While the world is fixated on the U.S. economy, I find myself having little sympathy for the U.S. government. I have little sympathy for representatives like Nancy Pelosi, who colludes with the Bush administration and is part of the problem. To pretend like she’s somehow not equally accountable for the problems is ridiculous. I’m finding it rather entertaining that these so-called leaders think that giving $700 billion dollars to American companies, whose CEOs are taking in record salaries and bonuses will “trickle down” to average Americans who are suffering. This notion that bailing out Wall Street will help Main Street is psychotic. Did Ronald Reagan’s “trickle down” economics work in the 1980s? No. And it won’t work now. And why is it that the CEOs of these companies are not being held responsible for the problems they created in the first place? The unseemly salaries and bonuses they receive, I think, are part of the problem. Take a look at some of these salaries:
Martin Sullivan, the former chief executive of AIG, which received an $85 billion bailout from the American taxpayer last week, earned $40 million between 2005 and 2006.He received a severance package of $47million and his resignation took effect from July 2008.This is despite the fact that AIG has lost over $20 billion on sub-prime writedowns after insuring over $57 billion-worth of financial instruments linked to sub-prime mortgages.
Charles Prince, the former chief executive of Citigroup, who resigned under pressure in November 2007, exited the firm with a $68million severance package. He had been paid $53 million in the previous four years. Remarkably, his 2007 bonus of $12.5 million in cash was based on a formula that adjusts the 2006 bonus to take account of the 2007 share price but was not directly based on the performance of the company in 2007. His predecessor, Sanford Weill, left the bank with $874million in shares and share options.
Stan O’Neal, who is credited with turning around the fortunes of Merrill Lynch when he took over in 2002, drove the company in the direction of equity dealing and sub-prime-related financial products.
He earned $36 million in 2005 and a further $47 million in 2006.When he was ousted in October 2007 after Merrill racked up multibillion-dollar losses on sub-prime products, he walked away with $161.5 million in stock and options. Last week, Merrill Lynch was bought by Bank of America in a distress sale.
Dick Fuld, the chief executive of Lehman Brothers, was nicknamed the ‘gorilla’. He is known for his love of bodybuilding and colourful language. He threatened to break the legs of any Lehman executive who was short-selling its stock. His hard-nosed style at the Wall Street firm was typical of the culture that prevailed at the company. He is reported to have earned a total of $500 million at Lehman.
Fuld is now being blamed for not selling Lehman several weeks ago when it is alleged that a Korean Bank made an offer. It has been speculated that Fuld turned down the offer because it wasn’t high enough and that he was in denial about what could happen at Lehman.
The collapse of the firm last week made it the biggest bankruptcy in corporate history – ten times larger than the collapse of Worldcom.
Fuld took bigger and bigger chances with Lehman in recent years, piling into high-risk mortgages. Lehman built up an $88 billion mortgage-backed portfolio. In 2006, he earned $40 million, a year in which total Lehman group bonuses to staff and executives topped $5.7 billion.
Like many other chief executives on Wall Street, Fuld’s basic salary was modest by corporate standards. His base salary was $750,000, less than the base salary of several Irish bank executives. Jimmy Cayne, the former head of Bear Stearns, was paid a base salary of just $250,000 in 2006, but total bonuses and stock earnings amounted to $33.6million.
To be sure, the rescue plan that was just defeated was far better than what the Bush administration originally proposed. But its basic approach remained critically flawed. First, it relied – once again – on trickle-down economics: somehow, throwing enough money at Wall Street would trickle down to Main Street, helping ordinary workers and homeowners. Trickle-down economics almost never works, and it is no more likely to work this time.
Moreover, the plan assumed that the fundamental problem was one of confidence. That is no doubt part of the problem; but the underlying problem is that financial markets made some very bad loans. There was a housing bubble, and loans were made on the basis of inflated prices.
