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TechnoratiThe Role of Government: Keeping the Wealthy Rich
For some reason most of the discussion in Washington and the media of the bank bailouts is overlooking their central feature: taxpayer dollars are being used to sustain the income of incredibly rich bankers. The public should be furious over this upward redistribution of income.
The basic story here is very simple. If we got the government out and left things to the market, virtually the entire banking sector would be bankrupt. Citigroup, Bank of America, Goldman Sachs, Morgan Stanley and almost all the other big banks, and thousands of smaller ones, would be out of business. (My bet is that even "healthy" banks like Wells Fargo would be in bankruptcy before too long. They hold plenty of bad debts, too.)
Most of the top executives of these banks would likely be sent packing, while those remaining would have their compensation (including "golden parachutes" and bonuses) set by bankruptcy judges who would be running the companies in the interest of the creditors, not the shareholders. The shareholders themselves would be out of luck for the most part. Many bank stocks have already lost 80-90 percent of their value over the last 18 months. Bankruptcy would likely eliminate what little remains.
However the banks are not in bankruptcy because the confused state of affairs and potential lost of creditors' wealth created by large-scale bankruptcies in the financial sector would be a devastating hit to the economy. This is the rationale for the TARP, the various special lending facilities created by the Fed, and other measures to ensure the survival of the banking system.
The government has intervened in a huge way to keep the market from taking its course. But the key issue that has been buried in the debate in the media and political circles is the separation of the interest of the public in a functional financial system and the interests of bank executives in high salaries and shareholders in getting returns on their capital.
At this point, the banks are desperate -- they would be dead without government handouts. This means that the government can set whatever terms it wants. And, for both economic and moral reasons, it has an obligation to set terms that do not reward the bank executives and shareholders.
The bank executives and shareholders took big risks that went bad. If they are rewarded with taxpayer handouts, then the message this sends to the financial sector is to keep taking irresponsible risks. The game becomes heads they win, tails we lose. If the bets pay off, then they are incredibly rich. When the bets go bad, the taxpayer gets the tab.
The moral reason for not rewarding executives and shareholders is that these rewards require the taxation of middle income people, like truck drivers and nurses, to transfer money to some of the richest people in country.
This sort of upward redistribution is difficult to justify. Usually people in the United States like to believe that the market determines the distribution of income. Many get outraged over the idea that a mother on TANF can get a check for a few hundred dollars a month from the government. In this case, the government is effectively handing checks of millions of dollars to bank executives who would be out of work if the market was left to run its course.
We have to keep the financial system functioning, but we can do this without transferring hundreds of billions of dollars from middle class taxpayers to the wealthiest people in the country. If the bailout conditions imposed by the Obama administration and Congress don't effectively eliminate shareholder wealth in the bankrupt banks and bring compensation (in whatever form) of bank executives back down to main street levels then it is can only be explained by corruption. There is no excuse for this massive intervention to redistribute income upward.
37 Comments so far
Show AllAs long as they have their plug in drug they will never care, take that away and watch out.
snydly
Have you noticed that there is a move to delay the onset of digital TV...not enough takers?
Things to watch: in what range of incomes the tax cuts proposed as "a vital part of the stimulous package" will fall. Larry Summers said yesterday that there would be no cuts for people making an income of more than $250,000. Of course this doesn't rule out capital gains tax reductions or write-offs for capital losses. Such credits- which can also be applied to real estate holdings-and targeting the cuts in the $90,000- 250,000 range WOULD satisfy the bulk of the candidates campaign contributors but not necessarily do much to boost consumer spending except in special areas like foreign vacations or perhaps security devices, guard, elective surgery, nutrition and longevity services.
Curiously, there seems to be no diminishment of revenue in upscale resturant and entertainment business though, of course, wages for the workers in these industries are in rapid decline as competition for scarce jobs in the economy as a whole intensifies. The wheels of this sort of plan need to be well-greased with tips and gratuities- the working man's tax break, although Newt Gringrich didn't mention this aspect of his "bi-partisan plan" this morning on NPR.
