As I See It: Insult to Injury
September 29, 2008 Victor Rozek
After the Fed bailed out AIG with 85 taxpayer billions, William Greider said something that caught my attention the way a near-death experience does. Greider is no blowhard. He is a serious journalist with a deep understanding of the backroom workings of the economy. Among other things, he’s written a weighty volume about the inner-working of the Fed called Secrets of the Temple. He knows of what he speaks. In the aftermath of the AIG bailout Greider wrote: “For the first time in this unfolding financial crisis, I felt personally scared by the news. Not about my money, but about the potential for catastrophe.”
He needn’t have worried, though. The bankers and brokers had the answer all along.
Congressman Dennis Kucinich succinctly summarized the situation: “The same corporate interests that profited from the closing of U.S. factories, the movement of millions of jobs out of America, the off-shoring of profits, the out-sourcing of workers, the crushing of pension funds, the knocking down of wages, the cancellation of health care benefits, the sub-prime lending are now rushing to Washington to get money to protect themselves.”
He could have added that these are the same men who have such contempt for welfare mothers and are disdainful of government interference in their affairs; the same men who rail against raising the minimum wage. These are the guys now demanding $700 billion of your money. If it didn’t make you homicidal, it would almost be funny.
The capitalists-turned-opportunistic-socialists not only want the money, they want it without any oversight whatsoever. No congressional supervision, no legal challenge; not subject to any law or administrative agency. They apparently thought they’d earned our trust. It was faith-based plunder–your faith, their plunder. The very men who caused the national economic meltdown by ridding their industry of oversight, wanted $700 billion without any conditions at all. They simply demanded a blank check from the American taxpayer, as if that were no big deal: think of it as “Buddy, can you spare a dime,” adjusted for inflation.
And what do taxpayers get for their $700 billion? (Actually, the bailout numbers are pushing $1.2 trillion.) Economists are calling it “toxic waste,” another name for worthless debt. This may be the biggest heist in the history of the world, and it’s only the beginning. You may want to sit down because the global value of the Ponzi scheme, otherwise known as derivatives, is $513 trillion! As Greider noted: “Not even the Federal Reserve has the assets to swallow all of Wall Street’s folly and deception.” Apparently, 60 percent of the Fed’s $800 billion war chest is now filled with “toxic waste.”
Treasury Secretary Henry Paulson, the former CEO who cleverly left Goldman Sachs before it imploded, delivered his $700 billion ultimatum, without mentioning that he has a $500 million stake in the failed company that would actually be worth something if the company were suddenly made solvent.
The next day, the President went on national TV and awkwardly read a brief announcement that he didn’t appear to actually understand. In a monumentally irresponsible prognostication, he predicted “financial panic” if his Wall Street buddies didn’t get their dough. But that was all for show. The fix was already in, and after all the righteous indignation and chest thumping subsides, Wall Street will be rewarded for its excesses and illegalities. And as soon as the bailout money is deposited, it will be back to business as usual and we’ll be going through a similar crisis 10 years from now. The bailout, as of this writing, doesn’t do anything to address the rot in the system.
If you’ve lived long enough, you know the nation is cyclically looted. “Crises” occur when sensible regulations are removed by Congress at the behest of powerful lobbies, and then the partying starts: Wall Street Gone Wild. The Great Depression, the S&L bailout, Enron, et al., all follow similar patterns. And the results are predictable. The problems were understood and identified years ago, says Greider. “Critics repeatedly warned that these derivatives were a time bomb–trillions of dollars in risk insurance that would be exposed as meaningless if financial markets ever experienced a sharp fall in asset values. Politicians and regulators from both parties brushed aside the critics and led cheers for Wall Street’s fancy new ways of guaranteeing risk.”
Turns out, the risk was all ours.
And how did three guys who helped cause this and led their companies to ruin make out? Stanley O’Neal of Merrill Lynch got a final year salary of $46.4 million, the same year he lost the company $7.9 billion. When he was asked to leave, his severance package was valued at $161 million. Citigroup’s Chuck Prince got a final year salary of $25 million and parting gifts which included $10.4 million in cash, $1.5 million in perks, and stock valued at $22 million. Ken Thompson, ousted from Wachovia, got a modest $16 million in salary, $1.5 million in cash, and $4 million in stocks. And now they want every family of four in the nation to cough up roughly $12,000 to cover their losses.
The entitlement of the rich is stunning.
Of course, there are simpler ways to pump money back into the financial system. Oregon Congressman Peter DeFazio suggests Wall Street could bail itself out. He recommended a one-quarter of one percent tax on all Wall Street transactions including stocks, derivatives, and credit default swaps. This fractional tax would raise $150 billion each year without encumbering taxpayers for generations. But, of course, that will never happen.
Or, we could end the senseless and unnecessary war in Iraq.
For that matter, there are over 400 billionaires in this country. Let them sort it out. Since they have the most to lose, let them contribute to the bailout that will benefit their peers.
The problem is, taxpayers have no lobby. And although the proposed bailout doesn’t address systemic problems, it will accomplish one thing: It will handcuff the incoming President. If you were hoping for universal health care, or affordable education, or improved infrastructure, or, God forbid, a good job with a pension, you can forget it. And of course, the $700 billion will cost taxpayers a lot more because it will have to be borrowed. The nation is broke.
So what should individuals do to protect themselves? That depends on how gullible you are. As Robert Samuelson noted: “Every financial system depends on trust. We are in a full-blown crisis because investors and financial managers have lost that trust.” Precisely. If you trust the system, do nothing. But if you don’t, perhaps it’s time to disengage from the system; to keep your assets out of reach of the crooks and speculators. If they had it their way, your Social Security would have been invested in sub-prime mortgages.
Maybe the whole corrupt, inbred system has to collapse before real reform becomes possible.
As evidenced by the latest economic crisis, the function of regulation is not to restrict commerce, but to restrain out-of-control behavior. Greider councils that an ethical leadership must “order full stop to the many financial gimmicks and accounting illusions that led to inflated lending and falsified asset valuations.”
The problem is that Congress is paid a great deal of money by the financial sector to look the other way. In an election year many will make a great show of being the People’s champion, but as history demonstrates, that never lasts for long.
The proposal to throw money at the problem came with suspicious speed, few details, and no assurance of success. We can do better. In giddy moments, I dream of having a great national debate, conducted not in sound bites and rehearsed responses, but with wisdom and curiosity; scholarship and insight. I dream of solutions that address causes, not symptoms; solutions reached on the basis of merit, fairness, and respect for the working people of this nation.
For $700 billion, it’s the least we can expect.