Lawrence.com

Posted by Dave Strano October 3, 2008 at 2:49 p.m.

The rich get bailed out, the rest of us get bailed on.

While skimming through the news of the signing of the unprecedented $700 billion bailout package by President Bush, one quote from a [CNN news story][1] grabbed me.Just an hour after the bill made it's way through the House, President Bush announced, "By coming together on this legislation, we have acted boldly to prevent the crisis on Wall Street from becoming a crisis in communities across our country."This quote stings quite a bit with me, and I have a feeling it will sting quite a bit with many people across the country. Call me crazy, but I feel like this current economic situation has been a crisis for communities across the country for months, if not years. At the same time this quote was making its way across the ticker on CNN, another story was being aired about a woman named [Addie Polk.][2] Addie, a 90 year old woman that became a victim of the current credit and sub prime mortgage crisis and was facing foreclosure, shot herself as police tried to carry out her eviction from her home in Akron, Ohio. For every Citigroup executive that will benefit from the bailout package that became law last Friday, there are thousands of Addie Polks facing evictions, unemployment, and the looming threat of homelessness. The cracks in the foundations of the capitalist economy are spreading wider and wider everyday.Today the unemployment rate was holding at a rate of 6.1%, a five year high, while new applications for unemployment compensation are approaching a seven year high. Employers cut 159,000 U.S. jobs in September alone. Up to 10 states may [ run out of funds for unemployment compensation][3] by March of 2009.Over 2 million homeowners faced foreclosure in 2007, and a Credit Suisse research report released in April claimed that nearly 6.5 million home loans would be affected by foreclosure by 2012.The sad truth is that these numbers mean little to most of us anymore. We've heard them all. We know the economy is crumbling. Most of us know folks who have been evicted from their homes. We've personally lost jobs or know friends facing layoffs. The economic crisis is here and has been here for quite some time.To even pretend that this new bailout package will stop the spread of this crisis is a joke. It reimburses banks and corporations that lost money during the last several months of economic spiral. It does not, in anyway help out the rest of us.After the Great Depression, the United States implemented a system of safeguards to ensure that such an economic collapse would not occur again. The main focuses of these safeguards were to protect liquidity (the ease of assets to be converted into cash) and confidence in the U.S. economic system. The government did this in four ways: insuring the bank deposits of Americans, allowing access to government funds in case of a panic, providing a regime for the orderly failure of badly run companies and limiting how much credit could be leveraged off a particular asset.These regulations worked. However, they also started to limit the amount of money that venture capitalists could make off their investments. The ceiling had been reached. To counteract this, in the 1970's, venture capitalists, bankers, investers, and Wall Street collaborated to create a ["shadow banking system"][4] (this has nothing to do with conspiracy theories of shadow governments, I promise.) This banking system ran directly parallel to the official, state-regulated system that most people know.The shadow system relied on nonbank mortgage firms that were not regulated in the same ways as traditional banking institutions. There were no safeguards like insurance on deposits, or any of the other four pillars of government regulation that protected the official banking system.Thus came the creation of subprime mortgages. These mortgages were given to people that wouldn't normally have qualified for such loans. People who had filed for bankruptcy, had low credit scores, etc... people that were considered to be "under banked". Now, this system allowed for people to become homeowners like never before, and allowed what some term a further "democratization" of the banking system. The truth however, is that this was an anomaly that could not survive under neo-liberal capitalism. When the loans started to be defaulted on in record numbers, the entire system collapsed, and with no soft padding like the official banking system.The "free market" failed. Plain and simple. The banking system that avoided regulation and worked to fund itself and build larger profits for Wall Street fell apart. And because it was linked so closely to the official banking system, it is bringing the rest of the economy with it.The heads of corporations like AIG, Citigroup, Goldman-Sachs and others are directly responsible for the shadow banking system and the resulting mini economic crisis (I say "mini" because the actual economic crisis is the entire economic system, [neo-liberal capitalism][5], but we'll come back to that). Now, these same corporations are poised to receive BILLIONS of dollars in U.S. taxpayer money, money you and I worked hard to generate. That money is being given to the people that created this problem in the first place. In fact, some of that money is being spent to directly pay many of the main players in this entire scandal. Former executives of Goldman Sachs are being hired by Treasury Secretary Paulson to oversee the handling of the $700 billion that was allocated by Congress last week. Wait. You might be remembering that Paulson is also a former executive of Goldman Sachs. Our Treasury Secretary is a former executive for a corporation