Is there a Global War Between Financial Theocracy and Democracy?

Senate and House conferees are about to reconcile a financial reform
bill that is virtually designed to institutionalize "too big to fail."
And when they do we'll lose another battle in the ongoing war between
global financial markets and democratic nation-states.

This war has been going on for decades -- but democracy hasn't always been in full retreat.

The New Deal Conquest: During the Great
Depression democratic forces gained the upper hand in the war. We
realized that financial markets, which are driven by the largest banks
and financiers, had to be tightly controlled. We knew that global
speculation on currencies only deepened the Depression and had to be
strictly limited. We knew that an iron curtain was needed between
commercial and investment banking to protect Main Street depositors
from market madness (that was the Glass-Steagall Act). And most
importantly we knew that the key to preventing economic upheaval was to
limit the wealth of the super-rich and to increase the wealth of
working people through progressive taxes, Social Security, wage and
hour laws, and the promotion of unionization. The Bretton Woods
agreements forged by the Allies during WWII set up strict rules for
global finance, rules that kept financiers in check for more than a
quarter century.

And it worked pretty damn well. As economist Joseph Stiglitz points
out, this era saw only one financial crisis (Brazil, 1964), and working
people in western democracies made huge gains. Since the era of
deregulation took hold in the late 1970s, the world has suffered over a
hundred financial crises and middle-class incomes have stagnated.

The Deregulatory Counter-Offensive: By the
late 1970s, bankers regained the advantage through the spread of a new
faith in self-regulated markets. The economic apostles of unfettered
markets lobbied against progressive taxes, unions, and social welfare
programs. The new orthodoxy was: Let the elites collect the
money--they'll invest wisely (instead of consuming), and all boats will
rise. This near-religious revolution rapidly spread through the
economic and policy establishment. Regulations were dismantled right
and left, and the revolving door between government and Wall Street
started spinning. The American financial catechism ruled the world. And
on Wall Street, the money tap was open. It did not trickle down.

Then, suddenly, in 2008, the market gods destroyed themselves as the
unregulated financial casinos crashed and burned, just like they did in
1929. For a few months, it seemed like the deregulatory theology become
a global heresy. It was obvious that Wall Street's reckless speculation
and its bold new wave of financial engineering had caused the Great
Recession. (See The Looting of America for
an accessible account.). It was also clear that if government didn't
come to the rescue, Wall Street would lay in ruins, along with the rest
of the economy. This was the perfect moment for democracy reassert
democratic control on financial markets, just as we did during the New
Deal. We blew it.

The Victory at Too Big to Fail: At the
moment when Wall Street was on its knees, we decided to bypass serious
reform. Instead, we rebuilt Wall Street, using taxpayer money and
guarantees - more than $10 trillion worth. We let bankers use our
bailout money to pay themselves $150 billion in bonuses -- at a moment
when over 29 million Americans were jobless or forced into part-time
jobs. We allowed the top hedge fund managers to walk off with over $900,000 an hour
(not a typo) in 2009. Windfall profits taxes? No. In fact we let hedge
fund honchos pay an extra-low tax rate by calling their income "capital
gains." We didn't restore Glass-Steagall, we didn't break up "too big
to fail" financial institutions. In fact the biggest banks became even
bigger, courtesy of the U.S. government.

The Invasion against Democracy: The war is
escalating. Right now, financial elites aren't just fighting a
defensive battle against new regulations. They're playing offense:
They're whipping up deficit hysteria around the globe and calling for
drastic cuts in middle class programs. Why? They want to ensure that
their loans to governments aren't threatened by rising public debt.
Ironically, the public debt they're so worried about was created in
large part by them -- the result of huge bailouts and other expenses
stemming from the crash they caused. Although the bankers want us to
dismantle what remains of our worker-oriented policies, welfare for the
financial elites is still fine and dandy.

This is the most dangerous counter attack in the history of finance.
We had better know a great deal more about the attackers. Who makes up
this shadowy force called "global markets"? Who fights their battles?
Do they have a high command?

