By Dave Lindorff
When the financial markets started coming undone earlier this week, the Treasury Secretary and the Federal Reserve stepped in, and with $85 billion of our money (actually our children’s money, since they borrowed it from China and Saudi Arabia), bought foundering AIG, the world’s largest insurance company, and assumed its colossal pile of crap debt.
That didn’t help, and the stock market crashed further, falling to levels not seen in three years. Banks, meanwhile, stopped lending, figuring to just hold onto their money and try to weather the crash. The US Treasury and the Fed stepped in again, this time pumping nearly $300 billion more of our money into foreign money markets, and getting European and other governments to do the same in an effort to get the credit markets open again and to stop the stock market swoon. That was on top of some $700 billion already spent on bailouts.
It didn’t work. Thursday, the markets continued to fall, well into the afternoon, and it looked like another seriously down day. But then Treasury Secretary Henry Paulson came up with a new idea. He said he and the Bush administration were considering setting up a new agency to assume all the bad debt of the banking sector–meaning all those bad loans they made, and that they lured unsuspecting consumers into taking out, by way of deceptive marketing techniques and outright fraud.
Note that we’re talking about perhaps half a trillion dollars here–of our money again. And remember, much or even most of this money will never get repaid, and we’re talking about money that could have funded reduced class sizes in every school in America, a national healthcare system, a crash R&D program into non-carbon energy and (not or) a strengthened Social Security and Medicare program.
The drones in the Democratic Party leadership in Congress immediately jumped on the bandwagon, with House Speaker Nancy Pelosi (D-CA) urging her charges to act quickly to get some kind of a bill out there to facilitate the bail-out, which could cost anywhere from $600 billion to $1 trillion, but most estimates.
The thing to remember here is that this is not a rescue of the little guy (though the Democrats say their rescue plan, when it appears, will include some kind of relief for people unable to pay their mortgages). Don’t hold your breath. Odds are those people facing foreclosure will still be unable to pay their mortgages, and besides, there’s no way there will be relief for the majority of homeowners who aren’t missing their mortgage payments, but who are struggling mightily to meet them each month.
Primarily, who gets helped by this enforced taxpayer largesse are the fat cats who own all the stock in these financial institutions, all the executives who pay themselves outsize salaries each year for their lousy management records, all these hotshot traders who make the deals that later turn sour, long after they’ve run off to another job taking their bonuses with them.
We ordinary people, who live from check to check, will feel the pain of this “rescue” in the form of higher taxes in coming years, and in a devalued dollar–because you can bet that all that money they’re printing, and all that added debt they’re piling on to the mountain of debt already out there is going to make the rest of the world pretty queasy about holding onto dollar-denominated debt, or about buying any more of it.
When you hear a banker say he’s going to help you, it pays to hang onto your wallet. When you hear a politician say he’s going to help you, hang onto your wallet. If they’re both saying the same thing, and especially if one of them is the head of the Federal Reserve Bank, then you better really hang on tight.
Not that that will do any good.
The real answer to this crisis is, firstly, a massive dose of trust-busting, so that no bank or investment bank or insurance company is so big that its failure becomes a threat to the financial system, and thus the government has to rescue it with taxpayer money, and secondly, a return to the era of Glass-Steagall, when it was illegal for banks to also be in the investment banking busiiness.
All the talk of “efficiencies” and of “better service to the customer” that has been endlessly parroted to justify mergers like Citicorp and Travelers, or JP Morgan and Chase Bank, or now Bank of America and Merrill Lynch is fraudulent. Just to give an example, my bank, once known as Willow Grove Bank, a small family-owned institution, was bought by another bank and became Willow Financial. Almost immediately the staffing levels went down. Recently, the combined entity, which ran into trouble, was bought by another institution, Harleyville Bank. Now there are half as many tellers most of the time. As one teller confided, “Every time we get bought, they lay people off.”
Of course they do. That’s what mergers always do. To recoup the costs of the merger, management cuts back on service and employment.
The truth is, for all the talk about the efficiencies of bigness, getting a mortgage today isn’t any cheaper than it was in the 1950s, when there wasn’t even any such thing as a national bank that would be “too big to fail.”
The real reason we have mega financial institutions is that mega financial institutions pay mega bucks to managers and make mega donations to the campaign coffers of politicians. They also get to put some of those mega-buck managers into key advisory positions in each administration, Republican and Democrat, to ensure that government polices allow them to get even bigger and even richer–and to ensure that when they screw it up, they get rescued at the taxpayers’ expense.
DAVE LINDORFF is a Philadelphia-based journalist and columnist. His latest book is “The Case for Impeachment” (St. Martin’s Press, 2006 and now available in paperback edition). His work is available at http://www.thiscantbehappening.net