“The Shock Doctrine: The Rise of Disaster Capitalism” a book by Naomi Klein, award-winning journalist, syndicated columnist.
The “Shock Doctrine,” is that it is in times of crisis, it is in times when people are panicked, when we’ve seen again and again the right push through radical pro-corporate policies, what they call “free market reforms,” precisely because it is in a crisis where the space for debate rapidly closes, and you can invoke this state of emergency to say we have no choice. And we’re seeing a very dramatic example of this tactic right now with this really extortionist kind of tactics playing out in Washington. “Sign this blank check, or we’re all going down, or Main Street is going down, or taxpayers the sky will fall in on them.”
This is only stage one of the shock doctrine. They’re getting this—they’re lobbying for this huge bailout, obviously, but this bailout is a kind of a time bomb, because it’s all these bad debts, and they are going to explode on the next administration. We know that the Bush administration has already left the next administration with huge debt and deficit problems. They’ve just exploded those, expanded them. And what that means is that whoever the next president is is going to be inheriting this economic crisis that is being exacerbated by this bailout.
So, in the case of McCain, if he’s the president, then we know what he’ll do, because we know he wants to privatize Social Security, which is something that Wall Street’s been wanting for a long time, another bubble. We know he has said in the next—in the first 100 days of his administration he’ll look at every program and either reform it or shut it down. This is really a recipe for economic shock therapy. So, while you have all of these trivial issues being discussed in the election season, under the surface, they’re actually being quite clear. They’re going to take—if they take power, it will be in the midst of an economic emergency. They’ll invoke that emergency to push through very, very radical changes. So, this is not four more years of Bush; it’s much, much worse in the case of another Republican administration.
But there’s huge problems for Democrats, as well, if they win this election, because, we need to only think back to the situation in which Clinton took power, where he ran an election on an economic populist platform, promising to renegotiate NAFTA. Then there was an economic crisis. Clinton came under intense lobbying by people like Robert Rubin, who’s also advising Obama right now, and by the time he took office, he had embraced economic austerity.
So, people need to understand these tactics, need to put pressure on the candidates, the parties, and reject this tactic. God thing is that people are onto these shock tactics and aren’t falling for it. To the extent that we’re seeing a little bit of spine from the Democrats, it is only, as Chris Dodd said, because they are hearing it from their constituents. So people need to keep up this pressure right now.
There is pressure being put on Congress from Democrats who asking for the proposals to cap executive pay and to have a moratorium on foreclosures. It’s coming not from all Democrats, but from some. But there’s something going on on the Republican side, where you have people like Newt Gingrich, and you also have the Republican Study Committee, which is a group of very influential Republican lawmakers who are saying that they’re opposed to the bailout, and they also have their wish list. And it is that it’s not that they’re going to oppose a bailout completely; it’s that they want economic changes, right-wing, pro-corporate economic changes, attached to a bailout. So, Newt Gingrich has his list. He’s got eighteen demands. But even more important than that is the Republican Study Committee, and they’ve just issued their ransom list. It starts with suspending the capital gains tax, privatizing Fannie Mae and Freddie Mac, suspending mark-to-market accounting, which is the rule that requires companies to assess their assets at current market values.
What’s so stunning about this is that here you have a crisis that everyone seems to agree is borne of deregulation, and they’re actually calling for more deregulation. We have a situation where the debt is exploding on American taxpayers, and they want to suspend corporate taxes, which is actually what might defray some of those costs from regular taxpayers. So it’s an incredible display of opportunism. And this is what I mean by stage two of the shock doctrine. The first stage is just the bailout, but the second stage are all of these radical reforms that are going to be invoked in the name of the crisis that the bailout is creating, whether it’s pushed through right now or whether it’s pushed through later.
But what’s important in the book, a quote from Milton Friedman that has really made the rounds a lot lately, which is that—and this is a Friedman quote—that “only a crisis, actual or perceived, produces real change. And when the crisis occurs, the change depends on the ideas that are lying around.” And then he goes on to say, “That, I believe, is our basic function: to keep the ideas ready until the politically impossible becomes politically inevitable.” So I think it’s really important for people to look at the ideas that are lying around.
