the age of Aquarius, I think). Makes me wonder if this is what the Mayans predicted? The most powerful empire in the world will collapse, leaving the planet quite different in terms of the balance of power, money, and resources.
We can't reform the system until we stop political bribes. And we can't stop the bribing of politicians until We the People become the deciders. See:
http://www.nationalinitiative.us/
Just so you know the option not taken.
They could have set up a program to give the $200,000,000,000.00 to the homeowners having trouble with their loans. Give them the money and let them use the money to pay off their loans. Or refinance to more reasonable terms and principals based on current appraisals.
That would still have helped the banking crisis. That's because all this bad debt that is so troubling the system would not have been bad any longer. But it also would have helped American citizens keep their homes and from losing their life savings (which for many Americans is only the equity they had in their house).
Instead, they let Americans still be screwed. They still have the loans they can't pay. The banks will still foreclose. Then the banks will sell the property at auction, further depressing the housing market and eliminating even more of the home equity Americans have (even for the people who can pay their loans). What the Fed did was basically tell the banks they'll cover the bad debt so the bank isn't responsible.
Always nice when they have to firmly announce where their priorities lie.
BTW, we all get trickled on all the time. Its just not that it does us any favors. Its just what you'd expect when the rich and powerful piss all over you.