A friend passed along this article from Counterpunch, which I am in turn passing along, because it is always good to know that there’s at least one other person out there, with more paper credentials, that agrees with something you’ve said. In this case, it is my recent post arguing that if we are going to borrow $700 million dollars, there are far better things to spend it on, even in the midst of this crisis, than a Wall Street bailout.
In this case the writer is Moshe Adler, the director of Public Interest Economics, who, like me, argues that the money would be better spent investing in our crumbling society:
What Keynes also pointed out during the Great Depression is that the government can increase employment by hiring workers itself. To press his argument Keynes suggested that the government could always hire half the unemployed to dig ditches and the other half to fill them up. But thanks to long years of neglect by the government, there are many government services that Main Street actually desperately needs: More teachers and better school lunches; more public transportation; more public universities with better facilities; more nurses and doctors and more medicinal drugs; more nursing homes for elderly people and more parks for the young; more housing for workers and more childcare for their children. And, Keynes explained, once the government starts using its power to stabilize employment and to increase its citizens? standard of living, there is no doubt that the economic horizon will clear and private lending and investment will rebound as well.
Normally, this would be the point at which the reader would ask: “But how do we pay for this all?” But not today. First, the government can use the money that the President and Congress want to give Wall Street. In addition, it is now clear that executive compensation is not a just reward. It can and should be taxed, heavily, and perhaps even retroactively.
The problem we have is that the terms of debate in this country are circumscribed. It is simply not allowed to argue that we should not have a bailout at all. The House Republicans are not taken seriously in their protestations; everyone knows they will vote for a bailout eventually, so long as it does not interfere with the ability of Wall Street to do this to us again. Were any politician to argue for what was, after all, the approach that ultimately ended the Depression, they would be dismissed as not serious persons, somewhat like Dennis Kucinich, who is almost always right, and always ignored.
Along with that article my friend (who contributed a comment here) steered me to another Counterpunch article that persuasively argues that the bailout won’t work. I was intrigued by this excerpt, dealing with the nature of the financial instruments that have caused this crisis:
The derivates—futures and forwards, caps and collars, options and swaps—were all derived from the performance of some ever more distant asset. Financiers invested and speculated in these instruments both in order to skim off the value of the assets and to protect themselves from risk. All of this trading was highly leveraged, which is to say that collateral in actual assets was far, far less than the supposed value of the derivates. A series of failures related to these derivative markets signaled a warning: the bankruptcy of Orange County in 1998 and of Long-Term Capital Management in 2000, the collapse of Amaranth Advisors in 2006, and the $7.2 billion dollar loss by Société Général in early 2008. Now the entire complex and fragile system of derivatives threatens to disintegrate.
If I understand it, basically we have billions and billions of dollars of financial instruments backed by assets worth far less than the instruments themselves. One suspects that even if the lending at the base, the subprimes, etc., had not been so reckless, the day of reckoning would have inevitably come to pass. It all seems very much like a sophisticated Ponzi scheme
In sum, I think the Democrats blew it. They should have just said “No”. Of course, the fact is that our Democratic representatives are only slightly less beholden to Wall Street than are the Republicans. They can’t imagine not attempting to preserve the rotten system we have. If the folks I’ve quoted are right, they won’t succeed in even doing that, and in the process they may cause vastly more harm to the rest of us.