There’s enormous corporate lobbying going on to, for instance, eliminate the post-Enron collapse regulations, to actually say that the way to save the American economy, you heard Henry Paulson equating—still equating the interests of the financial sector with the interests of everyone else. We know that’s simply not true. But it’s that—precisely that logic that then is used to say, OK, these are the—this is what the financial community, this is what the corporate world needs in order to revive the economy: they need less regulation, they need less taxation.
So, we should be really, really wary of this claim that we’re hearing that free market ideology is dead, that this marks the end of, of capitalism. That is not the case. It may be going dormant for a little while to rationalize these massive bailouts, but it will come roaring back, and the crisis that is being deepened right now through these bailouts will be invoked for even more radical deregulation, privatization, tax cuts and so on.
What we can see here is the speed. You see this happen right after 9/11 with the USA PATRIOT Act being pushed through. You saw it with the vote in October of 2002 for the invasion of Iraq. It’s speed and the idea of an imminent threat.
A lot of people have even described this Paulson plan as an economic PATRIOT Act. One of the mistakes that they made is how short it is. It’s just three pages, which means usually these pieces of legislation are much longer, so people don’t even bother reading them in that moment of extortion, “Pass it now, or else…or else the sky falls in.” So, in this case, I think they made a miscalculation. There was an interesting article in Time that just came out, where they actually say that they have been working, this is a quote—it says, “[Paulson] and his team [have] been working on [this] proposal for more than six months.” So, it’s quite surprising that it is as pared down as it is. It’s three pages. And the craziest thing has happened: people have read it. Regular people have read it. It doesn’t take that much time. And, in the Section 8, which is just so stunning, just so bold in its demand for total and complete impunity. And that’s really what’s getting in their way, is people are reading this text, and they’re frankly shocked by it.
We heard Henry Paulson say that he thought it would have been presumptuous to put in clauses calling for regulation. This is absolute nonsense. Section 2 of the same document talks about how they have the right to hire contractors to administer this huge operation, and we know that that means contracting with some of the very firms who are going to be bailed out. And then it says that it would be—they would be contracting them without regard to any other provision of law regarding public contracts. That is Iraq levels of impunity, or even more. Basically what they are saying is that we want to be able to contract with companies but exempt those companies from the existing laws that bar conflict of interest, that have whistleblowing laws. I mean, the laws exist on the books, and they are actively excluding these contracts from those laws. So the idea that they didn’t want to be presumptuous is complete nonsense. They are being extremely presumptuous, because they are actively excluding these contractors, these would-be contractors, from existing oversight. We have to be very clear about this.
Treasury Secretary Henry Paulson is, served as an assistant to Richard Nixon’s assistant, John Ehrlichman, and moved right from there to Goldman Sachs, then became head of it when, well, the now-Senator and then-Governor Corzine left Goldman Sachs.
He is one of the key people, the top people, responsible for creating the crisis that he is now claiming he will solve, and this is—if we think about the 9/11 analogy and, the state of shock that Americans were in after 9/11 and the emergence of Rudy Giuliani as the savior—and, people have so much regret about that. And in the book, Naomi write about this as the state of regression that we go into when we’re frightened. And Henry Paulson has really been cast in this role as an economic Rudy Giuliani, saving the day, impartial, bipartisan, a strong leader.
There is an article in BusinessWeek that ran when Paulson was appointed to the Treasury, and there is one sentence, because it’s all we need to know about Henry Paulson. This is from BusinessWeek, when he got the appointment as Treasury Secretary in 2006. The headline of the article is “Mr. Risk Goes to Washington.” It says, “Think of Paulson as Mr. Risk. He’s one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in [their] pursuit of profits. By some key measures, the securities industry is more leveraged now than it was at the height of the 1990s boom.”
Then it goes on to say that when Paulson took over Goldman Sachs in 1999, they had $20 billion in debts. When he—in these high-risk gambles. When he left, they had $100 billion, which means he took their risk level from $20 billion to $100 billion. So it is absolutely no exaggeration to say that Henry Paulson, far from speaking for Main Street, is actually bailing out his colleagues for some of the very debts that he himself accumulated. This is an extraordinary conflict of interest.
There’s the question of his own interests in Goldman Sachs today. Allegedly, he divested from the company. So we cannot comment on that, but there’s some good investigation to be done.
Naomi Klein, award-winning journalist, syndicated columnist, author of the bestselling book The Shock Doctrine: The Rise of Disaster Capitalism.
– from DemocracyNow