Mr. Brown's latest gimmick is to get the tax-payers to insure bankers' loans to to risky ventures which they otherwise wouldn't do, the success of the whole scheme basically depending on rapid restoration of consumer confidence, meaning that "the masses" stop saving and start spending again. But here again, is paying down old debts considered savings and piling up new debts spending?
One of the biggest problems today is that the whole mess has become "a news story"- we are bombarded with it day and night. Has the media in general got any story right in the last twenty years? Pretty soon I'm going to lose track of what's up and what's down!
And when all else fails - abscound to Tel Aviv.
SARASOTA, Fla. – Federal investigators are still trying to figure out what happened to the operator of a massive hedge fund — and possibly millions of dollars managed by the missing man.
Seventy-five-year-old Arthur G. Nadel was reported missing by family members Wednesday. Police say he seemed "very distraught" in a note left for his family. His car was found Thursday in an airport parking lot.
It remains unclear exactly how much money had been invested or how much was missing, though one investor has said the fund was worth as much as $350 million.
Another Bernie Madoff?
There are many Madoffs. To know more about how and why they are able to operate, please visit DeepCapture's website.
It has only been in the last 150 years that government had any other role. Before then, that's just the way things were.
"Mama why do slaves eat hog guts?"
"They like them."
Why the surprise Mr Baker? The US was founded to keep the rich rich. Hell, the "revolutionaries" were mad at the UK because it proposed to regulate their activities--smuggling and aviodance of paying taxes being the top two. Then, once the US gained its independence and the rich people were in power, who did they go after--smugglers and people unwilling or unable to pay taxes with coin. Fredrick Jackson Turner was right to say in his Frontier Thesis that it operated as a "safety valve;" but not for democracy as he tried to prove; but rather to allow the rich to maintain its advantage over all others--to resist the calls for economic democracy and democracy in the workplace. The "American System" as proposed by Hamilton (ever wondered why his image is on the $10 bill?) and put into practice by Clay, JQ Adams, and others specifically called for the government to promote the rich, the capitalist, which helps to explain why the Class War is led by the US government.
karlof1 wrote:
The US was founded to keep the rich rich.
COMMENT:
Just yesterday I pointed out to a friend that the "beloved" Founding Fathers were mostly wealthy hard right conservatives - i.e. the Republicans of their day - who wanted the continued "right" to exploit others (slavery & indentured servitude), the "right" to keep anything they could get their hands on such as free land (stolen from the natives) and all wealth for themselves without having to pay taxes.
These tax-hating conservatives then wrote a Constitution limiting the rights of governance to only men, only men who were white and owned property. In other words limiting governance to their class: to themselves.
The descendants of this affluent ruling class still hate to pay taxes and most pay little and many pay none at all. This class controls through wealth - hence the form of governance is that of a plutocracy masquerading as a "democracy." However, because they control government, they write the laws through which they make the wage slaves pay taxes and they have found countless ways to increase their personal and class wealth by extracting it from the wage slaves through taxes.
The slaves (wage slaves now) meekly obey their masters. It is the American way. With precious few exceptions throughout history, it has been the world's way. I regard it as a basic human flaw.
The Loyalists, the Tories were the conservatives of the time. They are the ones who supported the rich powerful imperialists. They are the ones who wanted to use government to increase the power of an elite class. Their descendants are all in Canada not here.
>>The Loyalists, the Tories were the conservatives of the time. They are the ones who supported the rich powerful imperialists. They are the ones who wanted to use government to increase the power of an elite class. Their descendants are all in Canada not here
I did not know George Washington, Thomas Jefferson, Franklin , Madison, amd crew moved to Canada.
These were amongst the lkargest landholders in the Colonies. They were they wealthy and the rich. George Washington in fact was the largest landholder in the Colonies.
