Democratic Party Was Co-Author Of This Economic Disaster

[Better Believe It]

Wall Street's Great Deflation
by William Greider
National Affairs Correspondent
The Nation
July 14, 2008

Phil Gramm, the senator-banker who until recently advised John McCain's campaign, did get it right about a "nation of whiners," but he misidentified the faint-hearted. It's not the people or even the politicians. It is Wall Street--the financial titans and big-money bankers, the most important investors and worldwide creditors who are scared witless by events. These folks are in full-flight panic and screaming for mercy from Washington, Their cries were answered by the massive federal bailout of Fannie Mae and Freddy Mac, the endangered mortgage companies.

The Bush crowd, always so reluctant to support federal aid for mere people, stepped up to the challenge and did as it was told. Treasury Secretary Paulson (ex-Goldman Sachs) and his sidekick, Federal Reserve Chairman Ben Bernanke, announced their bailout plan on Sunday to prevent another disastrous selloff on Monday when markets opened. Like the first-stage rescue of Wall Street's largest investment firms in March, this bold stroke was said to benefit all of us. The whole kingdom of American high finance would tumble down if government failed to act or made the financial guys pay for their own reckless delusions. Instead, dump the losses on the people.

Democrats who imagine they may find some partisan advantage in these events are deeply mistaken. The Democratic party was co-author of the disaster we are experiencing and its leaders fell in line swiftly. House banking chair, Rep. Barney Frank, announced he could have the bailout bill on President Bush's desk next week. No need to confuse citizens by dwelling on the details. Save Wall Street first. Maybe lowbrow citizens won't notice it's their money.

We are witnessing a momentous event--the great deflation of Wall Street--and it is far from over. The crash of IndyMac is just the beginning. More banks will fail, so will many more debtors. The crisis has the potential to transform American politics because, first it destroys a generation of ideological bromides about free markets, and, second, because it makes visible the ugly power realities of our deformed democracy. Democrats and Republicans are bipartisan in this crisis because they have colluded all along over thirty years in creating the unregulated financial system and mammoth mega-banks that produced the phony valuations and deceitful assurances. The federal government protects the most powerful interests from the consequences of their plundering. It prescribes "market justice" for everyone else.


Please read the entire article at:
http://www.thenation.com/blogs/notion/336722

[Hydra]

1. The bailout did next to nothing to buoy the market

Each of these band-aids is having less and less effect as we go along...but since the only point was to fill someone else's pockets with taxpayer money, why should the lack of any other result be surprising?

[crikkett]

2. "fill someone else's pockets w/ taxpayer money" -- how many retirement funds benefit

from this bailout insofar as they don't completely lose their investments?

[Hydra]

4. That's a good question

But I would be willing to bet at least 60% of the money used for this benefited 10 or less people.

Bush and Bernake couldn't care less about retirement, education and other people oriented investing...their whole focus is killing the cow to get the milk.

[Warpy]

3. Liberals went out of power in 1969

and the election of Nixon ushered in the slow dismantling of all the New Deal regulations that had allowed the economy to run in a way that was more fair to all while making sure recessions were shallow and short.

The oil shocks and resulting inflation when Nixon refused to do anything about OPEC that would endanger the windfall profits of Big Oil ruined the Carter economy and ensured the election of Reagan. Reagan spent his terms in the faster dismantling of all the New Deal programs that had so benefited working people while keeping the finance sector in check and reasonably honest.

Clinton did absolutely nothing to stop this process, taking his advice from that premier Wall Street Democrat, Rubin, and signing nearly every deregulation bill that landed on his desk.

Our economy has been going down the tubes for 39 1/2 years. It certainly didn't get this way overnight and conservative Democrats certainly have plenty to answer for, especially the ones in office 1993-2001. However, the GOP has had everything their own way for much of the last eight, refusing to change even when the writing was clearly on the wall for all to see.

People seem to be ready to blame the party in charge for our present problems. They're not quite ready to realize it's conservative dogmatists in both parties who are the problem. Until that happens, don't expect much to change.

[robertpaulsen]

6. Greider pinpoints the key event of that shift in 1979.

That was when Carter appointed Volcker as chairman of the Federal Reserve. Volcker then changed the Fed's method of operations from a Keynesian approach to a Friedman monetarist approach. The aftermath of this switch was stagflation and 12 years of Bush/Reagan. Greider's book on the Volcker years, Secrets of the Temple, is an excellent history.

[dtotire]

7. Carter Inherited the Stagflation Mess

STagflation started during the Nixon Presidency, perhaps as a result of the Fed trying to keep interest rates low. It continued through Ford's term and into Carter's term. Carter appointed Volcker who immediately raised interest rates, perhaps too high, which caused a slowdown. Interest rates remained high as a result of Reagan's tax cuts. After Reagan increased defense spending, the economy began to expand, but since it was in military spending, it was an unbalanced expansion. If you lived in an area that had many defence contractors, like Connecticut and parts of California, the economy boomed. Other parts of the country did not do as well. Tax collections increased as a result of the increased military spending, and NOT as a result of Tax cuts. If taxes were not cut, the economy would still have grown, but the deficit would not have increased from $100B to $300B.

[glitch]

9. Very well said. "conservative dogmatists in both parties who are the problem" nt

[phantom power]

5. Thanks William, but I think I'll stick with blaming the GOP.

[mmonk]

8. the problem would be as disastrous if there were no bailout as well.

Mortgages have to be sold on the secondary market. It's a damn if you do, damn if you don't quandry, especially in a housing market downturn. In past recessions and such, the housing market was a source of stability keeping the economy afloat.