Alan Grayson Meets Joshua Holland, Part II: The GOP Economic Agenda All Comes Down To Crony Capitalism
Last month Alan Grayson wrote a note called "The Myths That Are Killing Us"-- the hard myths that no Republicans, and very few Democrats, ever challenge. this was his list:
1. The Government can't create jobs. (Tell that to FDR, who created four million jobs in three months.)
2. Tax cuts reduce the deficit. (Doesn't it bother them that a man named "Laffer" came up with this one?)
3. A fetus is a baby.
4. The poor have too much money.
5. Cutting the federal deficit will end the recession.
6. The rich are incentivized by tax cuts, while the poor are incentivized by lower wages, no benefits, an end to the minimum wage, and unemployment.
7. An unwanted child is God's will.
8. Everyone who wants health insurance has it.
9. The problem with education is the teachers.
10. The "free market" satisfies every human need.
11. There is no discrimination in America anymore.
12. The distribution of wealth and income are irrelevant.
He got a lot of comments and suggestions from his supporters and last week he sent out an e-mail with the crowd-sources follow-up list-- 20 more destructive myths:
1. One gender is better than the other, one race is superior to all others, and there is only one true religion.
2. You can get any medical treatment that you need, for free, in any hospital emergency room.
3. Ronald Reagan won the Cold War.
4. The environment can protect itself.
5. It is better for America to be feared than loved.
6. Only the wealthy create jobs.
7. America is a Christian nation.
8. Human beings are not the cause of climate change.
9. Minority women have children in order to qualify for welfare.
10. President Obama wants to take away our guns.
11. The more we spend on the military, the safer we are.
12. Corporations use tax cuts to hire people.
13. The unemployed are lazy and stupid.
14. Rich people are smarter than everyone else.
15. We will never run out of oil.
16. Invading foreign countries wins hearts and minds.
17. Science is a matter of opinion.
18. Instigating unnecessary wars shows your support for the troops.
19. Corporations are people.
20. Money is speech.
"Every one of these myths," wrote Grayson, "is fascinating in its own right. You could write a whole book about each one." And, as we saw when Alan released his first list almost exactly one month ago to the day. Joshua Holland pretty much already has, The Fifteen Biggest Lies About The Economy. Early in his book Holland tackled the package of right-wing myths about the efficacy of a so-called "free market" and how it would just thrive without government interference. Let me cut right to his concluding section.
If anyone truly believed that the U.S. economy bore even a vague resemblance to a free market, surely the multibillion-dollar bailouts that Wall Street has enjoyed since the collapse of the debt-backed securities market came as an eye-opener. According to market theory, businesses that are poorly run-- that take stupid risks-- should crash and burn, and their workers, equipment, and capital are supposed to end up being absorbed by more productive enterprises.
In the lead-up to the crash, the giants of Wall Street-- having relentlessly pushed for deregulation of the finance sector-- thought that they’d stumbled across a formula for making securities backed by very risky loans risk-free. With the housing market booming through 2007, they figured they had a cash cow-- that they could sit back and collect endless fees for putting together these shady securities. They told mortgage lenders that they’d buy up any loan the lenders could generate. This led to the creation of things such as “liar loans”: mortgages that didn’t require borrowers to prove that they in fact earned $100,000 a year at their $35,000 jobs.
Then everything went south in the housing market, as it was clear to some people that it inevitably would (a “bubble,” after all, is when asset values rise well beyond what the laws of supply and demand would dictate). Yet despite the fact that the banks had lauded the power of “free markets” to correct themselves when lobbying for deregulation for years, when their businesses were threatened they didn’t dream of taking their lumps according to the model. They screamed that they were too big to fail and turned to the taxpayers for a lifeline.
Even if we accept the logic that these big institutions’ sudden collapse would have sent the United States-- and the world-- into another Great Depression, there were still a number of ways that federal officials could have intervened. The most “free market” thing to do would have been to seize the insolvent banks, liquidate their bad holdings in an orderly manner, and then return them, smaller, leaner, and more focused on their core business-- lending and holding deposits-- to the private sector. This would have wiped out the investors who took a risk buying shares in the banks and the management that had driven the financial sector into the ground and also would have come at a considerably lower price to Dick and Jane Taxpayer.
