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As the smoke cleared after Monday’s stunning House of Representatives vote against a $700 billion financial bailout for Wall Street, the politicians immediately got down to the business of blaming each other–and scheming about the next attempt to push through this rescue of the super-rich.
But for working people trying to figure out what the hell has happened to the U.S. financial system–and why the leaders of the U.S. government, apparently regardless of political party, are prepared to spend more than $2,000 for every man, woman and child in this country to save Wall Street–the reaction was different.
For one thing, there was sweet satisfaction to be taken in the fact that the bankers and stockbrokers didn’t get their way for once–especially since they’re out to steal $700 billion in taxpayers’ money to cover their bad investments, under a program devised by former Wall Street CEO and now Treasury Secretary Henry Paulson.
With the business world ratcheting up political pressure and Paulson predicting certain doom if no action was taken, the Bush administration and the leadership of both parties in both the House and Senate were all sure that the bailout bill would go through. Yet the legislation was derailed because members of Congress are feeling the heat from a growing popular outrage over the staggering scale of a giveaway to the very same people who led the economy to the edge of the abyss.
It was an all-too-rare turn of events for the U.S. political system–the opinions of ordinary Americans actually mattered in what happened.
At the same time, though, there’s a sense of foreboding. If the government can’t agree on a bailout, will Wall Street really crash and burn–and cause an economic catastrophe on Main Street, too?
After all, that’s the claim of “King Henry” Paulson and his nominal boss, George W. Bush. They’re basically extortionists, insisting that if Congress doesn’t agree to a king’s ransom for the banks, the economy gets it–in the form of a worldwide financial meltdown that would wipe out workers’ savings and eliminate millions of jobs overnight.
The stock market plunge that followed the House vote Monday will have reinforced such fears. Few workers have the resources to play the stock market, of course, but their lives are affected by its ups and downs, especially the downs–for example, the loss of retirement savings in 401(k) accounts that many workers rely on, now that defined benefit pension plans are going the way of the dinosaur.
So is it true? Are we all–the multi-millionaire bankers on Wall Street and the tens of millions of workers on every other street–in the same boat after all? Do we really need the Paulson bailout to avert a second Great Depression?
The answer is no.
The argument that a bailout of the banks is good of all us is an ideological smokescreen, to cover the specifics of the Paulson proposal, as sanctioned by the Democrats–which benefits the rich and powerful, at the expense of the rest of us.
There are plenty of ways that government intervention could alleviate the financial crisis and provide urgently needed relief to working people. But that would involve programs, policies and priorities that the bankers despise–and that political leaders in Washington want nothing to do with.
Paulson is right to say that Wall Street is facing its most severe crisis since the Great Depression–a catastrophe entirely of its own making–and that the U.S. government has to respond. But the form that response takes–a huge handout for the super-rich or a progressive plan to rein in the banks and help ordinary people–depends on whether workers organize to make their voices heard and felt in Washington.
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DEMOCRATS LIKE House Speaker Nancy Pelosi and Rep. Barney Frank say they drove a hard bargain and forced concessions from the Bush administration on the Wall Street rescue.
But the provisions they point to–a toothless section that urges banks, “where appropriate,” to negotiate with homeowners faced with foreclosure, as well as easily avoided restrictions on executive pay at rescued companies–are window-dressing at best.
The heart of the plan proposed by Paulson remains in place–a naked power grab of the bankers, by the bankers and for the bankers. This is the scheme that allows Paulson and future treasury secretaries to buy the worthless securities and “troubled assets” of banks and other financial institutions–and not at their current value, if they’re worth anything at all, but at or near the original inflated price the banks paid for them.
In other words, Paulson wants unrestricted power to cover the losses of the world’s most reckless gamblers. All the scare tactics in the world can’t disguise that.
Normally, under the U.S. political system, lawmakers are insulated from any accountability to the people who vote for them. That enables them to pursue an agenda against the interests of the majority. But they do have to face voters from time to time–and, unfortunately for the 435 members of the House, the bailout package came up for a vote just five weeks before Election Day.
As a result, no one in Congress wants to be too closely associated with Paulson’s plan, no matter how badly their patrons on Wall Street want it. Thus, leading Democrats, while going along with Paulson, claimed they did so to “save” the economy, while blaming Bush and the Republicans for creating this catastrophe.
As for the House Republicans, whose defection led to the legislation’s defeat on Monday, there’s plenty of hot air about standing up for the interests of ordinary people. Yet the telling fact was that among those facing a close reelection battle in November, virtually all voted against the bailout.
The Paulson plan will be back before both houses of Congress before the week is out, perhaps with some token changes to pick up a few more votes. But the essence will be unchanged: It is a proposal for the greatest transfer of wealth from workers to the rich in U.S. history.
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WHAT’S REALLY required is an entirely different kind of government intervention in the economy.
For starters, the banking system should be nationalized. This could provide immediate relief for the international credit squeeze, in which banks are choking off economic growth by refusing to lend to one another.
The next order of business: ban the Wall Street casino for high-stakes gambling on incomprehensible investments like “collateralized debt obligations” and “credit default swaps.” The banks’ ability to damage our livelihoods with their speculation should be ended immediately.
Nationalized banks are nothing new. For much of the second half of the 20th century, they were the norm in Western Europe–and they remained capitalist institutions to boot. But a nationalized banking system would at least provide more public accountability over the operations of these institutions and subject them to greater political pressure.
What’s more, it’s hard to describe the federal government’s recent adventures in the banking industry as something other than nationalization. In the past week, the FDIC seized control of Washington Mutual (the largest savings and loan in the country) and sold it to Bank of America at a bargain-basement price, and then put Wachovia (the fourth-largest bank) out of its misery with a forced sale to Citigroup.
But to sweeten the latter deal, the FDIC had to agree to cover any losses in excess of $42 billion out of the $312 billion of bad debt on Wachovia’s books. Yet Citigroup gets to keep the profits from having a bigger share of the market. Why shouldn’t taxpayers get the gains from this merger, instead of just the losses?
After three decades of free-market dogma pushed by both Republicans and Democrats, nationalization of the banks might seem unthinkably radical for the U.S. But it was the Wall Street conservative Republican Paulson who presided over the nationalization of mortgage lenders Fannie Mae and Freddy Mac, and the insurance giant AIG.
Paulson’s $700 billion bailout plan is also a form of nationalization–but one that socializes the banks’ losses at taxpayers’ expense, while leaving the profits in private hands. Why not take control of the banks outright, and send their corrupt and incompetent executives packing?
An economic bailout on pro-worker terms would include much more than nationalizing the banks.
There would be a moratorium on home foreclosures, mandatory renegotiations of adjustable-rate mortgages, and incentives to convert empty, newly constructed condominiums into affordable rental housing. Also badly needed is a plan to create jobs, starting with a public works infrastructure program that could rebuild schools and housing in run-down inner cities. The expansion of public transportation and government investment in alternative energy would also be priorities.
Such a program is a long way from what’s being discussed in Washington. For their part, Democrats from Barack Obama on down are content to attack the Republicans as the source of the economic catastrophe. That may be enough to get them elected, but the policies they promote don’t even begin to address the scale of the problem.
This economic crisis is still in its early stages, but it’s already clear that the old ideology of the free market is out. However, nothing has appeared to replace it–and so the mainstream political and economic discussions are a muddle of old ideas and half-baked schemes.
We need to start the debate on the real alternatives now–to raise the ideas, the strategies and the organization that working people need to resist the attempt to make them pay for the crisis.
Alan Maass is the editor of the Socialist Worker.
Lee Sustar writes for the Socialist Worker.