Tories during the revolutionary period should be called Royalists--somewhat akin to modern dittoheads. They believed in the doctrine of Monarchial Divine Right--somewhat like today's War President: an unanswerable authoritarian. For one of the best tales of the Royalist ordeal and another--hidden--view of the Revolution, read "The Ordeal of Thomas Hutchinson" by Bernard Bailyn.
May I suggest the book "An Economic Interpretation of the Constitution of the United States", by Charles Beard. It was originally written in 1913 (which is funny in and of itself, since that was the year the Fed was created). It isn't the best book ever, and it isn't all that radical, but it is considered a classic in many circles, and it does give a nice breakdown of the assets and financial holdings of all the signatories of the Constitution. He makes the case that these men wanted a stronger central government (as opposed to the one under the Articles of Confederation) because that would help secure their investments that were in danger of falling apart under a more decentralized system.
Have you read its sequel, "The Economic Basis for Politics"?
At the time, Beard was considered dean of the "Progressive" school of historical interpretation, and later became somewhat of a radical. His whole corpus of writings is worthy--essential--to read for any serious historian of the US Empire. He even wrote standardized texts that were the standard for decades and contain essentail info omitted from most later history texts. His "Economic Interpretations" created quite an uproar at the time--properly, I'd say.
Thank you for the further recommendation. I will certainly check this one out.
Apparently I was preaching to the choir. : )
karlof1 wrote:
the "revolutionaries" were mad at the UK because it proposed to regulate their activities--smuggling and aviodance of paying taxes being the top two.
COMMENT:
Regarding the "revolutionaries": historians have noted that approximately a third of the population of the colonies in 1776 was in favor of independence, these appear to have been primarily plantation and business owners who would have been the tax-hating conservatives of their time. Another third was in favor of continuing to be a part of Great Britain (as did Canadians), the remaining third apparently didn't much care one way or the other. As the first third were the plantation and business owners, the later two thirds would have consisted of workers, tradesmen, and family farmers.
I've long noted that the population, upon average, has maintained roughly the same breakdown of thirds between conservatives, liberals, and the fence sitters who will go either way without commitment to either a right (greedy) or left (altruistic) philosophy.
Unless the left can educate these fence sitters to see how they are being exploited by the right, can make them understand that they don't have to be exploited, and can inspire them to take the necessary steps to stop the exploitation - which could consist of simply voting for other than the lesser of two evils, the United States will continue to be a government of, by, and for the rich.
karlof1 wrote: Unless the left can educate these fence sitters to see how they are being exploited by the right, can make them understand that they don't have to be exploited, and can inspire them to take the necessary steps to stop the exploitation - which could consist of simply voting for other than the lesser of two evils, the United States will continue to be a government of, by, and for the rich.
That would also mean that those who consider themselves "left" must educate themselves first. I know many Dem's think of themselves as belonging to the left, but they are still mad at Ralph Nader for "spoiling" Al Gore's chances in 2000. That's crazy. Nader ran because, among other reasons, he didn't see the other candidates raising the issues which he considered important. And there was nothing in the law that says there should be only two parties. Of course, having just two parties means less work for our brains - and the consequences. May be someday in the future, people will begin to talk about how to improve the American political/electoral system itself, so that it truly represents the will of the people.
Highintel: Can we do better?
Actually, "advocate" wrote the quote you attribute to me.
People have talked about how to improve the system since day 1. I recently wrote of the need for a fourth branch of government that would reduce the power of the Executive while increasing government's regulatory/holding accountible power, as well as other changes to improve real participatory democracy.
Oops! Sorry, and thanks for pointing out.
Highintel: Can we do better?
RE: Why the surprise Mr Baker? The US was founded to keep the rich rich.
karlof1:
I basically agree with what you are saying.
However, the significance of Dean Baker saying that "the role of government is to keep the wealthy rich" is that HE IS NOT A RADICAL LEFTIST. Yet, he has been forced, due to current blatant events, to put forth a conclusion that falls squarely within a radical leftist analysis. In other words, the ground is becoming ever more fertile for a Left resurgence.
