The GOP Doesn’t Want the White House

By guest blogger David Cooper

Because of the last twenty-six years of insane economic policy, rightfully known as Reaganomics, the worst crisis in the financial markets since the Great Depression is now upon us. The Bush plan, as expressed by the Secretary of the Treasury, Henry Paulson, seemed to be the knee-jerk reaction of an administration now wholly owned by corporate interest; give $700 billion of taxpayer dollars, (borrowed money of course) to the billionaire Wall Street fat cats with no congressional oversight, and do it now. Surprisingly, it appears that the Republicans in Congress were as disturbed as the Democrats were by this proposal, resulting in what seems to be a bipartisan consensus. Both sides apparently agree that any transfer of the people’s money to Wall Street should include stringent oversight and should include middle class America. However, any bailout, if indeed one is actually necessary (an argument not discussed here), should not just include Middle America, it should heavily favor middle class working Americans. As of yet, it does not appear that either side has gone far enough in demanding protection for average Americans who are also in crisis. The justification for a bailout of the American Middle Class over that of the corporatists on Wall Street can be found in history.

In an October 8, 1931 article in the New York Times, titled “Real Estate Men on Hoover Plan,” the proposal to bail out the markets and to “liquidate frozen bank assets” was discussed. Real estate investor Joseph P. Day, while cheerleading for the Hoover plan, said, “President Hoover’s financial plan is a step in the right direction towards making real estate investment more liquid.” These are the exact arguments made by Paulson last week when he said, “The credit and capital markets are frozen up,” and, “the market’s liquidity is all clogged up.” Hoover also said, “The fundamentals of the economy are strong.” Sound familiar? Hoover’s bailout of Wall Street did not work. Banks continued to fail as the mega-wealthy of the day, largely responsible for the crisis, walked away unscathed.

We saw a bailout of commercial banks in the early 1980’s that was a result of banks, awash in petro-dollar revenues, packaging those revenues into often risky loans to emerging economies in Latin America. With inflation and interest rates of the period on the rise, borrowers began to default creating a crisis.[1]

On October 19, 1987, Alan Greenspan had to inject huge amounts of cash, (liquidity) into the Stock Market to prevent a crash.[2]

Then there was the Savings and Loan crisis in the 80’s that was the result of the deregulation and merger madness at the beginning of the “Reagan Revolution.” The cost was $250 billion.

In 1991, Citibank was in crisis, again because of the deregulation allowing banks to get into the “gambling” business on Wall Street, this time speculating in junk bonds. With the stock hovering at $2 a share, Greenspan eventually arranged a deal with Saudi billionaires to keep Citibank liquid because “they were too big to fail.” As a result, the Saudi’s ended up owning almost 10% of this American institution.[3]

In 1995, there was the bailout of the Mexican Peso to backstop US bond holders who bought Mexican high-yield debt after Mexico deregulated their financial system when they signed on to NAFTA. Once again, Alan Greenspan and Robert Rubin would arrange a bailout with $50 billion in treasury funds.[4]

In 1998, it was the Long Term Capital Management (LTCM) bailout to prevent the collapse of the hedge fund, a favorite investment vehicle for the mega-wealthy.[5] The bailout bought the wealthy, connected, investors the time needed to get out with favorable terms.

The common denominator of all these bailouts, and the reason they are temporary fixes, is that there is nothing structural, legislatively, that changes the behavior of these financial institutions, and nothing in it for the most adversely affected; the middle class. This is a demonstration of the political power these corporations hold over our government that has created an entitlement mentality on Wall Street. They want deregulated free-for-all capitalism while they are looting our treasury, and corporate welfare when they collapse, at the same time denying average Americans any protections or help that they routinely get, calling that Socialism. It’s the reason that these corporate bailouts will continually fail. We have seen a dozen bailouts of Wall Street corporations in the last twenty years alone. Until regulation such as the Glass-Stiegel Act (that was dismantled by John McCain’s chief financial advisor, Phil Gramm, when he was in the Senate)[6], is reinstated these bailouts will continue, and become more and more costly. Glass-Stiegel provided a wall between commercial banks and Wall Street and was enacted because of the horrors of the Great Depression.

