Migrant Mother/Pea-Picker in the Dust Bowl, Photo by Dorothea Lange, 1936
If a museum in the next superpower nation ever commemorates the decline of the last great superpower, it will make the two-and-a-half page bill introduced this week the center of the display. Just as they do today at the National Archives’ Declaration of Independence exhibit, tourists in the future—perhaps in Beijing, perhaps somewhere else—will line up to see a framed draft of this week’s White House legislation demanding Congress surrender its power of the purse, and give an unelected appointee—in this case, Treasury Secretary Henry Paulson—the power to hand over $700 billion of taxpayer money to “any financial institution,” “without limitation…on such terms and conditions as determined by [him].” David Sirota, The $700 Billion Questions, In These Times, 9-22-08
Economic Insecurity Update: Breaking It Down -- The Shock Doctrine Full-Throttle
Here is some vital analysis. First, Paul Krugman demystifying what happened in four simple steps. Second, David Sirota articulating five big questions that should be asked. Third, Naomi Klein on when the real economic bomb will go off. I have included links to the full texts of these three pieces. Please review them and share them with your friends, colleagues and loved ones. It is important that you understand this moment in time. I have also included a list of related Words of Power posts from the past few years -- so that you can see that this did not come out of nowhere. -- Richard Power
So let’s try to think this through for ourselves. I have a four-step view of the financial crisis:
1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.
2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.
3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.
4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”
The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis? ...
The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place. Paul Krugman, Cash for Trash, New York Times, 9-22-08
Here are five key questions we should all be asking:
1) What will prevent the bill from allowing both parties to use the guise of purchasing worthless mortgages to further enrich their largest campaign donors?
2) How are Americans and investors supposed to feel confident that the crisis will be solved, if the very people who engineered the crisis are being relied on to solve it?
3) How is this meltdown a failure of “oversight” if it has almost nothing to do with illegality?
4) When did a crisis suddenly mean that giving away taxpayer cash to campaign donors is laudably apolitical, but spending taxpayer money on taxpayers is inappropriately “political?”
5) How are we going to pay for this? David Sirota, The $700 Billion Questions, In These Times, 9-22-08
Klein: The disaster is far from over. They’ve actually just relocated. The disaster was on Wall Street and they have moved the disaster to Main Street by accepting those debts and you said they didn’t have to bomb, the bomb has yet to detonate. The bomb is the debt that has now been transferred to the taxpayers so it detonates when, if John McCain becomes president in the midst of an economic crisis and says look we’re in trouble, we have a disaster on our hands, we have to privatize social security, we can’t afford health care, we can’t afford food stamps, we need more deregulation, more privatization. The thesis of the Shock Doctrine is you need a disaster to rationalize these very unpopular policies so the real disaster has yet to come.The real disaster is the debt that is going to explode on the American taxpayers. And then they do economic shock therapy.
They had to step in, but I don’t think they had to step in in the way they did. The reason why the stock market went up on Wall Street today is because it’s Christmas morning. Imagine waking up and being told your credit card debits have been wiped out, your mortgage has been erased. There’s a fairy godmother that has taken care of you. A guardian angel. But actually that’s the tax payers. Naomi Klein, Crooks and Liars, 9-20-08
Richard Power's Left-Handed Security: Overcoming Fear, Greed & Ignorance in This Era of Global Crisis is available now! Click here for more information.
Some Posts Related to Economic Security
From Wall Street to Galveston: "Sometimes the aftermath of the storm is worse than the storm itself ..."
Economic Insecurity: Will the Cult of Milton Friedman (and Hidden High Priestess, Ayn Rand) be Smashed? -- "None of This Had to Happen ..."
Economic Insecurity: Stiglitz on the Three Trillion Dollar War; Its Devastating Impact & Its True Winners
Economic Insecurity Update: False Religion of Laissez-Faire & Milton Friedman, Its Most Persuasive Cult Leader, Have Led Us to a Monetary Jonestown
Economic Security Update: Brazilian Super Model Gisele Bundchen Joins Warren Buffet in Ditching the Dollar
Economic Security Update: "What do Brazilian supermodel Gisele Bündchen and the People's Republic of China have in common?"
Randi Rhodes Interviews Naomi Klein -- "Not just the craziness of the Bush gang ... the logical culmination of a 25 year war on the state ..."
Hard Rain Journal 5-22-07: Economic Security -- Get Busy Living, or Get Busy Dying
Hard Rain Journal 6-6-07: Future Economic Security, Both Short Term & Long Term, Requires Choosing Conscience & Common Sense Over Racketeering
Hard Rain Journal 10-30-06: Economic Security -- GAO Chief Warns Economic Disaster Looms
SPECIAL EDITION: Words of Power Interviews Nomi Prins, Author of "Jacked: How 'Conservatives' are Picking Your Pocket"
SPECIAL EDITION: Generation Debt -- Why Now Is A Terrible Time To Be Young, Words of Power Interviews Anya Kamenetz
For the Words of Power Climate Crisis Updates Archive, click here.
Paul Krugman, David Sirota, Words of Power, Shock Doctrine, Disaster Capitalism