That happened to a degree in the United Kingdom, where British taxpayers’ cash earned them a controlling interest in the banks they bailed out. In the United States, however, the bailout-- under the guidance of former Goldman Sachs CEO Henry Paulsen-- was designed to leave those who had invested in Wall Street’s ailing financial giants unharmed. Paulsen injected $10 billion into Goldman Sachs, twice as much as super-investor Warren Buffet did, but the U.S. taxpayers got a quarter of the value that Buffet received in exchange. According to Simon Johnson, the former chief economist for the International Monetary Fund, Paulson’s bailout deals gave taxpayers less potential for profit when the banks recovered than shareholders such as Goldman Sachs chief executive officer Lloyd Blankfein and Saudi Arabian prince Alwaleed bin Talal, the owner of 4 percent of Citigroup Inc. Johnson called the transactions “just egregious.”
How could such a thing happen, when both Democrats and Republicans supposedly embrace the free market? As the Washington Post reported, “An army of accountants, financial advisers, asset managers, lobbyists and others descend[ed] on Washington as part of the government’s attempts to rescue the economy and bail out industries.” In the last quarter of 2008 and the first of 2009, the top twenty-one recipients of bailout funds spent a whopping $18 million lobbying Congress. And according to a report by Public Citizen, “Lobbyists, political action committees (PACs) and trade associations tied to the banks receiving the most federal bailout money [had] scheduled 70 fundraisers for members of Congress” in the eight months following the 2008 elections.
With the helpful “guidance” of an army of lobbyists from Big Finance, the government decided to prop up the ailing banks with a bailout, rather than liquidating them. So the taxpayers took a big chunk of the dubious mortgage-backed paper off the banks’ hands. The feds bought some directly, and they put the U.S. government on the hook for much more by offering guarantees on some dubious securities. This was because without guarantees, the mortgage-backed paper on the banks’ books was impossible to sell, and they couldn’t lend money until they got at least a portion of it cleared.
So, who bought these shady assets, now backed in part by the full faith and credit of the United States of America? Investors, among whom were the very banks that we had to rescue because they were “too big to fail.” According to Bloomberg, “Of the seven biggest owners of residential mortgage-backed securities, only San Francisco–based Wells Fargo & Co. reduced holdings of the debt on its trading book.” The rest added more of the paper to their books. Why? Because they knew there would be people who would buy these securities as long as the taxpayers had a piece of the downside risk. “Anytime people know there’s a buyer coming, they position for that, and that’s clearly what happened here,” Steven Kuhn, the comanager of the Nisswa Fixed Income Fund, told Bloomberg.
Now here comes the fun part. The prices of those dubious securities could well tank again, leaving the banks exposed to losses despite the bailout. “It’s a trade that will likely work out, but it’s still a speculative trade, which is not what a taxpayer should want from firms that have only recently come out of critical care,” said Joshua Rosner, a managing director at New York–based Graham Fisher & Co. So, if it works out, Wall Street stands to make a bundle. And if it doesn’t... would the banks again be deemed too big to fail?
The bailouts were the most visible evidence that the biggest players in fact have a firm grip on the “free market” in the United States. They represented the height of crony capitalism-- of socializing risk while privatizing profits, a perverse reverse socialism that protected the most comfortable among us. And the ultimate punch line is that this was a program designed by people whom the Washington Post’s Peter Whoriskey called the “most ardent disciples of free-market principles.”
Yesterday Republican Budget Chairman Paul Ryan, the Wisconsin Ayn Rand character leading the charge for a Law of the Jungle social order, sheepishly went on national TV to whine to George Stephanopoulos about the furor he causes when he called the Pentagon a pack of liars. Frightened that his disintegrating approval ratings in his own congressional district would take a dangerous hit, he whimpered, "I totally misspoke [dude]." Did he also misspeak when he went out swinging late in 2008, at the bitter end of the Bush Regime, after the TARP Wall Street bailout had failed in the House, to work with Boehner and Cantor to change enough GOP votes so that it would pass on the second round? And now he's back, leading the House GOP further astray with a budget-- "dangerous right-wing social engineering" in the words of one former dangerous right-wing House Speaker-- that would devastate our country beyond anything the Great Depression ever did.