Economic Meltdown: Don’t Say We Weren’t Forewarned

Economic Meltdown
Posted on Sep 19, 2008
By Robert Scheer
Editor’s Note: This article is a reprint of Robert Scheer’s column, “Bush Overplays the Terror Card,” that originally ran in the Los Angeles Times on June 25, 2002.
Has the war on terrorism become the modern equivalent of the Roman Circus, drawing the people’s attention away from the failures of those who rule them? Corporate America is a shambles because deregulation, the mantra of our president and his party, has proved to be a license to steal. Yet to question our leaders’ stewardship of the economy has been made to seem unpatriotic.
Although combating terrorism is of compelling importance—and should have been before Sept. 11—one is likely to be branded a nut for daring to suggest that the administration might be using current security threats as a smoke screen to obscure our floundering economy.
Yet, after the miserable performance of the stock market these past five weeks, the forced resignations and indictments of corporate titans (not to mention the conviction of a top accounting firm), the humbling of the dollar and a rise in the trade gap, isn’t it time to ask whether the war on terrorism isn’t being milked as a convenient distraction?
The question seems particularly relevant when our man in the White House has had close personal and financial ties to the company—Enron—whose demise is the most glaring symbol of the broad moral disarray of the nation’s corporate culture.
Is there any doubt that the chicanery of Enron executives and that of a growing Who’s Who of top CEOs has done more long-term damage to the U.S. economy than the efforts of anti-American terrorists? And while sending in the Marines to clean up the boardrooms is not feasible, we ought to wake up to the reality that business greed is subverting the American way of life—and hurting the image of American capitalism and democracy—more effectively than the ploys of any foreign enemy.
When even Martha Stewart is ethically suspect and her company’s stock has plummeted—though not quite to the depths of Enron, Global Crossing, Tyco, Dynergy, Wal-Mart and Rite Aid—it is time to return to the wisdom of Franklin Delano Roosevelt, the Depression-era president who saved capitalism from itself.
Wealthy from birth, FDR had a healthy awareness of the tendency of the upper classes to destabilize society and even destroy themselves with their greed and hubris. Unlike Karl Marx, however, he believed the unraveling of capitalism was not inevitable if these excesses could somehow be corralled. Thus was born the idea of government regulation as the vital support structure for the powerful, fertile but unstable free market.
Unfortunately, greedy people and institutions don’t like being monitored, and they have the means to corrupt governments and skirt laws.
Since the so-called Reagan Revolution, powerful corporate interests have succeeded in profoundly damaging the foundation of a properly regulated economy. Company auditors, for example, have become accomplices to deceptions of the public that should be considered criminal but that often do not violate statutes written by corporate lobbyists.
Enron provides a startling illustration of a company jumping through loopholes that its D.C. lobbyists have created. In fact, the Enron scams made possible by deregulation in the first Bush administration are still being revealed, such as last week’s reports that the company hid billions in income during the California energy crisis while publicly denying it was profiting excessively.
Yet former Enron officials continue to play an important role under Bush the younger. The Bush family, in fact, has never been seriously confronted by the media or Congress as to its questionable ties to former Enron Chief Executive Kenneth Lay, a close family friend and top contributor to Bush family presidential campaigns.
To be fair, the corporate corruption of our political system has long been bipartisan. The Clinton White House, for example, sponsored major deregulation acts, including the Financial Services Modernization Act, which reversed consumer protections enacted under Roosevelt, and the Telecommunications Act of 1996, which effectively ended all public accountability for the communications industry and has permitted a few media giants to gobble up vast markets.
Clearly, the problem is bipartisan when a Democrat-controlled Senate moves so hesitantly to confront the myriad examples of sickness in our economy and corporate culture.
The politicians hesitate to act because candidates of both parties are lavishly financed by the very people who are conning a gullible public.
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U.S. Launches All-Out Attack on Credit Crisis
Readers Number : 10

