Wall Street crisis: Poor to bail out the rich again

Peter Boyle, Green Left Weekly, issue #769 1 October 2008

“Rich people got it good in this country”, said African-American comedian Wanda Sykes on the September 24 Tonight Show with Jay Leno. “We refuse to let them not be rich. Think about it. Broke people are about to bailout rich people. This is what is going on.”

“And they want no oversight. US$700 billion and no oversight! No oversight? Why should we? I want receipts dammit! What do you mean no oversight? Because, oh, you’re so good with the other money?

“This is the biggest piece of garbage ever. You know what? It’s welfare for the rich ...

“It’s going to cost every taxpayer US$7000. You got the guy there busting his gut working two jobs and barely making US$12,000 a year, and he’s got to cough up something so some Wall Street guy can keep his swimming pool. Man, that’s garbage!”

‘Historic swindle’

Sykes pre-empted US President George W. Bush’s television address to the nation later that night where he demanded that Congress pass the US$700 billion bailout or else face “a long and painful recession”. Bush summonsed presidential contenders Barack Obama and John McCain to attend an emergency briefing in the White House.

The pressure is on Congress to endorse the bailout, but the politicians report a groundswell of opposition from their constituents to this remedy. And no wonder.

A million people in the US have lost their homes over the last two years and real wages have fallen while corporate profits have soared. According to the July 23 Wall Street Journal, the richest 1% of the US population received their highest share of the nation’s income in at least two decades while their average tax rate fell to the lowest level in 18 years or more.

As progressive US writer Rick Wolf explained in the September 23 MR-zine: “Real wages stopped rising in the US in the 1970s, yet the American psyche and self-image, subject to relentless advertising, was committed to rising consumption. To enable that, workers with flat wages had to borrow to afford rising consumption.

“For the last 30 years loans replaced wages, but rising consumer debt introduces new risks and dangers. If, simultaneously, politicians use state borrowing to avoid taxing the rich while providing vast corporate subsidies and waging endless wars, the debt problems mushroom.

Aggressive, deregulated financial companies grabbed the resulting ‘market opportunity’ by devising ever more complex, hidden, and dangerously risky ways to profit hugely from the social debt bubble.
“A sub-prime economy produced sub-prime wages, sub-prime borrowers, sub-prime lenders, and sub-prime government regulations ...”

From the point of view of the great majority, a corporate elite that has ruthlessly enriched itself at the expense of working people, now, having tripped itself up through an orgy of speculation in deregulated financial markets, comes begging for a US$700 billion bailout.

Actually, it’s more than twice that. In the last year, Wall Street has already received some US$900 billion worth of bailouts. So what we are looking at is more than US$1.5 billion of corporate bailouts.

Who is to say it will stop there? Conservative estimates of the amount of bad debt still in the US financial system are US$1-2 trillion. But it could be more. No one knows and the banks aren’t opening their books so the public can find out.

The Bush administration’s bailout proposal is basically that the public keep buying bad debt off these banks at inflated prices, and demand little in return.

William Greider, in the September 19 Nation, said: “If Wall Street gets away with this, it will represent an historic swindle of the American public - all sugar for the villains, lasting pain and damage for the victims”.

Shackled to the US economy

If the US public feels blackmailed and swindled, they are not alone.

Walden Bello, writing “The View from Asia” from Manila in the September 24 Nation, noted growing trepidation in the Third World where the current Wall Street crisis looks like “a replay, though on a much larger scale, of the 1997 Asian financial crisis, which brought down the red-hot ‘tiger economies’ of the East”.

“The shocking absence of Wall Street regulation brings back awful memories of the elimination of capital controls by East Asian governments, which were under pressure from the International Monetary Fund and the US Treasury Department. That move triggered a tsunami of speculative capital onto Asian markets that sharply receded after sky-high land and stock prices came tumbling down.

“Treasury Secretary Paulson’s proposed massive bailout of Wall Street’s tarnished titans reminds people here of the billions the IMF hustled up after ’97 in the name of assisting them - money that was used instead to rescue foreign investors.”

Bello added: “Trillions of dollars of Asian public and private money are invested in US firms and property, with the five biggest Asian holders accounting for over half of all foreign investment in US government debt instruments.

Funds from Asia have become a key prop of US government spending and the middle-class consumption that have become the driver of the American economy. With so much of Asia’s wealth relying on the stability of the US economy, there is not likely to be any precipitate move to abandon Wall Street securities and US Treasury bills ...

“There is, moreover, resignation throughout Asia about the inevitability of a deep US recession and its likely massive impact on the East: the United States is China’s top export destination, while China imports raw materials and intermediate goods from Japan, Korea and Southeast Asia to shape into the products it sends to the United States.

“Despite some talk a few months ago about the possibility that the economic fate of Asia could be ‘decoupled’ from that of the United States, most observers now see these economies as members of a chain gang shackled to one another, at least in the short and medium term.”

How the billions could be spent

The hundreds of billions being wasted on this string of corporate bailouts already overtakes the, at least, US$750 billion the US has spent on the ongoing wars of occupation in Iraq and Afghanistan.

In his September 24 address to the 63rd session of the United Nations General Assembly, Cuba’s vice-president, Jose Ramon Machado, spelled out an alternative use for such large amounts of money.

“While a trillion of dollars is spent on weapons in the world, more than 850 million human beings are starving; 1.1 billion people don’t have access to drinking water, 2.6 billion lack sewage services and more than 800 million are illiterate.

“More than 640 million children lack adequate housing, 115 million do not attend primary school and 10 million die before the age of five, in most cases as the result of diseases that can be cured.”

Machado added: “The formula is not difficult, nor does it require great sacrifices. All we need is the necessary political will, less egotism and the objective understanding that if we do not act today, the consequences could be apocalyptic and would affect the rich and poor alike.

“For this reason, Cuba once again calls on the governments of the developed countries, on behalf of the Movement of Non-Aligned countries, to honour their commitments and, in particular, Cuba urges them to:

• Put an end to the wars of occupation and to the plunder of the resources of the Third World countries and to free up at least a part of their millions in military spending to direct those resources towards international assistance for the benefit of sustainable development.
• Cancel the foreign debt of developing countries since it has been already paid more than once, and with this, additional resources would be released that could be channeled to economic development and social programs.
• Honour the commitment of directing at least 0.7% of the Gross Domestic Product for Official Development Assistance, unconditionally, so that the South countries would be able to use those resources for their national priorities and promote access of poor countries to substantial sums of fresh financing.
• Direct one-fourth of the money that is squandered each year on commercial advertising to food production; this would free up almost 250 billion additional dollars to fight hunger and malnutrition.
• Direct the money being used for the North’s agricultural subsidies to agricultural development in the South. By doing this, our countries would have about a billion dollars per day available to invest in food production.
• Comply with the Kyoto Protocol commitments and set commitments to reduce emissions more generously starting in 2012, without wanting to increase restrictions for countries that, even today, maintain per capita emission levels that are much lower than those of the North countries.
• Promote the access of the Third World to technologies and support the training of their human resources. Today, in contrast, qualified personnel from the South are subjected to unfair competition and incentives presented by discriminatory and selective migratory policies applied by the United States and Europe.
• And, something that is today more urgent than ever, the establishment of a democratic and equitable international order, and a fair and transparent trading system where all states will participate, in sovereignty, in the decisions that affect them.”

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