Two very good plans on structural changes in regulation that should be included in the bailout bill, which would prevent perpetual bailouts in the future, have been put forth by:

Economist, Dr. Dean Baker, “Progressive Conditions for a Bailout,”[7] and

Robert Reich, former Secretary of Labor, “What Wall Street Should Be Required to Do, to Get A Blank Check From Taxpayers.”[8]

The Political Calculus for 08

Since the American memory span is a short one, at least politically, the current financial crisis will dominate the remaining five weeks of the presidential race at the near total exclusion of the disastrous prior eight years. It is looking like the GOP does not want the White House and are in fact willing to give it to Barack Obama. This is not a prediction, but rather an observation of what their current thinking may be, based on current events. The Wall Street bailout plan, at least in its original form as it was rolled out last week, seems to be an attempt by the Bush administration to simply “buy” six weeks of time. They have to know that even if it works, which is unlikely based on history, the cost will take a terrible toll on the economy for the foreseeable future. In addition, they certainly do not want the house of cards that is our current economy, which they created over the past two decades, to completely unravel in the last couple of months of a two-term Republican president. Since this is going to be a massive problem for the next president, they are undoubtedly asking themselves if putting a Democrat in the White House is the worst thing that could happen for them. I submit that they are concluding it is not.

Also consider that if they can keep the Democratic advantage in Congress within a reasonable number, they can continue to thwart any meaningful change the Democrats attempt. Since the Democrats took control in January of 2007, after 14 years of Republican control, we have seen the Republicans in the 110^th Congress filibuster more legislation in the Senate than any other session in modern history. To get legislation to the floor, if a senator filibusters, requires 60 votes to end a filibuster; therefore, the Republicans only need 41 votes in the Senate to block legislation. As the economy continues to go south, and if they can attach the Democrats to a bailout that turns out to be nothing more than a band-aid, they can run in 2010, and 2012, against the “Democrat Great Depression of 09,” or at the very least, a poor economic outlook blamed on the Democrats.

There is also a better than even chance that tin here will be a push to return Jeb Bush to Florida politics in 2010, setting up a presidential run 2012. (As De Niro said in “Goodfellas,” “I heard some things,” and I’ll leave it at that). This is all just speculation of course. Anything can happen between now and November, and trying to predict 2010, or 2012 is next to impossible. Having said that, I am of the belief that the GOP does not want the presidency this time because they expect that the economy, as bad as its been the last eight years, is entering into an extreme downward spiral, which may be unstoppable, and will accelerate throughout 2009, and they may very well be right. Especially if this bailout of Wall Street is nothing more than a temporary placebo as was the case in 1931, as well as the other bailouts discussed above. For that reason the fight will not end when Obama is sworn in on January 20^th; the real fight will be just beginning.

David Cooper

September 27, 2008

Sources:

---

[1] http://www.iht.com/articles/2005/09/19/news/ROILMONEY.php

[2] http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

[3] http://www.financialsense.com/editorials/turk/2008/0317.html

[4] http://query.nytimes.com/gst/fullpage.html?res=990CEEDE1F3AF936A25754C0A963958260

[5] http://www.cato.org/pubs/briefs/bp-052es.html

[6] See the Gramm-Leach-Bliley Act of 1999.

[7] http://www.ncpolicywatch.com/cms/2008/09/22/progressive-conditions-for-a-bailout/

[8] http://robertreich.blogspot.com/2008/09/what-wall-street-should-be-required-to.html

David Cooper is the author of “Absolute Despotism: How the Bush Administration’s False Realities Led to the Dismantling of Civil Liberties, the Destruction of Democracy, and Perpetual War.” Now available at: www.AbsoluteDespotism.com Contact at: AbsoluteDespotism@bellsouth.net