That bubble has burst. House prices probably will fall further, so there will be more foreclosures, and no amount of talking up the market is going to change that. The bad loans, in turn, have created massive holes in banks’ balance sheets, which have to be repaired. Any government bail-out that pays fair value for these assets will do nothing to repair that hole. On the contrary, it would be like providing massive blood transfusions to a patient suffering from vast internal hemorrhaging.
What Stiglitz proposes is vastly different than the government’s bailout scheme that would punish average American taxpayers:
At the same time, several steps can be taken to reduce foreclosures. First, housing can be made more affordable for poor and middle-income Americans by converting the mortgage deduction into a cashable tax credit. The government effectively pays 50% of the mortgage interest and real estate taxes for upper-income Americans, yet does nothing for the poor. Second, bankruptcy reform is needed to allow homeowners to write down the value of their homes and stay in their houses. Third, government could assume part of a mortgage, taking advantage of its lower borrowing costs.
By contrast, US treasury secretary Henry Paulson’s approach is another example of the kind of shell games that got America into its mess. Investment banks and credit rating agencies believed in financial alchemy – the notion that significant value could be created by slicing and dicing securities. The new view is that real value can be created by un-slicing and un-dicing – pulling these assets out of the financial system and turning them over to the government. But that requires overpaying for the assets, benefiting only the banks.
In the end, there is a high likelihood that if such a plan is ultimately adopted, American taxpayers will be left on the hook. In environmental economics, there is a basic principle, called “the polluter pays principle.” It is a matter of both equity and efficiency. Wall Street has polluted the economy with toxic mortgages. It should pay for the cleanup.
Stiglitz’s environmental metaphor makes me think of another important concept, inspired by Rachel Carson, known as the “precautionary principle.” In a nutshell, this idea asks that companies and governments should be required to investigate the harm that a particular act may do to people and the environment before engaging in that act. Perhaps the same should be applied to Wall Street. And to Pennsylvania Avenue. In another opinion piece by Stiglitz from today’s Guardian, he expands on some of the arguments above from yesterday’s Guardian:
The very assumption that the rescue plan has to help is suspect. After all, the IMF and US treasury bail-outs for Wall Street 10 years ago in Korea, Thailand, Indonesia, Brazil, Russia and Argentina didn’t work for those countries, although it did enable Wall Street to get back most of its money. The taxpayers in these other poor countries picked up the tab for the financial markets’ mistakes. This time, it is American taxpayers who are being asked to pick up the tab. And that’s the difference. For all the rhetoric about democracy and good governance, the citizens in those countries didn’t really get a chance to vote on the bail-outs. Had they, most would have suffered the same fortune as Paulson’s.
There is, in fact, a widespread consensus among economists about what should be done. The economy is weak, and would remain so even with a good rescue plan. That is why there is a need for a strong stimulus. The February stimulus package was badly designed, and its anaemic effects offset by soaring oil and food prices. Given the enormous increase in the deficit during the past seven years (from $5.7bn to over $9 trillion – and that doesn’t include the bills yet to be paid for the Iraq and Afghanistan wars) we have to be sure that we get the biggest bang for the buck. We need increased unemployment benefits, and aid to states and localities, which otherwise will be forced to cut back on spending, depressing the economy further. We need more investment in both the public and private sectors.
It would be a grave mistake to underestimate the right’s ability to use this crisis — created by deregulation and privatization — to demand more of the same. Don’t forget that Newt Gingrich’s 527 organization, American Solutions for Winning the Future, is still riding the wave of success from its offshore drilling campaign, “Drill Here, Drill Now!” Just four months ago, offshore drilling was not even on the political radar and now the U.S. House of Representatives has passed supportive legislation. Gingrich is holding an event this Saturday, September 27 that will be broadcast on satellite television to shore up public support for these controversial policies.
What Gingrich’s wish list tells us is that the dumping of private debt into the public coffers is only stage one of the current shock. The second comes when the debt crisis currently being created by this bailout becomes the excuse to privatize social security, lower corporate taxes and cut spending on the poor. A President McCain would embrace these policies willingly. A President Obama would come under huge pressure from the think tanks and the corporate media to abandon his campaign promises and embrace austerity and “free-market stimulus.”
