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« Bonds Package in Local Election | Main | Distancing by Labeling »

Financial Crisis? Socialism to the Rescue!

By J.P. Michaud
September 20, 2008

The meltdown of our financial system should come as no surprise to anyone who has been paying attention. For the past five years, people who should have been renting apartments were buying houses they couldn’t afford with money they should never have been lent. Our apparent economic growth was sustained only by the fabled American consumer maxing out his credit cards and spending down the (imagined) equity accumulated in his home.

The federal government set no example either, accelerating government debt at an unprecedented pace – not to improve the country for its citizens with better health care or infrastructure – but to wage an unjustifiable war that benefited only the oil industry and defense contractors. How long could our whole system continue to teeter along on borrowed time and borrowed money?

Now we have John McCain blaming the financial crisis on Wall Street’s greed. How ridiculous. Greed is a given in the financial world – the very fuel of commerce – no one who has ever bought a stock can claim to be innocent of greed. It is not greed to blame but unregulated greed brought about by an absence of regulation.

Government oversight was completely lacking that should have functioned to prevent the excesses leading up to the current debacle. It is clearly another example of the total incompetence of the Republican administration of the last eight years and their overarching antipathy toward all things regulatory. Under their paradoxically warped ideology all government is intrinsically bad and should get out of the way of private enterprise to allow a free rein for market forces. They denounce all suggestions to the contrary as socialism, and yet where are we now? Reduced to a socialist bailout of every major financial firm in the country.

Apparently, socialism is just fine when it is used to correct the excesses of capitalism that have put the whole country in a financial death spiral, but not when it might be used pre-emptively (and hence more effectively) or for more constructive ends.

And our situation is not without precedents in recent history, eerily similar in pattern if not in scope. The debacle of the savings and loan scandal of the 1980’s happened as a consequence of Ronald Reagan deregulating the banking industry in response to lobbying from the banking industry for more ‘freedom from government’. Since Republicans didn’t learn anything from that $120 billion bailout, we now face one stands to cost taxpayers $700 billion (by this morning’s estimate). And that is in addition to billions already spent on Fannie and Freddie. And where is it coming from? You guessed it. We’ll borrow it – probably from China. But Republicans will still promise us tax cuts if we re-elect them one more time.

During their recent reign of ‘freedom’, Republicans have systematically hollowed out or emasculated every government agency responsible for regulating anything – the FDA, the EPA, the SEC etc. - firing or silencing anyone critical of their pea-brained emperor, and ensuring that the wealth and privilege they represent can run amok without answering to anyone, and regardless of the consequences to the average person.

Thus, the real blame for our shrinking retirement plans and stock portfolios does not lie with the short sellers of stock who keep the market honest, or even the reckless bankers who repackaged bad debt and resold it. They were, after all, playing within the rules. The problems were clearly inadequate rules, a failure to enforce existing rules, and a general lack of government oversight.

The blame lies squarely at the feet of Christopher Cox, Chairman of the SEC, and the Bush administration that appointed and supported him. This man should lose his job immediately, as should so many other unqualified incompetents appointed by Bush to pivotal positions.

Apparently, Chris was playing with himself in his office while the financial system smoldered around him, refusing to smell the smoke. He refused to enforce the uptick rule for stock traders, turned a blind eye to naked short selling, and failed to adequately analyze the ramifications of ‘creative’ new financial instruments such as credit default swaps. These were designed to improve the leverage of financiers, rather than the security of their investors (supposedly the ‘raison d’etre’ of the SEC), and were intrinsically vulnerable to a domino effect given the degree of interconnected risk they created among different banks.

And how about rewarding due diligence in lending by linking the financial fate of mortgage brokers directly to repayment of the mortgages they authorize, rather than rewarding them simply for the quantity they are able to hand out and then re-sell to others under false pretenses? I am no financial expert, but this is not rocket science either. In the words of CNBC’s Jim Cramer more than a year ago, “THESE GUYS ARE NUTS! THEY KNOW NOTHING!" He was right.

I do not agree that those who bought houses they couldn’t afford or spent down their home equity to buy piles of consumer crap from China should be rescued from the consequences of their bad judgment. But neither should corporations. Many are already poised to be the beneficiaries of this New Age of Socialism in America – at least any that can claim to be “too big to fail”.

We can soon expect to see every distressed major company in the country standing in a bread line outside the US Treasury with their hand out like a corporate welfare bum.

The US automakers are currently engaged in just such a lobbying effort. General Motors is asking for a $25 billion ‘loan’ to try and return itself to profitability. They don’t deserve a penny. They have actively opposed vehicle fuel efficiency standards for decades and have never even bothered to learn how to build an efficient small engine that could possibly compare with those of Toyota or Nissan.

They were architects of their own demise, just like the ‘creative’ bankers and CEO’s at Lehman Brothers and Bear Stearns. And you can bet you won’t see them homeless, pushing a shopping cart down main street. But if there were any financial justice in this country, you would.

Comments (1)

A critically important narrative - and entirely accurate as well. I hope others appreciate your post as much as I do. Naomi Klein touched on this concept briefly on Maher's Real Time last week, and I'm glad to see that you took it one step further.

To a larger extent, the conservative movement (and to be fair, various factions within) now rely on the government to pay for or regulate any number of privilege programs such as school vouchers or moral regulations that cover sexuality, women's health, and religious freedoms.

You are right to note that these Wall Street wizards certainly had the ability to self-regulate, but the possibility of a government rescue pushed them to the edge.

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