“My fundamental complaint is that they have been sleight of hand to the point of broad deception to the American people, if you listen to the rhetoric of the President and others in what they’re setting out to do here. Even $700 billion will not save all the financial institutions. What we’re witnessing is the great deflation of Wall Street, literally, in which it will get smaller, less powerful; firms will have to merge or fold. And that process is underway, and it’s bloody. But he—as a result of that, he can’t bail out everybody. He can take a lot of assets off the balance sheets of crippled and insolvent institutions, but he can’t save them all. So, my view is that he has now put himself in the role of grim reaper for some and savior for others. And the process in which he chooses those is not exactly transparent to the rest of us. We’ll learn later, and we’ll hear, I predict, lots of screams and denunciations, because he will pick and choose on a plane that somebody is going to lose. That’s the banker’s side of it.
Of course, the other side of it is the one that I think matters most to the country—it certainly matters most to me—which is, what is the government doing, while it manages the shrinkage of Wall Street finance, to build a floor and stability under the real economy where people live—producers, workers, families? And the answer is, not much. And I’ve argued for some time that both parties in Washington, following the lead of the financiers and the Bush administration, have this backwards. Of course, they have to deal with the bloodied financial system, but the real energy and resources should go directly into the real economy in different ways, which is also contracting or in a recession, and so the challenge is to keep that real economy from unwinding as dramatically as the financial system has unwound. And banking is part of that, to be sure, but the heart of it is demand for products and employment and jobs. It’s helping to build at least a temporary floor under income, so that people can just cope with the ordinary costs of living. It’s a lot of things, which get a little rhetoric, but have gotten rather pitiful action so far. “, said William Greider.
Government needs to exercise its full powers in emergency, and literally take control of the banking system and the financial system and supervise it as it deals with the realities of firms that will not survive and those that can survive; husband, if solvent, banks and make sure they stay solvent instead of tipping over; and then use that power to guide economic policy for the country, that is, make sure those financial institutions are lending and keeping the credit spigots open for businesses, for families, for all of the uses that go on in our society; and then add the stimulus alongside it, and I mean major stimulus, to encourage all of those players.
…
Government identifies big spending projects that will be part of that stimulus package.
What you need to do is direct government contracts, spending, loans, all kinds of vehicles, to create, stimulate economic activity, which then has a sort of lateral effect in communities, and so forth and so on
There were a lot of bag ladies on street corners, myself included, who were telling people for two decades, really, that the political system was in the process, under intense guidance from financiers, of unwinding, literally obliterating, all of the hard lessons that Americans learned in the pain and sorrow of the Great Depression.
I’m talking about the New Deal rules and laws that imposed prudential controls on the behavior of the financial system. And a whole new generation came along that said, “That’s old-fashioned. We don’t need that anymore. We’ve got computers. We can do these things. And those old bankers in the 1920s who produced the collapse of 1929 were good people, but they didn’t understand what we understand.” And so, we got a, quote, “new architecture” for the financial system. And people have been reading for the last couple of years the gimmicks, the delusions, the fraudulent valuations that are built into that system now, still there.
the model that Paulson, the Secretary of Treasury, is taking is the Resolution Trust Corporation, which they created in the late ’80s to clean up the mess the government had also caused by collusion with the banking system in the collapse of savings and loans. Bank regulators closed down a lot of S&Ls that failed and therefore inherited their assets, which, in most cases, were property—houses, shopping centers, developments, and so forth and so on and basically, the taxpayers picked up the tab.
How to dispose of those assets? They created the RTC, which literally sold them pennies on the dollar back to the financial system, which had lent the money in the first place to start these projects. And so, it was not just a financial bath, but it seemed to me a scandal in its own terms. The same players who had helped gin up the reckless borrowing and lending in the savings and loan industry picked them up and picked up the ruined assets and profited again on the downside.
What Paulson is doing is—the bankers got stuck with all these rotten assets, which they created and sold to each other and to the world; now let’s take those off their hands, and they’ll be OK again. I’m not alone in saying that that’s a real crapshoot as to whether that works, first of all, because those banks, as I said, are going to get smaller, and they’re collapsed, and they may or may not start lending again. I would guess not, not until they see a vibrant economy again.
it’s profoundly illegitimate as an act of democracy to take the money from taxpayers and say to the villains in this story, “Here, here. Can we help you out of your troubles?” No rules, no guarantees that these villains will correct their behavior, no really serious effort to write into this legislation a sense of where the system goes from here that’s honest.
At this hour, I would settle for honesty. If the politicians in Congress and the officials in the Bush administration and a few people from Wall Street would simply tell the people the truth about the situation, what they intend to do with the public money, that would be a good start.
Discussion with William Greider, Amy Goodman
William Greider, National Affairs correspondent for The Nation magazine and the author of several books including The Soul of Capitalism: Opening Paths to a Moral Economy and One World, Ready or Not: The Manic Logic of Global Capitalism. His forthcoming book is called Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country.
– from democracynow. 1 Oct 2008