We have seen this many times before, in this country and around the world. But here’s the thing: these opportunistic tactics can only work if we let them. They work when we respond to crisis by regressing, wanting to believe in “strong leaders” – even if they are the same strong leaders who used the September 11 attacks to push through the Patriot Act and launch the illegal war in Iraq.
What Klein has been arguing in all of her print and television media appearances is that this economic shock is no different than the environmental or military shocks that have been used by the Bush administration to force draconian policies on the U.S., which often affect the world at large. I prefer Jeff Gibbs’ piece in Counterpunch this week inspired by a Robin Hood philosophy as to what we can do with that $700 billion:
1) Go after the evil doers
If their our economy is truly in peril because of self-serving, manipulative and possibly illegal decisions by greed folks who have abused our faith in them don’t reward them, go after them! Seek out the individuals AND corporations who have profited from these “toxic” instruments and seize their wealth if necessary. Call the police, the FBI, Homeland Security. If we can seize a janitor or a teacher’s home for the “public good” to build a shopping mall, we can take back ill-gotten gains from greedy bastards to save the economy.
2) Make the rich take responsibility
If we MUST have a bailout, why not have the richest Americans—the people who have gained the most from this system—do it? The wealthiest 400 Americans—FOUR HUNDRED PEOPLE! –are worth $1.5 trillion. They could put up the first $250 billion and see how it goes. They could put up the whole $1 trillion and still have a billion dollars each to play with. Or we could have the wealthiest 10% of Americans put up 5% or so of their collective $40 trillion in wealth to save Wall Street. The rich can spare 5%, hell they could spare 90% and still have far more than you and me.
3) Do what the Swedes do
Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.
That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.
From: The New York Times.
If the people’s money is used to bail our Wall Street’s greedy excesses, why is no one proposing that the people get a stake in these companies? Why are we not making them swallow their own toxic “products” before loaning them a dime? Why are we not making sure that executives, employees and shareholders don’t profit further from their monumental failure? According to Michael Moore the promised limits are not even present in the current legislation. [note numbering is wrong in the original; there is no number 4]
5) Open the First National People’s Bank
If our leaders are so worried about you and me being able to borrow money, use the trillion dollars of OUR money to fund our OWN bank, the First National People’s Bank. OUR bank could fund home and auto loans, farmers, and small businesses.
6) Jump start the “trickle up” economy
Use the trillion dollars to put people out of work back to work. That’s what got us out of the great depression. Take care of the people first. Take care of the working people and the money trickles up to the wealthy. That’s the genius of Henry Ford.
7) Use the trillion to fund universal health care
It’s not TAXES that make American businesses non-competitive and on the edge of collapse, it’s that American’s don’t have health care. Ask G.M. and Ford. Instead of welfare for the rich and bombing nations that don’t threaten us to oblivion, why don’t we try providing basic services to our own people?
8 ) Send Oprah
You know if only those stock brokers and traders and executives were better at visualizing abundance they wouldn’t be in this mess. Why don’t we all send them our old “The Secret” DVD’s since by now we’re all rich and don’t need them anymore? Maybe when Wall Street is finished with them they can send the DVD’s on to Somalia where obviously they have been having trouble with the abundance thing—maybe they are just not in touch enough with how much they deserve it.
9) Believe in capitalism
If the visualizing abundance thing doesn’t work out, let the companies that have been irresponsible fail. Capitalists love survival of the fittest and competition and it’s time to let them have their way.
10) Bail out Lori
My friend Lori is a self-employed single parent. When she got sick last year she had no health care, no disability, no mortgage insurance. Her family has held raffles and fundraisers in bars to help pay for medicines. Lori is now on a breathing machine and can no longer walk. Lori is losing her and her seven-year old son’s house. Last time I checked Lori pilfered money from no one, created no toxic instruments, placed no wagers that the system would go down. Now all she asks is for the medical care she needs to avoid dying, to keep her home, and to feed and cloth her son.
