Bailouts and Killing Debt

The economic news of late has not been good. First we had the collapse of Bear Stearns, with a government bailout to keep it vaguely afloat. Then mortgage giants Fannie Mae and Freddie Mac, which together hold a majority of home mortgage loans, were about to go under until the Fed promised to take them over, at the risk of perhaps $200 billion to the taxpayer. This week another huge investment bank, Lehman Brothers, declared bankruptcy, and though the Feds refused to bail it out, or Merrill Lynch (the world’s largest brokerage teetered on the brink until the Bank of America bought it at a firesale) either, when it came to AIG, the largest insurance company in the world, the Feds blinked. AIG said it needed $40 billion, then $70 billion to keep from bankruptcy, alarm bells went off worldwide, and yesterday, the Fed finally announced that it would bail out this giant as well—to the tune of $85 billion dollars.

As the understatement of the year, Andrew Laperriere, managing director in Washington for International Strategy & Investment Group, took the cake:

“This is starting to get expensive,” said Laperriere.

Indeed. It’s also starting to get sickening. Because we are now seeing the full extent of the mismanagement, sheer chicanery and theft at the highest levels of the economy promoted and abetted by the Bush Administration and its cronies. In brief, while recent legislation has made it almost impossible for average Americans to find relief from economic ruin in bankruptcy, the largest banks and corporations not only can take refuge in bankruptcy proceedings, but many of the biggest crooks get bailed out by the federal government—i.e. U.S. taxpayers. Our money, in short, is being used to bail out the snake-oil salesmen who gave us subprime lending, and securitizing of mortgages in order to walk off with billions in profits, while the housing bubble they promoted disintegrates before our very eyes.

Here’s how Paul Craig Roberts, Assistant Secretary of the Treasury in the Reagan Administration, described the mess recently (Counterpunch, Sept. 16, 2008):

"In the 21st century, the US economy has been kept going by debt expansion, not by real income growth. Economists have hyped US productivity growth, but there is no sign that increased productivity has raised family incomes, an indication that there is a problem with the productivity statistics. With consumers overloaded with debt and the value of their most important asset—housing--falling, the American consumer will not be leading a recovery.
A country that had intelligent leaders would recognize its dire straits, stop its gratuitous wars, and slash its massive military budget, which exceeds that of the rest of the world combined. But a country whose foreign policy goal is world hegemony will continue on the path to destruction until the rest of the world ceases to finance its existence.
Most Americans, including the presidential candidates and the media, are unaware that the US government today, now at this minute, is unable to finance its day-to-day operations and must rely on foreigners to purchase its bonds. The government pays the interest to foreigners by selling more bonds, and when the bonds come due, the government redeems the bonds by selling new bonds. The day the foreigners do not buy is the day the American people and their government are brought to reality."

Now we have a report by Bloomberg (Sept. 17) illustrating just what that reality might mean, not just in the near term, but into the next presidency. The report opens with this statement:

“The casualties of continuing tumult on Wall Street will include campaign promises of the next U.S. president, whether it's John McCain or Barack Obama. The federal government has committed hundreds of billions of dollars this year to stimulate the economy, rescue failing Bear Stearns and American International Group Inc., and take over Fannie Mae and Freddie Mac. It may extend hundreds of billions more to buy distressed mortgage debt, prop up Detroit automakers and stave off recession. Those expenses, on top of a 2009 budget deficit projected to approach $500 billion, will make it hard for Obama to find money for universal health care, clean energy and early education, or for McCain to enact $3.3 trillion in promised tax cuts over eight years."

In other words, not only has George W. Bush ruined the nation with unnecessary wars, a monstrous military budget, deregulation to the point of national bankruptcy, and tax cuts for the wealthy that transformed a $10 trillion surplus left from the Clinton administration into a mammoth national debt that will extend into the lives of our grandchildren, he has also made certain that the next president will not be able to repair the damage or offer help to millions of average Americans because the U.S. government’s debts will be so huge that nothing but debt service will be possible. Though he and the Republican zealots who run his administration may not have consciously planned all this, they will thus have fulfilled one of the aims of conservatives–-i.e., Grover Norquist’s vow “to cut government in half in twenty-five years, to get it down to the size where we can drown it in the bathtub.” The government referred to, of course, is the government which cares for the mass of Americans, not the one which provides corporate welfare to its cash-rich, bonanza-seeking cronies.

The astonishing part of all this is that in the presidential race now entering its final phase, there are still millions of Americans, and perhaps even a majority, who plan to vote another deregulating, tax-cutting, debt-raising Republican fraud into office. It is at this point that part of me wishes to emulate the Roman emperor Claudius, at least as portrayed in “I Claudius,” who, early in the reign of one of the truly bestial emperors like Caligula, utters his agreement to ‘let all the evil hatch out.’ Before things can get better, he implies, all the evil and stupidity of which Romans are capable must be allowed to run its course. At this stage of the corruption of our Republic into Empire, of the degradation of informed citizens into a ship of fools, something similar may be necessary here—assuming, of course, that some shell of a nation will be left to survive.

Lawrence DiStasi