Hope walks arm in arm with fear, and so naturally enough Candidate Barack Obama is now reminding us, a la Roosevelt, that we have nothing to fear but fear itself and we must all pull together in a spirit of bipartisanship. Wrong. We have many identifiable things to be frightened of, starting with a bailout program designed to bail out the thieves running our financial system, and stick middle America with the pricetag – heftier than you can imagine. Why pull together with the licensed thug who just stole your money with the pledge that he would be doing it again to your kids?
For the practicalities and implications of the thievery on Wall Street I highly recommend the pieces on our site this weekend by Michael Hudson, Pam Martens and our other writers. I also press upon our readers the reminder, which CounterPunchers surely don’t need, that when it comes to fingering the perpetrators this crisis is indeed truly bipartisan. What exploded last week was an economic credo that has been rolling along since the early 1970s: neoliberalism.
By all rights, this last crisis has brought us to the crossroads where neoliberalism should be buried with a stake through its heart.
We’ve had thirty years worth of deregulation – the loosening of government supervision. This has been the neoliberal mantra preached by both major parties, the whole of the establishment press and almost every university economics department in the country. It is central to the current disasters. And if you want to identify symbolic figures in the legislated career of deregulation, there are no more resplendent culprits than the man at McCain’s elbow, Phil Gramm, and the man standing at Obama’s elbow at his press conference, Robert Rubin.
Take Gramm first.
In 1999 John McCain’s friend and now his closest economic counselor, then a senator from Texas, was the prime Republican force pushing through the Gramm-Leach-Bliley Act. It repealed the old Glass-Steagall Act, passed in the Great Depression, which prohibited a commercial bank from being in the investment and insurance business. President Bill Clinton cheerfully signed it into law.
A year later Gramm, chairman of the Senate Banking Committee, attached a 262-page amendment to an omnibus appropriations bill, voted on by Congress right before a recess. The amendment received no scrutiny and duly became the Commodity Futures Modernization Act which okayed deregulation of investment banks, exempting most over the counter derivatives, credit derivatives, credit defaults, and swaps from regulatory scrutiny. Thus were born the scams that produced the debacle of Enron, a company on whose board sat Gramm’s wife Wendy. She had served on the Commodity Futures Trading Commission from 1983 to 1993 and devised many of the rules coded into law by her husband in 2000.
Somewhat stained by the Enron debacle Gramm quit the senate in 2002 and began to enjoy the fruits of his own deregulatory efforts. He became a vice chairman of the giant Swiss bank UBS’ new investment arm in the US, lobbying Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006, urging Congress to roll back strong state rules trying to crimp the predatory tactics of the subprime mortgage industry. UBS took a bath of about $20 billion in write offs from bad real estate loans this year.
Long acknowledged as one of the most mean-spirited men ever to reach Congress, utterly charmless, (he managed to win only eight delegates in a hugely expensive bid for the Republican nomination in 1996) Gramm kept close contacts with the man dubbed McNasty when he was at the Naval College in Annapolis. Aside from their affinities in viciousness of character Gramm had access to big campaign funders in Texas, necessary from McCain’s 2008 bid. He became McCain’s campaign chairman and chief economic advisor.
Gramm is a prime exhibit in any list of the architects of the current economic mess. At the behest of the banking industry he wrote the laws that enabled the huge balloons of funny money debt that exploded this year. The deregulatory statutes bearing his name prompted Wall Street’s looting orgy in the subprime thievery.
But is he Exhibit A? No. That honor should surely go to Robert Rubin and to the economic course he set for his boss, the eagerly complicit Bill Clinton. Gramm has been the hireling of the banking industry. Rubin is at the beating heart of Wall Street finance, and he and Lawrence Summers at Clinton’s Treasury, were the guiding forces for financial deregulation.
Obviously the Republicans hoped that the roof wouldn’t fall in on their watch, and the crisis could be deferred to 2008 and then blamed on the Democrats. But their insurance policy was that if the roof did cave, as it has now, the rescue policy would be identical in both cases. That’s why Obama has collected more money than McCain from the big Wall Street houses.
The gang that successfully got out of Dodge in time was the Clinton-Rubin-Summers gang, just before the last bubble -–the stock market bubble — burst in March of 2001. They knew what was coming.
I urge CounterPunchers to pull off the shelf Robert Pollin’s invaluable economic history of the Clinton years, Contours of Descent.
“The second major component of Clinton administration policy in this area was supporting the successful repeal of the Depression-era Glass-Steagall framework of financial regulation through the 1999 Financial Services Modernization Act, otherwise known as Gramm-Leach-Bliley Dismantlement of Glass-Steagall, de facto and de jure, had been long in the making. Innovative financial market players were easily circumventing this old regulatory apparatus, with its focus on creating firewalls between segments of the financial services industry, and preventing commercial banks from operating in more than one state. But the point is that an alternative to both Glass-Steagall and complete deregulation could have been devised, through some combination of policies such as taxing speculative financial transactions and establishing lower reserve requirements for loans that finance productive, as against speculative, investments. But the Clinton administration never considered such an approach. Quite the contrary. The 2001 Economic Report of the President, the last one written under Clinton, was unequivocal in dismissing Glass-Steagall and touting the virtues of financial deregulation:
“‘Given the massive financial instability of the 1930s, narrowing the range of banks’ activities was arguably important for that day and age. But those rules are not needed today, and the easing of interstate banking rules, along with the passage of the Financial Services Modernization Act of 1999 have removed them, while maintaining appropriate safeguards. These steps allow consolidation in the financial sector that will result in efficiency gains and provide new services for consumers.’