Senator Obama, please bail out Lori out before you bail out the wealthy.
I especially like the Swedish model above. But what he gets wrong is asking Obama for help. As Dennis Bernstein has reported, Obama’s finance chair, Penny Pritzger is responsible for the sub-prime mortgage crisis in the first place. Here is a bit of Berstein’s investigative piece:
the 1,406 people who lost much of their life savings when Superior Bank of Chicago went belly up in 2001 with over $1 billion in insured and uninsured deposits. This collapse came amid harsh criticism of how Superior’s owners promoted sub-prime home mortgages. As part of a settlement, the owners paid $100 million and agreed to pay another $335 million over 15 years at no interest.
The uninsured depositors were dealt another blow recently when the U.S. Supreme Court let stand a lower court decision to put any recovered money toward the debt that the bank owners owe the federal government before the depositors get anything.
But this seven-year-old bank failure has relevance in another way today, since the chair of Superior’s board for five years was Penny Pritzker, a member of one of America’s richest families and the current Finance Chair for the presidential campaign of Barack Obama, the same candidate who has lashed out against predatory lending.
But what is really interest is the sort of creative protesting that took place in the U.S. like Buy My S*&^pile, which asks people to post online or bring possessions they no longer want and then ask the government to bail them out, too. Journalist Arun Gupta apparently sent around an email that mushroomed into a protest that included this “cash for trash” action.
As I go on and on about the U.S. economy, what is really worrying me is the situation of poor people. In the U.S., yes, but here, too. I wrote this week about the situation in the Palestinian Nahr el Bared refugee camp in Lebanon. There was a rather ridiculous article in the Guardian about UNRWA’s fiscal crisis by Leila Shahid that wonders why money from Arab governments is not forthcoming. What Shahid should be doing is first contextualizing the problem: Arab governments like the United Arab Emirates and Jordan assisted the Lebanese government’s war on Nahr el Bared in the summer of 2007. Second, she should be aware that Palestinian refugees, whether they are from Nahr el Bared or any other camp in any country, will clearly tell you that UNRWA is part of the problem. That is not to say that UNRWA should not be given proper funds to ensure the well being of Palestinian refugees who rely on their services. But what about getting to the root of the problem? Like the economic crisis, the root of the problem is decades of corporate welfare. Ending that could be one step in a long-term solution. Likewise, a solution that asked Arab governments not for charity handouts, but some real solidarity working to help Palestinians achieve their right of return to Palestine would be a far more helpful solution. Rather than colluding with the Zionist state, for instance, on economic or political levels, these countries could revive the Arab boycott of Israel.
Here in Palestine, an economic, military, social, and political siege is making a normal Eid al Fitr holiday impossible. As I reported earlier, we are under full closure. Families are separated from one another and cannot celebrate together. Moreover, a new UN report shows that there is an increase in checkpoints throughout the West Bank:
The United Nations Office for the Coordination of Humanitarian Affairs reported that the Israeli army installed 19 news barriers since April this year and thus increasing the number of roadblock to 630 including 93 checkpoints used for full search.
Several international countries practiced pressure on Israel to ease the restrictions on movement in the occupied West Bank as currently a 20 minute trip could take up to several hours and in some cases would be impossible.
The UN added that three-quarters of the main roads which lead to the main eighteen Palestinian cities and towns are either sealed or fully controlled by the army.
The UN also said that this percentage indicates 3% or nineteen more obstacles that the Palestinians have to face on daily basis. This number does not include 69 obstacles and barriers under full Israeli control in the southern West Bank city of Hebron.