that has helped put us into this financial crisis, and is hiring his former co-executives to "bail us out".Some might think that these folks are the ones who know the most about the U.S. banking system, and so naturally should be given the power to help save this situation. This logic can be equated to saying that although a doctor is known to murder his patients over and over again, that it makes sense since he has a medical degree, to handle the operation to save your life. Would any of us really trust that doctor? Should that doctor be given the power to decide whether we live or die? Should the people who got us into this crisis be paid and rewarded to attempt to get us out of this?There are no guarantees that the Paulson bailout plan can even work, no matter who's deciding how to spend the money. Some economists have used an analogy that really resonates with me. If you were in a building that was on fire because of a shoddy electrical system that was bound to fail and built of construction materials that were easily flammable, and you had a canteen full of water, and this was the only water you had, and you knew you could die without that water, would you pour that small canteen on the fire consuming the whole building around you? The point of this analogy is that the crisis is already out of control. Of course there is an urge to do something, anything to stop the situation from spreading. However, spending $700 billion that we have to borrow in the first place, to stop an economic crisis based on the accumulation of debt and over-lending may not make sense. As Presidential candidate Barack Obama pointed out recently, a lot of funding for education, social programs, healthcare reform, and other projects will be put on hold indefinitely because of this bailout package.Maybe this analogy resonates particularly with me because of my already existing critique of neo-liberal capitalism. It's a building that was built for failure while the developers around us have laughed and counted their wealth. It never should have existed to begin with. It's a system that only makes sense for a select few that have continued to benefit at the expense of the rest of us. Much like the crumbling building that we're now trying to save, it needs to be completely dismantled and replaced with an economic and social infrastructure that actually meets the needs of all of us.The most insidious ramifications of this bailout plan may not even be fully realized yet. As former executives of Goldman Sachs start to hold all the cards for our economic future, three major banking firms are poised to control the entire U.S. economy. Citigroup and JP Morgan Chase along with Goldman Sachs stand to be some of the only solvent financial institutions to emerge from the crisis, and have had a hand in pushing economic reforms in Europe over the last several days that would put them in direct control over most of the world's economy.So where does that leave the rest of us or, as political theorist Antonio Negri describes, the multitude? We can clearly cheer on the government's efforts and hope that the bailout package works. But in the end, even if it does work, where does that really leave us? When will the next economic crisis come? And will daily life improve? Most of us have been living paycheck to paycheck for quite a while, and afraid of losing that roof over our head for even longer. The continued existence of this economic system will not stop that. Neither will it stop wars for resources, poverty, hunger, genocide, worker exploitation, and all the other social illnesses that have developed since the evolutions from agrarian communal economies to feudalism to capitalism and finally to neo-liberalism.And if we cheer on the bailout and it fails? Well, I guess this option is the same whether we act as cheerleaders to the bailout or not. The truth is, as communities, it is far beyond time for us to be thinking about how we're going to survive such a major economic crisis. How will we feed ourselves, ensure our neighbors have housing and clothing, and make sure that we don't end up like the fabled Okies from the "Grapes of Wrath"?Maybe that really is the only option at this point. Thinking about our survival as communities should start to become our top priority and strategy for dealing with this and future economic crises.Since I'm such a fan of analogies all of a sudden I thought I'd close with one. Okay, two. Something that a friend coined today really hit me. While talking about another analogy that Amy Goodman from the radio news program Democracy Now has been using about the bailout, I think he hit the nail right on the head. Amy Goodman equated the economic bailout package to giving a blood transfusion to a patient without first healing the gaping wound where all the blood was flowing out. My friend Tyler grinned and blinked and then said: "It's more like giving a blood transfusion to a wounded arm that has a mind of its own and just keeps stabbing you in the stomach." We could just let the wounded arm of neo-liberal capitalism die, and maybe we'd actually survive. Sure, it will take relearning a lot of things about who we are and how to survive, just as losing an arm would. But at some point, we have to recognize that a gangrenous limb will kill us in the end, and that a life beyond having that arm (insert the word capitalism) is not only possible but necessary. [1]: http://money.cnn.com/2008/10/03/news/economy/house_friday_bailout/index.htm?postversion=2008100309 [2]: http://www.cnn.com/2008/US/10/03/eviction.suicide.attempt/index.html [3]: http://www.cnn.com/2008/US/10/08/jobless.claims/ [4]: http://en.wikipedia.org/wiki/Shadow_b... [5]: http://en.wikipedia.org/wiki/Neoliber...