Not really. There is no executive committee of financial elites.
There's no international conspiracy, no Elders of Zion. Instead these
markets are pulled and pushed by about 50 very large banks and
financial institutions. This is where much of the nation's $2 trillion
in hedge fund money roams. This is where the top six US banks frolic.
They don't have to sit around a table strategizing. They instantly
sense threats to their power. They instantly smell profitable openings
and they're poised to grab what they can, whenever they can. They
thrive on turmoil, which gives them new "proprietary" trading
opportunities to exploit. Volatility means big bucks, especially now
that the largest players know that the government will back up even
their wildest gambles. History has just proven that they are way too
big to fail.

Of course they still have to lobby government officials--many of
whom either were bankers, or will be once they leave office. But their
most powerful lever on government is through the market itself: Here,
by moving vast quantities of money around, they can instantly veto
policies they don't like. If the EU talks seriously about financial
transaction taxes, the markets go down the Euro grows weaker, and
interest rates rise--making it more expensive for governments to borrow
the money they need to operate. Politicians have learned to "listen" to
the markets and are conditioned to placate them.

Should a nation state get out of line (Greece, Italy, Spain,
Portugal, etc), the markets slap them silly. Politicians rush to the
scene and start slicing social spending. If instead they demand new
taxes on financial elites to reduce public debt, the markets respond
with even more fury. Money flees.

All the external machinery of democracy still clanks along. We still
pull the levers in the voting booth. But the decisions that affect us
the most are made in a profoundly undemocratic way. Faceless financial
markets exercise far more control over politicians than the voters who
elected them.

So the problem isn't just the corporate campaign contributions, or
corporate media control or the academic consensus supporting our
financial theocracy. It's the raw power of the markets. They've been
roaming free and virtually unregulated for more than a generation, and
now their power is unparalleled. Just months after they brought our
economy crashing down, they're right back to their old tricks, setting
the stage for the next crash and the next bailout while getting filthy
rich along the way.

Bill Clinton nailed it on the head when he reportedly said:

"You mean to tell me that the success of the economic
program and my reelection hinges on the Federal Reserve and a bunch of
fxxxing bond traders?" (See Agenda by Bob Woodward)

No Retreat, No Surrender? There's no room
for pacifists in this war. Clearly, Wall Street and its global minions
are not seeking a truce. Instead, they're coming after our Social
Security, Medicare and Medicaid programs. They want us to work longer
before we retire and get less when we do. They want us to pay more for
health care and get less of it. They want less public money to go to
schools, teachers and public infrastructures. And they want us to get
used to a jobless recovery with double digit unemployment rates. (And
when millions and millions of people are unemployed, we can't maintain
high labor standards, and our wages and benefits erode.) In short, they
want to undermine all the policies and programs that have built and
sustained middle class life.

Already government officials in the UK, Germany and here are telling
us we must endure austerity for "decades to come." As Fed Chair Ben Bernanke candidly put it:

"We can see what problems can arise in a country if
investors lose confidence in the fiscal position of that country, so it
is very important that we address this problem."

Of
course, he's not going to point out that this austerity is only for the
masses, definitely not for the financial elites. Or that the underlying
cause of the debt investors are so worried about is the giant economic
crater caused by the very same financial elites who now might "lose
confidence" in financing a middle class society.

We shouldn't kid ourselves about the pitched battles ahead.
Fighting back won't be easy, and winning will be even harder. People in
country after country will have to mobilize themselves in defense of
real democracy, in defense of each nation's right to provide its people
with a decent quality of life. In my opinion, that includes sustainable
jobs with decent benefits and a solid public infrastructure that
promotes equity, protects the vulnerable and enriches the environment.

Unfortunately, no one can guarantee that democracy will prevail in
the war against financial theocracy -- just recall the totalitarian
chaos in Europe during the Great Depression. But don't count it out,
either. It's true that many of us regular folks have been diverted by
the media, distracted by the Internet or lulled into a stupor by
pharmaceuticals. But when we realize that we've been shoved into a
corner with no way out, we'll act. A popular struggle will begin. And
when it does, we'll at least have a fighting chance to recapture our
democratic souls.

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