¡Hand over the bread now, or else!

Just to use a vivid image, you might say that a hold-up is taking place in Wall Street...or in the White House. The message of the Bush Administration to Congress: give us $700 billion to fix up this financial mess...or take the blame for whatever might follow. Rarely have there been bailout plans as audacious as that of Treasury Secretary Henry Paulson’s: it puts the brake on any progressive agenda, makes democratic structure tremble and promises little to the tax payers who will have to foot the bill.

Consider this from Section 8 of the published versíon of the bail out plan: "Review. Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or administrative agency." Why can’t there be any review? No lawsuits allowed by aggrieved investors, nor American taxpayers, no complaints later from poor citizens who didn’t know that this was all about or who they voted for. It’s a take it or leave it offer. What will the Democrats or Republicans in Congress say about this? What will they do?

Well, first of all there are only two political parties. and both will certainly end up bending over because they don’t want to be accused of doing anything that would perturb Wall Street, that would be too risky and after all they are responsible political parties.

Why did  Paulson, Bernanke and the Bush Administration take such an iron clad position? One reason might be that previous efforts  to restore investor confidence didn’t work out very well and rather hightened global panic. Maybe the Federal Reserve began to wonder where it would get more money to pump into the system: it’s portfolio loaded down with junk, such as the mortgage securities and other rotten assets it so gentlemanly put on its  balance sheets. Isn’t there an echo here of how disgraced the central bank became in the midst of the 1929 crash?

The billions of dollars talked about sound gargantuan but the money is mainly aimed at relieving the major banks and investment houses of the pains they are going through due to their own mistaken investment polocies.

Pumping government money into the system--something that contradicts conservative economics--might pull the top and tottering firms back from the brink--but what guarantee does it provide for a return to normal lending activity, not to mention investment? The political argument of bankers and the government is that, well, this is going to be hard but if everyone is patient they should get their money back in the course of time...By the way, if you are an Argentine all of this probably sounds quite familiar,,,

In any event, the problem will be thrown into the lap of whoever wins the November presidential election. Wall Street and the banks would probably rejoice with a victory of John McCain, on the theory that not much would change, government would continue to bail them out in case of trouble and lower taxes and controls to make things easier for them. If Barak Obama wins they might have to raise an eyebrow or two, but the system certainly has its own built in reflexes, rapid enough to neutralize any too far reaching change of direction. 

Let's face it: the problem is basically political. Well, that's our opinion. You are welcome to object, if you see things differently. But...didn't the Bush Administration give big business and the banks a boost with tax reductions? And more lenient financial controls? The theory: if you give such benefits to big business they will invest. Well, first they accumulated enormous profits, then saw housing as a great opportunity, provided very low interest rates to buyers, speculated, and now some of these same interests--adamant defenders of free market economics--are begging money from the State to save them and the whole economy from bankrupcy...And then, globalization. There has been a rush of multinational business to the furthest corner of the earth, seeking ideal conditions: low wages and worker benefits, investment incentives, the "right" to send profits back to home offices...If the economy has become globalized, so has its ups and downs: there are stock market bubbles and mortgage storms in numerous other countries around the world...