Against the Current, No. 145, March/
The Politics of Inverted Fear
— The Editors
Race & Class: Obama Forgets Black Community
— Malik Miah
Lost Liberties in the Age of Obama
— Michael Steven Smith
A Year of Banking Bailout
— Nomi Prins
The Crisis and the Potential
— Kim Moody
Gaza Freedom March Blocked
— an interview with Kim Redigan
Haiti, Imperialist Disaster
— David Finkel
Washington's Magical Realism
— Saul Landau & Nelson Valdes
Washington's Post-Cold War Coup
— Dianne Feeley
Resistance with the Scent of a Woman
— Alicia Reyes
Guatemala Coup Fails
— Dianne Feeley
- California Crisis Hits, Fightback Erupts
Questions for a New Movement
— Adam Dylan Hefty
After the Wheeler Occupation
— Zachary Levenson
The Cuts and the Fightback
— Tanya Smith
AFSCME 3299 Fights Back
— Kathryn Lybarger
The Save Public Education Fightback
— Claudette Begin
Solidarity Alliance: A Call to Action
— Claudette Begin
Celebrating the Past--the Legacy of the Free Speech Movement
— Gretchen Lipow
- Gender, Sexuality & Liberation
Sex & Iran's Upstoppable Resistance
— Catherine Sameh
Fighting Fires & Breaking Barriers
— Kate Flynn
Gay Marriage: End of the World?
— Chloe Tribich
Forging Change, Breaking Chains
— George Lipsitz
Labor at War or in the Tank?
— Paul Buhle
Noam Chomsky: Moral & Social Thinker
— Michael A. McCarthy & Glen Pine
- In Memoriam
Dennis Brutus: Honored by the Enemies He Kept
— Patrick Bond & Ashwin Desai
Daniel Bensaïd: The Power of Indignation
— Michael Löwy
Lester Rodney: The Long Ball Hitter
— Frank Fried
WELCOME TO WHAT to what I call the Second Great Bank Depression. Why that name? Because this period of economic chaos, loss, and global financial destruction was manufactured by the men who shaped the banking sector.
The deluge of money pouring from all orifices of Washington into the banks gives tacit approval to the backward culture of banking — a world based on crazy compensation, counterproductive competition, and loosely regulated practices and laws. Yet it was all pushed by a select group of Wall Street power players, who move back and forth with all too much ease between our nation’s capital and the gilded realm of finance.
If it seems as if the culture of Goldman Sachs pervades the halls of Washington, that’s because the people of Goldman Sachs pervade the halls of Washington. That’s why, despite all the talk in Washington about reforming the system, the same execs who orchestrated its failures were the ones hobnobbing with the political leaders of both the Bush and the Obama administrations. In fact, Obama is even closer to the financial execs than Bush was. In early spring of 2009, Obama called a meeting with Wall Street’s heads to ask them to accept responsibility for causing the crisis and to commit to helping mitigate it. As if that admission would change the rules of their game.
That’s why we still have a bizarre and misplaced faith that huge corporations — which are designed for the sole purpose of making profits — are somehow able to act ethically and restrain themselves. That’s why the Federal Reserve continues to operate in cloak-and-dagger mode, after it covertly and easily orchestrated the largest transfer of wealth from the American people to the banking system in the nation’s history.
That’s why, as Henry M. Paulson left his treasury secretary post on January 20, 2009, he concluded that most of his “major decisions were right” — despite all of the losses that the banks had racked up and all of the lives that were hurt as a result.
President Obama’s treasury secretary, Timothy F. Geithner, built on Paulson’s bailout notions when he had every opportunity to behave differently. The plan that Geithner first announced in a February 10, 2009 speech and unveiled in more detail six weeks later on March 23, 2009, underscored the mentality of Washington’s disconnect from the public and attachment to Big Finance. The strategy he came up with to “fix” the financial system was to ask its most reckless and opaque companies — the ones that shirked the most taxes and took the most selfish and irresponsible risks — to buy up Wall Street’s junkiest assets in order to rid the system of its own clutter.
The worst part? The government would front them most of the money to do it. By summer of 2009, the price tag for the federal government’s bailout of the banks (including all federal loans, capital injections, and government loan guarantees) stood at approximately $13.3 trillion, roughly dividing into $7.6 trillion from the Fed, $2.5 trillion from the Treasury (not including additional interest payments), $1.5 trillion from the FDIC (including a $1.4 trillion Temporary Liquidity Guarantee program [TLGP] initiated in October 2008 to help banks continue to provide lending to consumers), a $1.4 trillion joint effort and a $300 billion housing bill.
This number is so huge, it is almost meaningless. But by comparison, $13.3 trillion is more money than the combined costs of every major U.S. war (including the American Revolution, the War of 1812, the Civil War, the Spanish-American War, World War I, World War II, Korea, Vietnam, Iraq, and Afghanistan), whose total price tag, adjusted for inflation, is $7.2 trillion. Plus, according to Olivier Garret, the CEO of Casey Research, who studied this war-versus-bank-bailout comparison, “World War II was financed by savings, the American people’s savings, when Americans bought war bonds today, families are in debt and the government is in debt.” Lots and lots of debt.
Meanwhile, $50 trillion in global wealth was erased between September 2007 and March 2009, including $7 trillion in the U.S. stock market and $6 trillion in the housing market. In addition, the total amount of retirement and household wealth trashed was $7.5 trillion in pension plans and household portfolios, $2.0 trillion in lost income in 401(k)s and individual retirement accounts (IRAs), $1.9 trillion in traditional defined-benefit plans, and $3.6 trillion in nonpension assets. Job losses, too, have skyrocketed. Between January 2008 and June 2009, the number of unemployed Americans rose from 7.5 to 14.7 million. The unemployment rate shot from 4.8 to 9.5%.
So, reckless banking practices cost the world $65 trillion in losses, plus $13 trillion in various forms of bailout, a total of $78 trillion — and we still have no clue what losses continue to fester in the industry. Stress tests administered by the government and concocted by the industry indicated that ten banks in the United States were short $75 billion in capital, which Treasury Secretary Timothy Geithner declared “reassuring.” I don’t buy that — not the reassuring bit, or that with another $75 billion in capital, the industry will be stabilized.
Even while banks were getting bailed out, their bad loans increased. According to a March 2009 report put out jointly by MSNBC.com and the Investigative Reporting Workshop at American University, which followed 8,198 banks over the two-year period from the beginning of 2007 through the end of 2008, the total amount of troubled assets rose to $235.3 billion by the end of 2008, from $94.62 billion a year earlier, an increase of 149%. Nearly 71% of the banks had a higher troubled-asset ratio at the end of 2008 than they did in 2007. Only 1,974 banks, or 24%, had fewer troubled assets.
During the first quarter of 2009, the amount of delinquent or defaulting bank loans increased by another 22%. And six out of ten banks were less prepared to sustain further loan losses than they had been during the end of 2008.
What do all of these disheartening statistics mean? They mean that the bailout is not working. They mean that our government is trying to sustain fundamentally flawed institutions, ignoring a system that is itself fundamentally flawed.
ATC 145, March-April 2010