Sat Sep 20th, 2008 at 03:11:17 PM EST
Crossposted on DailyKos at http://www.dailykos.com/story/2008/9/20/143821/377
In an extraordinarily important article today The Constitutional Moment Arrives, Stirling Newberry observes that
The key question is this: the American tax payers just bought the banking system. We are going to pay, with interest, upwards of three trillion dollars for it. A relative bargain actually. The question is what we are going to do with it now that we own it.
To fully understand this moment and its historic proportions, Stirling explains, it is important to understand that this is not really a financial crisis or economic crisis, though those are the most identifiable manifestations of the crisis. It is first and foremost a political crisis, a fundamental crisis of the American constitutional order. To understand this you will probably have to read a number of Stirling's articles, but you will get a little sense of it in the exceprt below from The Constitutional Moment Arrives:
The problem is political. Having a sensible fiscal regime half the time, and the other half a criminal plundering of the treasury under corrupt cronyism, is not sustainable. The political problem is a vicious circle. With each failure to hold those in power accountable, they grow wealthier, and thus harder to ignore in the body politic. The malefactors of great wealth are not only too big to fail, they are too rich to prosecute. And with each failure to prosecute, they grow richer. Name one high official of this administration that will see the inside of a prison cell. Are the CEOs of the failed banks going to spend the rest of their days lighting cheap gas stoves with matches begged from the corner store? I think not.
While a better economic theory is needed, and would point the obvious way out of this crisis, no economic theory will suffice if the underlying political infirmity is not addressed.
What then is the source of this crisis? It is relatively simple. The United States has an economy which uses the development of land as the basis for money. At the time this system was created, America had unexploited oil reserves, unexploited land, and untouched reserves of labor and capital. The trick was to convert raw oil and land, into demand that would turn the factories. This, in turn, meant creating an incentive for those who ran the factories, and the ability to direct the national effort.
In the 1970's we reached the limits of domestic oil production. The liberal movement was unable to create a different direction, and America entered a neo-conservative era, whose mandate was to keep the land casino churning, regardless of how. This led to the creation of the paper for oil economy. The trick being to constantly create new ways of inflating paper, to buy oil.
This provides the substantial outlines of why I assert that the system itself is the problem. The real purpose of the present bailout, Stirling points out, is not really saving the financial system, per se, but actually preventing control of the financial system being bought from U.S. elites by the foreign holders of trillions of U.S. dollars. If you read only one thing this weekend, The Constitutional Moment Arrives should be it.
Regarding the sudden appearance and adoption of the Resolution Trust Corp. idea, Stirling dismisses it out of hand, but following some links lead to a more substantial discrediting of the idea This Federal Bailout Proposal is a Disaster:
Why should we have to pay a trillion dollars of our own money to save the asses of bankers who already made a killing from these loans? Now, they get to unload all of their "toxic assets," as Paulson is calling it, on us. Who in their right mind would support that?
Wall Street is ecstatic. The market is through the roof right now because they can't believe they got such a good deal. Understand this is not an isolated bailout here and there. The Treasury Secretary just said he is going to take ALL of their bad loans off their hands. Why wouldn't they be elated?
The Bush administration and the Republicans (especially Phil Gramm) pushed for deregulation that allowed for, and almost encouraged, these mistakes. Now, the guys who told us they didn't believe in big government are going to send in big government to pick up the tab. Privatize the profits, socialize the debts. We have been robbed!
In another excellent article he wrote the day before, A National Commonwealth
, Stirling pointed out that my idea of just letting Wall Street burn was not a solution, and advocated instead that we just keep going and nationalize the entire financial system. A shocking idea at first, but then you realize the shock has been inculcated by decades of dominance by the radical "free market" economics of Milton Friedman, Margaret Thatcher, Ronald Reagan, and so on. We just need to drop the fiction that the nationalization of Freddie Mac, Fannie Mae, AIG, and soon many other institutions, is a temporary "bail out." By nationalizing the financial system, we directly attack the problem of how to get the financial system to actually invest in what is required to achieve national goals, such as transforming the economy off its dependence on fossil fuels.
As Stirling wrote at the end of A National Commonwealth:
The Liberal Democracy is dead; its fundamental agreements are broken. We are now facing a crisis in which institutions are corrupted and the implied bargain not go beyond certain bounds is being violated by the very people who opposed it, requiring a yet broader mandate of government. What can and must follow the Liberal Democracy is a National Commonwealth, which by removing old intermediaries directly bonds the citizenry with the government, because the citizenry are directly responsible for the debts that that government has taken on. If pride of ownership is to mean anything, then it is applicable here: Americans must see themselves, not as adversaries of their government, but as owners of it.