We must credit the Bush administration for unmasking American imperial power and exposing its ugliness to more people than any other administration. Countless people around the world have been radicalized because of Bush. It is Obama's job to put the mask back on.
We don't know that if we give the perps of this economic fiasco more trillions anything will change. Nothing good happened when Bush gave them 370 billion.
But we do know that if "our" government gave this money to We the People, there would not be an economic disaster.
Socialism for the rich, capitalism for the rest of us.
It's called Socialism for the Rich. And the rich only.
Reverse the Bush tax cuts! That's right, increase taxes!
Reverse trade deals that protect corporations at the expense of workers!
Reject conservative economic ideology! It's a dismal failure that has lead to bankrupt banks, no manufacturing jobs, enormous trade deficits, a shrinking economy.
Revise incorporation rules whereby Directors must be elected by a majority of shareholders.
snydly
And strip corporations of personhood.
That's the first and foremost. Our concept of corporation must be changed if anything lasting is to be done.
Absolutely!! They must be mandated to serve the community before shareholders and engage in no activity that harms the community in any way. Include verbiage like that in corporate charters and the change would be very rapid.
Certainly something like this is possible and needed. I can't believe it will happen any time soon though. About all we can do is to keep the debate alive in places like this and hope to someday kindle enough interest to get this issue the sunlight that it needs.
Amen.
The 700 billion or most of it will go offshore and simply vanish into the Int'l banking system. This is why Paulson and the Treasury dept. didn't want anyone to know where all this tax payer cash was going. It's going going gone folks wave bye bye. I'm sorry to say that looking at Obama's appointees at Treasury not much is going to change in this regard.
Someone please call the cops and tell them that their taxes are being stolen too.
direct democratic control of the means of production. no way out but that.
That relies on the economy being based on production in the first place, which is pretty much no longer true of America.
snydly
Yup.
It's the top1% trying to save the top1%.
But we've gotten a man at the top of the system---WE must make the changes and get him to sign them.
Notice that Obama's so-called "stimulus" package does not call for closing the lopsided tax cuts and tax loopholes for the wealthy/corporate elites.
MALCOLM X: THE HOUSE NEGRO AND THE FIELD NEGRO
http://www.youtube.com/watch?v=znQe9nUKzvQ
Malcolm had it figured out. Do you?
Grappa
Would someone audit the canceled checks please. It would be incredibly interesting to know!
At the same time Obama floats the idea of tinkering with "entitlements"--social security and medicare, while he lines up Congress to transfer our money to the entitled class who are paying for the inauguration celebration.
I guess we know whose party it is.
there might be silver lining behind this continuing masquerade posing as "saving the system" ....
they can continue to CLING to the capitalist system - this time by "saving capitalism" through bailouts without actually using the dreaded "S" word -- socialism - so that the institutions of capitalism can continue to go on "life-support" while being sold as the "Engine" of economics...(after it's been "fixed" by socialist policies of course) --
until one day it collapses with NOTHING to save it.
and THEN the "S" word will be UNAVOIDABLE as the ONLY way...haha...
not withouth plenty of suffering for ordinary people FIRST of course..until capitalism has completely run its course including its masquerades and be thrown by people into the dustheap of history themselves.
and of course it can FIRST run into full-blown Fascist corporatism - which makes Karl Marx CORRECT in his prediction and specifying Fascism itself as a "special phase of capitalism towards its eventual self-destruction...and capitalism ITSELF will lay the foundation for socialism".
in way -- let capitalism run its course, yes, including its masquerades behind the "bailouts" using socialism...to save itself from ........itself........temporarily....
in any case -- it can not be sustained.
it is unstable. for it sees money capital as more important than HUMAN capital.
socialism is more stable because it sees humans as the 'real wealth of nations'....not the representation of "exchange" of values - which is money as in capitalism/.
WHY ELSE is the banking system - designed by capitalism - imploding left on its own? because BY ITSELF - it has NO value...and when it DEVALUED human beings ... it removed the foundations from which it derives it "value".
it's so simple.