“Moreover, Robert Rubin, a major Clinton administration force behind Glass-Steagall repeal, was also among the first to benefit personally from it, in moving from his Treasury position to co-direct the newly merged investment/commercial banking conglomerate Citigroup. Under any reasonable interpretation of Glass-Steagall, the former commercial bank Citicorp and the former investment banking firm Travelers would not have been permitted to merge.”
Amid the embers of last weekend’s meltdown on Wall Street — one of the most devastating in the nation’s history as Lehman went broke, Merrill Lynch was swallowed up by Bank of America and AIG tottered to the Fed, begging bowl in hand — John McCain insisted that “the fundamentals of our economy are strong.”
This was eerily reminiscent of the House of Morgan’s Thomas Lamont and his famous understatement to journalists including my father, standing on Wall Street on Black Thursday, October 24, 1929. As my father describes it in his memoirs:
It was like the manner of the man who comes on the stage of a burning theater and urges everyone to keep perfectly cool, stating there is no cause for alarm. Lamont made soft, soothing gesticulations with his pince-nez as softly, gently, almost stammeringly, he deprecated anything in the nature of sensationalism. His first sentence has been aptly described as one of the most remarkable understatements of all time.
‘There has been a little distress selling on the stock exchange,’ he said, ‘and we have held a meeting of the heads of several financial institutions to discuss the situation. We have found that there are no houses in difficulty and the reports from brokers indicate that margins are being maintained satisfactorily.’
The pince-nez gently waved away ill-informed rumors of the disaster. Nothing fundamental, he said, had changed. There was nothing basically wrong with the country’s economy. What had occurred was due simply to “a technical condition of the market.’”
It was at that point that my father released the full profundity of the all-important journalistic rule: “believe nothing until it has been officially denied.”
Eighty years after the Great Crash we’ve moved to a less genteel rhetoric of crisis. Lamont’s descendants bellow loudly that yes, the roof is falling in, right now. Official wisdom back then said Don’t throw money at the problem. Instructed by the Great Depression, official wisdom now says Throw everything you’ve got. Three and a half years after Black Thursday, 1929, Roosevelt’s job was to bail out capitalism, which he did, with his advisors borrowing policies from Europe, both from Italian fascism and the socialist tradition.
If Obama becomes president what advisors will he recruit? Will he keep Rubin at his side along with his passel of Chicago School economists? His left supporters hope that he has a secret plan under wraps, that a populist T-shirt lies under the decorous mask of bipartisanship. I doubt it. Caution and respectability seem integral to Obama’s political persona. His core political task has been to assure the big-money funders of his campaign that as concerns maintenance of the present system his are a safe pair of hands. “Secret plan” theorists have some notion of “the real Obama” ripping off his mask on Inauguration Day. It doesn’t work like that. The political system is designed to ensure that the mask becomes the man.
Over the past quarter century the US manufacturing economy went offshore. Lately the so-called New Economy of the “Information Age” has been moving offshore too. Free trade has left millions without decent jobs or prospects of ever getting one above the $15 an hour tier.
Below a thin upper crust of the richest people in the history of the planet there’s the rest of America which in varying degrees of desperation, can barely get by. Millions are so close to the edge an extra 25 cents a gallon of fuel is a household budget-breaker.
Wages have stagnated. Decade after decade the bargaining power of workers has dwindled. We’ve had the macabre spectacle of American=based workers ordered to train their overseas replacements before being fired.
Bipartisan ruses like the Clinton-inspired exclusion of energy and food costs from the measures of “core inflation” ensure that social security payments don’t keep up with real inflation, which – if you take in the soaring costs of groceries and fuel for heat and transport – is double the official rate, the same way real employment – now officially just above 6 per cent – is actually around 12 per cent.
The system is in dire crisis, nowhere more balefully manifest that in present and scheduled Pentagon spending, barely mentioned in these days of crisis. Stick it to the imprudent home buyers, not to the arms manufacturers and their gigantic pigsty, seeping its sewage across the planet.
But then, as the cranky German in the British Museum liked to point out, the capitalist system is always in crisis. Crisis is integral to the system. In too many ways, over the past twenty years, brooding on its own crises, the left has forgotten that and in the low contour of radical ideas and of radical political organization in this electoral cycle we are suffering the consequences.
And Between the Crisis and the Catastrophe?
Crisis has certainly helped Obama. The question of whether or not Sarah Palin vetoed the Bridge to Nowhere recedes in importance as people ponder which candidate might ensure a safer bridge to financial stability. You want an unsparing survey of Candidate McCain? There’s nowhere better to start than our current newsletter, with probes into his past, his character, his violence, his instability, his lies, by Douglas Valentine, Jeffrey St Clair and myself.
So subscribe now to the newsletter. Read about McCain and read David Price’s savage investigation of the case of a scholar, Nicolas Flattes, whom the government is tying to blackmail into being a spook. Click here and subscribe.
ALEXANDER COCKBURN can be reached at email@example.com