[Marxism] Bailout means more poverty, poorer health for working people

["Fred Feldman" <ffeldman@xxxxxxxxxxxxxxxx>]

http://www.thenation.com/doc/20081006/howl/print

The Mother of All Bailouts
Howl
By Nicholas von Hoffman

September 19, 2008
Shortly after the stock market opened Friday morning, Treasury Secretary
Henry Paulson told the world that he and important members of Congress would
be meeting over the weekend to perfect a piece of legislation which will
execute decisive action to fundamentally and comprehensively address the
root cause of our financial system's stresses.
      
Paulson has been functioning as the nation's first emergency finance
commissar. It is a new role for an American public official, and as such he
may want to reach out to Moscow to tap the experience of one or two ancient
apparatchiks who once labored in the Gosplan building. Gosplanners are
remembered for their fundamental and comprehensive plans for the Soviet
economy. 

The center of Mr. Root Cause's proposals is the Big Bailout. The government
will buy the worthless bonds owned by Wall Street. Paulson explained that
the federal government must implement a program to remove these illiquid
assets that are weighing down our financial institutions and threatening our
economy. 

As for costs, he said no more than that it will involve a significant
investment of taxpayer dollars. A better adjective than "significant" might
be "staggering." The economic tar pit is so deep and so sticky it may be
necessary to sacrifice wildlife programs, preschool education and scientific
research. Even without knowing the numbers, we can kiss health insurance
goodbye. If and when Obama gets in, he will discover the cupboard is bare. 

Paulson's hope is that by relieving the foolish financial institutions of
the bad loans they should not have made in the first place, money will flow
into real estate again and prices will rise. If prices rise on housing,
prices will rise on mortgage-backed bonds and our leaky ship of finance will
be refloated. 

Boiled his plan down to its essentials, Paulson is hoping these
manipulations will put a floor on the real estate and bond markets. The
other name for what he is attempting is price controls. 

Price controls are usually thought of as an attempt to prevent prices from
going up, but controls can work the other way, too. In the early years of
the New Deal, President Franklin Roosevelt tried to drive prices up by
various schemes, which did not work. Similar efforts over the last 2,000
years have had a dismal record. 

Real estate prices will start rising when people have the income to buy
houses again. So far, Paulson has not addressed how individual homeowners
are going to make enough money to meet their mortgage obligations. The
Secretary's approach is top-down, although the housing market, upon which
all depends, is a bottom-up activity. 

Paulson is concentrating his rescue efforts on saving Wall Street's
wooly-mammoth institutions. That they may be too big, too expensive, too
cumbersome and too out-of-date are topics for another time. 

Regardless, the men and women who are designing the bailout to end all
bailouts have economic interests in how it is done. Paulson is a former head
of Goldman Sachs, which is under the gun; Democrats, too, have more than a
buck at stake. Nancy Pelosi has a quarter-of-a-million-dollars' worth of AIG
stock. John Kerry's wife has more than $2 million. 

Officials made two other announcements Friday. The government would
guarantee deposits in money market accounts. From 1911 to 1966, the US
government ran a money market fund through the Post Office, in which people
could keep their savings and sleep at night. US Postal Savings was closed
because the private sector did not want the competition. Ah, well. 

The second announcement was the suspension of short sales on 799 financial
stocks. (A short sale is a hedge against the price of a stock going
down--put another way, a bet that it will.) Whenever things go bad in high
finance, short sellers are blamed. It's the business equivalent of finding
an innocent old lady and burning her as a witch. The auto-da-fe makes those
wielding the flaming brands feel better, but will not necessarily improve
the situation. 

Paulson's moves sent the stock market into delirium, but delirium is a form
of hysteria. In the present climate of despair alternating with crazed joy,
the market will continue to behave as though stricken with St. Vitus dance. 

John Bogle, the well-regarded Wall Streeter who founded the Vanguard Fund,
may have had it right when he said, "The government seems punch drunk. It
doesn't seem systematic.... We're playing a game of casino capitalism. " 

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About Nicholas von Hoffman
Nicholas von Hoffman is the author of A Devil's Dictionary of Business, now
in paperback. He is a Pulitzer Prize losing author of thirteen books,
including Citizen Cohn, and a columnist for the New York Observer. more... 



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