The American people stood up, and the bailout package went down.
Like other moments in U.S. history when the robber barons or the big banks went too far, the American people reined them in this week, refusing to hand over billions of dollars that would put themselves and their children and grandchildren into debt to pay off the collapsing fortunes of some over-sized and under-regulated banks. In the face of predictions of economic calamity, they said "no" to more help for the super-rich. They told their representatives in Washington they'd had enough.
They are being squeezed by sharply higher costs for the basics, like medical care, food, energy, and housing. They are not getting a share of their increasing productivity on the job, so their wages have stagnated. And as good-paying jobs have fled abroad, many have struggled just to keep a roof over their heads. Those who were lucky enough not be be hit by big medical bills or be scammed by sub-prime mortgage lenders survived by working longer hours, having more members of the household work, and going deeper into debt.
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Now, in spite of having no national party and no big popular spokesperson to bring them together, these American populists have said enough! The scare tactics didn't convince them. I spoke to a Senate staff person, who told me the phone had been jammed all last week with people calling opposing the bailout.
So what now? The market Tuesday recovered much of Monday's 777 point drop. Most world markets held steady over night. How bad would it be to just say "no" to the big banks?
Maybe not so bad at all. The 200 economists who signed a letter against the deal say we've got time to think before we jump. Dean Baker of the Center for Economic Policy and Research says in a recent op-ed that the banks are essentially holding a gun to their own heads and saying, "Bail us out or we pull the trigger." The immediate crisis, according to Baker, centers on the fact that the banks don't trust each other, so they are refusing to loan money to each other.
But there are other ways to resolve this besides throwing the cash equivalent of 5 percent of the U.S. economy their way.
The U.S. Treasury, the Federal Reserve, and the banks themselves have a variety of tools available to help make it through this immediate crisis without taxpayers borrowing billions more from China and the Middle East. In a Washingtonpost.com op-ed, James K. Galbraith shows how we could use these tools.
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In fact, as Baker points out, if the U.S. goes that much further in the hole we may create far more serious problems. Where, for example, will we find the money to cope with the next crisis-many analysts believe the credit card companies will be the next ones lining up for a bail out. How much further can the U.S. government go into debt before our credit rating and the value of the dollar go down the toilet?
And where will we get the money to stimulate the real economy, the economy of Main Street, of real goods and services that meet real needs and provide regular people with jobs? This real economy is in trouble because real Americans, the ones being squeezed, are running out of purchasing power and options.
It's important to be clear that Wall Street is not the economy. In fact, as author and YES! board chair David Korten points out in his column, Main Street Before Wall Street, Wall Street has been preying on the real economy of Main Street. The speculative financial sector has grown many times larger than the real economy through exotic financial instruments that create new "assets" out of nearly nothing, which are then leveraged and traded to create still more new assets. If this was just a casino outside town, then by all means, let them play. When they lose their chips on bad debts, let them pick up the pieces. But of course the speculative money games are built on real assets, like mortgages and loans to businesses, and this process undermines real jobs, real communities, and (this part usually gets left out) real ecosystems.
The trouble with the bailout package, besides its breathtaking size and poor overall design, is that it asks those in the real economy-now and indefinitely into the future-to once again prop up the speculative system that is concentrating wealth and power at the top. So what do we do instead of a bailout? Three principles proposed by the Institute for Policy Studies stand out as good guidelines:
- "Wall Street and speculators should pay now for the mess they created." The only way the American people will accept government involvement is if Wall Street and those who have benefited from the wild speculative blow-out now foot the bill.
- "Instead of borrowing from the super-wealthy beneficiaries of the casino economy, we should tax them." This is not only fair, it also begins to address the structural causes of the breakdown. If every stock and currency trade carried a small tax, it would discourage speculation, and turn the market back towards its original purpose-providing capital for the production of goods and services in the real economy. Radio host and author Thom Hartmann has a great piece on this.
- "Any bailout should stimulate the real economy with investments in Main Street, not just Wall Street." And to take that one step further, our taxpayer investments should build a sustainable foundation of a 21st century economy. Such an economy will have to be climate friendly with investments in smart energy generation and efficiency and job training for green-collar employment. Anything less, and we'll simply be putting off more crises for the not-so-distant future.
As investment advisor Leslie Christian says in a column on the YES! website, we can also in our own lives support the real economy by supporting the local economy-local sustainable businesses, farms, banks and credit unions, that exist to serve real people within the constraints of local ecosystems.