20/09/2008
The United States surged into action on Friday to launch an all-out attack against the worst financial crisis since the Great Depression, readying a plan to tap hundreds of billions of dollars in taxpayer funds to buy up toxic mortgage-related debt. Capping a week that has reshaped Wall Street, Treasury Secretary Henry Paulson urged Congress to quickly agree on a program for huge purchases of bad debts held by banks and other financial institutions.
Lawmakers promised fast action on the plan, which two banking industry sources put in the $500 billion to $800 billion range. Losses on mortgage-related debts have choked the financial system, forced lenders into bankruptcy and led the economy to what President George W. Bush called a “pivotal” moment. “America’s economy is facing unprecedented challenges, and we are responding with unprecedented action,” Bush told reporters in the White House Rose Garden.
After having taken a series of other emergency steps that failed to erect a firewall against the spreading credit turmoil, U.S. authorities turned their attention to the underlying problem – the rising tide of bad mortgage debt. Paulson offered few details on Treasury’s proposal but said he would work through the weekend and next week with Congress to get a program put in place. The proposal being sent to lawmakers would run only a few pages, a source said.
A congressional aide said staff on Capitol Hill would be briefed on the plan on Saturday morning. Rep. Steny Hoyer, the Democratic leader in the House of Representatives, said the chamber would likely take up a bill to implement the program early next week. House Speaker Nancy Pelosi said lawmakers would stay in town past their hoped-for adjournment next Friday if needed to pass it. U.S. stocks, which chalked up their best day in six years on Thursday as talk of the more aggressive approach spread, soared again on Friday.
The blue chip Dow Jones industrial average closed up 368 points, or about 3.4 percent. The news also caused waves in the U.S. presidential campaign. Republican hopeful Sen. John McCain knocked the Treasury for taking a haphazard approach to the crisis, while rival Democrat, Sen. Barack Obama, supported the latest moves. Paulson and Federal Reserve Chairman Ben Bernanke have already put close to $1 trillion of taxpayer money on the line to try to keep credit flowing.
At a meeting with congressional leaders on Thursday night, Paulson and Bernanke made the case for aggressive action to get ahead of events that could devastate an already weak economy. Fed spokeswoman Michelle Smith declined to comment directly on the accuracy of the chairman’s reported remark, but confirmed that he painted “a dark scenario”. The White House said it was too soon to say how the plan would impact the nation’s debt, and said it was possible many of the funds could be recovered as markets stabilize and currently bad assets are sold off. An industry source said there would be no limit on how long the government could hold the debt, which would have had to have been on selling institutions’ books as of September 15.
The emergency effort marked the latest dramatic government bid to prevent credit markets from freezing up over huge losses on subprime and other mortgage debt. These have forced U.S. investment bank Lehman Brothers Holdings Inc into bankruptcy, Merrill Lynch into a hasty marriage with Bank of America, the Fed to bail out troubled insurer American International Group, and the government to seize control of mortgage finance giants Fannie Mae and Freddie Mac. This long-safe corner of financial markets, home to some $3.5 trillion of deposits, has increasingly appeared at risk of falling victim to the year-old credit crunch. Money market fund assets dropped by a record $169.03 billion in the week ended September 17 as jittery investors pulled money out.
The Treasury said it would back money market funds whose asset values fall below $1 a share. Separately, the Fed said it would lend money to banks to finance purchases of certain assets from money market funds. Paulson also said the administration would step up a program announced this month to directly buy mortgage-backed securities in the market, and said Fannie Mae and Freddie Mac would also increase their buying to try to get credit flowing.

One Response to “Economic Meltdown: Don’t Say We Weren’t Forewarned”

  1. uprooted Palestinian Says:

    Pelosi asks “where is the money coming from?” Shouldn’t she have asked that question 6 years ago and what have the Democrats done in the way of opposition to the Bush/Cheney/ Olmert axis? Democrats challenge federal bailouts and blame Republicans http://www.miamiherald.com/news/politics/AP/story/692144.html By DAVID LIGHTMAN Abandoning bipartisanship Thursday, Democrats launched withering blasts at President Bush, John McCain and Republicans for mismanaging the nation’s financial meltdown. “What we have now is a manmade disaster, a disaster that comes from the Bush failed policies, the failure of the Bush administration to steward our economy in a responsible way,” House Speaker Nancy Pelosi told a news conference. Pelosi’s remarks, echoed throughout the day by Democratic presidential nominee Barack Obama and other Democrats in Congress, were extraordinary coming at a time when financial markets were trying to recover from a week of shocks. Obama mocked McCain for calling for government reform of financial markets after a long career of standing for deregulation. “John McCain can’t decide whether he’s Barry Goldwater or Dennis Kucinich,” Obama said, referring to the conservative icon and the liberal Rep. Kucinich. “Well, I have a message for Senator McCain: You can’t just run away from your long-held views or your lifelong record. “You can’t erase 26 years of support for the very policies and people who helped bring on this disaster with one week of rants.” McCain on Thursday proposed the firing of Christopher Cox, the chairman of the Securities and Exchange Commission, and outlined other proposals including setting up a new government entity to help troubled banks and mortgage lenders get healthy. Details, however, were skimpy. Democrats dismissed the plans as too little, too late. Pelosi criticized Tuesday’s $85 billion Federal Reserve loan to failing insurer American International Group. “Where is that money coming from?” she demanded. “What is its impact on our deficit?” Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, said there was no answer. “Who knows, and who knows how much it will cost,” he said. “All we can do is pray.” Pelosi fired off other questions: “How does this work? I mean, a private company, can they just run wild again, anything goes?” White House Press Secretary Dana Perino replied. “I don’t think that the reaction of finger-pointing from Democrats to the White House is anything new,” she said. “I would ask you to go back and look and ask Speaker Pelosi or any of the other Democrats who are pointing fingers, what specific regulation did they want that we blocked? What specific regulation did we eliminate?” Until Democrats regained control of Congress in January 2007, however, Republicans had controlled both houses for 12 years, except for an 18-month period from 2001 to 2003 when Democrats held a one-vote Senate majority. Federal regulators of banks, savings and loans and credit unions warned of lax lending standards and risky loans as early as 2003 but didn’t push for more power to regulate mortgage brokers or non-bank lenders. Nor did Congress or the White House make much of a push. Republicans were eager to let free markets work. Democrats liked the expansion of affordable housing to middle- and lower-income buyers. “You have to go back at least 10 years and realize both Republicans and Democrats were in charge for different periods of time,” said Sen. John Thune, a South Dakota Republican who’s on the Senate Commerce Committee.

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