'Intelligent discontent is the mainspring of civilization.' -- Eugene V. Debs

Wednesday, October 01, 2008

Vote or Die (Part 2) 

From today's New York Times:

Senators Barack Obama and John McCain put their battleground campaigning temporarily on hold and headed to Washington on Wednesday to vote in favor of the $700 billion financial bailout package, the consequences of which will help frame the remainder of the fall presidential race.

Mr. Obama intensified his efforts to rally support for the legislation as he sought to sell the idea to skeptical voters — and members of Congress — by presenting it as a plan to "safeguard the American economy."

"This plan is not perfect.,” Mr. Obama told thousands of people at a downtown rally here, not far from the Mississippi River. “Democrats and Republicans in Congress have legitimate concerns about it. I know many Americans share those concerns, but it is clear that this is what we must do right now to prevent a crisis from turning into a catastrophe."

In a speech in Missouri, Mr. McCain struck a similar tone on Wednesday as he characterized the urgency of the moment, which he called, "the greatest financial crisis of our lifetimes."

"It took Congress a while, and there were costs to these delays, but they have awakened to the danger," Mr. McCain told an audience in Independence, Mo. "And today, with the unity that this crisis demands, Congress will once again work to restore confidence and stability to the American economy."

Public rejection of the bailout is threatening to the presidential candidates for two reasons: (1) it prevents the political parties from fulfilling their responsibility to reinforce the political and economic power of finance capital; and (2) it represents an alarming repudiation of the entire system by which the US economy, and much of the global one, is secretly regulated, through institutions like the Treasury, the Federal Reserve and influential banking houses like Goldman Sachs.

Hence, it becomes essential for the candidates to proselytize for the bailout in a doomed effort to recover the lost prestige of these institutions. Otherwise, their influence will continue to dissipate in relation to their lost revenue and declining asset values. No longer able to justify their economic preeminence upon their centrality in the provision of credit and the incredible amount of capital that it attracted, both of which are now threatening their very survival, they have no recourse but seek a historically unprecedented governmental subsidy in order to preserve it. If it they get it, there is good reason to doubt that it will reverse the painful process of asset destruction caused by the deleveraging and accompanying deflation ignited by the bursting of the housing bubble.

After all, the initiatives undertaken by Paulson, Bernanke and the financial institutions that they regulate, like J.P. Morgan, Goldman, Bank of America and others, have been an abysmal failure in terms of restoring confidence to the financial markets. The release of hundreds of billions of dollars of liquidity through Federal Reserve loans secured by distressed collateralized debt obligations, the arranged marriages of Countrywide/Bank of America, J. P. Morgan/Bear Stearns, J.P. Morgan/Washington Mutual, and, possibly, within in a matter of days, Citicorp/Wachovia, as well as the shocking nationalization of Fannie Mae and Freddie Mac, have merely been signposts along the road leading to the collapse of the neoliberal economic system.

An attempt to soften the consequences of this collapse by voluntarily releasing much of their power as part of a broader, relatively mild reformist strategy of rescuing the lower and middle classes, and thus, constructing a floor to falling demand and asset values, has never been seriously considered, except by a group of liberal House dissidents and earnest economists. Fund a program for the federal government to buy distressed mortgages directly from the borrowers? If the government is going to shell out $700B, wouldn't it be better if the government spent the money to relieve the borrowers of these onerous debts, thus freeing them to resume their role as the consumers who drive much of global economic growth? Permit bankruptcy courts to step into the role formerly played by banks and savings and loans by empowering them to enforce workouts of underwater loans upon lenders, resulting in much the same?

Forget about it. There is no place for pragmatism within the existing American economic orthodoxy. And if conditions deteriorate to an extent not seen since the mid-1970s, or, one shudders to say it, even the 1930s, then, there are always poor people, people of color and undocumented immigrants to blame. The willingness of the mortgage lending community to target the requirements of the Community Reinvestment Act as one of the causes of this crisis is not reassuring in this regard. It suggests that the financial sector will, if no alternative is perceived, manipulate the bigotries of racist and xenophobic elements to resist any progressive assault upon its autonomy.

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