And in the midst of these economic, political, social woes, the U.S. government just approved a $15.2 billion dollar deal to allow Lockheed Martin to sell Israeli Terrorist Forces (ITF) new fighter jets. I’m not really sure why the U.S. government needs to approve the deal. Given the increasing fusion of the U.S. and Israel to help the Zionist state become the 51st state. For instance, since when does Congress take off for a Jewish holiday? Notice, of course, they don’t say anything about taking off for Eid, though there is at least one Muslim congressman. What about separation between church and state?
Other disturbing news masked as “good” news–the Zionists are great at this, by the way, they love to try to make it seem like they are really interested in humanity, in people, but really there is no difference here between one weapon littering the land and people of Lebanon (or elsewhere) and another:
Defense officials say army will switch to local-made M-85 bombs in order to limit civilian casualties such as those caused during and after Second Lebanon War, in which ‘we were relying on arsenal of American ordnance likely to produce duds’
Israel has cut purchases of US-made cluster bombs, defense officials said on Tuesday, stocking up on supplies of M-85 bombs from the state-owned Israeli Military Industries (IMI). The report has not yet been confirmed by the IDF.
the Second Lebanon War, thus assuaging worldwide criticism heaped on the State over the issue. More than 100 countries have banned the bombs because of their impreciseness.
This is one reason why, although I support activism to ban cluster bombs, I also find it problematic as if other bombs are any less destructive, lethal, murderous.
The Palestine Liberation Organization cannot win dismissal of a lawsuit by victims of bombings in Israel by claiming the attacks were acts of war rather than terrorism, a judge ruled Tuesday.
US District Judge George Daniels said the 2004 lawsuit on behalf of victims and their families can proceed toward trial. It seeks up to $3 billion in damages from attacks between January 2001 and February 2004.
Let’s contrast this for a moment with the lawsuit that Cindy and Craig Corrie attempted to sue for the ITF usage of a Caterpillar bulldozer to murder their daughter, Rachel Corrie, along with numerous of Palestinian families who have been murdered by these bulldozers and had their homes destroyed by them. Cindy and Craig Corrie explain:
Meanwhile, we are still asking our government for a US-led investigation into Rachel’s killing. The US state department is on record saying that the report of the Israeli military police does not reflect an investigation that was “thorough, credible and transparent”, despite that being promised to President Bush by Ariel Sharon. In March we initiated a lawsuit against the Israel Defence Force and the government of Israel, to seek justice for Rachel and also information. We still would like to know what happened on March 16 2003, and why the international eyewitness reports differ so radically from the statements of the soldiers involved.
Unfortunately, the Israeli parliament, counter to international law, has passed retroactive legislation making it impossible for most Palestinians and others to file suit against the IDF for injury that occurred in the occupied territories after September 2000.
In the US we have taken legal action against Caterpillar Inc, which manufactured the D-9R bulldozer which killed Rachel. Under existing US law, corporations can be, and are being, held responsible when they knowingly continue to provide goods and services that are used in a pattern of human-rights violations.
Corrie et al vs. Caterpillar then proceeded to the appellate level, before the Ninth Circuit. Just before the Court was set to issue its ruling, the Government weighed in on the matter with a late amicus brief — standing with Caterpillar, and against the Corrie plaintiffs. In the brief, the US first stooped to argue that there should be no liability for aiding and abetting human rights violations under the statutes germane to this suit, namely the Alien Torts Statute of 1789, and the Torture Victims Protection Act of 1992. (These Acts are part of the foundation of individuals’ access to US courts in cases of human rights violations.)
Then, in the same brief, the government declared (without submitting evidence) that it had reimbursed Israel for the cost of the bulldozers. Therefore, went its argument, to hold the company liable would be to implicate US foreign policy itself in criminal violations. Foreign policy being the prerogative largely of the Executive branch, the Court lacked jurisdiction. To hear the case would be a breach of the separation of powers.
Incredibly, the Ninth Circuit embraced this “foreign policy” argument, and in September, 2007 affirmed the dismissal of the suit.
These difference between these two lawsuits is obvious. This is one of the many reasons why there is a boycott campaign against Caterpillar.