End free market fundamentalism
by Sandhya Jain on 26 Sep 2008 3 Comments

[America is over as a financial superpower; the world financial system will now be multi-polar. Many feel the crisis was caused by Anglo-Saxon greed for double-digit profits and unconscionable bonuses for bankers and company executives - Editor]

The high tide of realism has finally hit Washington. Wall Street’s financial profligacy and lack of accountability and the mythical regulations by the Federal Reserve (itself owned by private bankers through private equity), have finally brought the pigeons home to roost. For America, the party is over – the once sole superpower will no longer be able to flex its muscles with impunity all over the globe, and the rescue of the imploding economy remains a long-term headache for decision-makers on Capitol Hill.


There is fear and hatred amongst ordinary Americans (designated as Main Street by Senator Barack Obama) towards Wall Street, aggravated by Washington’s attempt to railroad a $ 700 billion bailout package through Congress. This would, if passed, transfer the consequences of the sub-prime mortgage and related scandals to ordinary taxpayers, and let the Corporates and Executives responsible for the mess off scot-free.


The elite oligarchy that rules Washington through bipartisan consensus is in disarray, aggravated by the approaching Presidential election. Congress is unwilling to gift $ 700 billion to Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson to do as they please in the name of saving the economy.


Senator Christopher Dodd, chairman of the Senate Banking Committee, opposed the proposal as it gave the government wide latitude to buy piles of bad mortgage-related debt (sub-prime loans to people with shaky credit) which sparked the current crisis over a year ago. By imposing such a huge cost on taxpayers, it totally salvaged the bankers who created the crisis. Senate Majority Leader Harry Reid (D-Nev.) said the Bush administration wanted Congress to rubber-stamp its bailout plans without serious debate or efforts to improve it.


FBI is now investigating Lehman Brothers, Freddie Mac, Fannie Mae, AIG and about 20 other firms for “misinformation” about assets. The American Congress believes many firms rescued by the Government recently are guilty of fraud.


Scurrying for safety, Goldman and Morgan Stanley have metamorphosed into more humble bank holding companies, signalling the end of Wall Street’s awesome financial power. But the Federal salvage plan helped the shares of these banks after Bear Stearns collapsed in March, Lehman Brothers this September, and Merrill Lynch was taken over by the Bank of America. The two mortgage giants at the heart of the sub-prime crisis, Freddie Mac and Fannie Mae, and global insurer AIG, were taken over by the government. Economists warn that despite a new name, Goldman Sachs is still an investment bank, and changing its status to bank holding company means it will have access to the bailout fund which gives it the ability to buy any commercial bank in other states, which it probably will.

Most discord centres around three core issues – the limits on executive compensation at troubled firms, the terms of oversight of the Treasury's management of the bailout, and whether taxpayers would gain an equity stake in companies that benefit from the bailout so that they can share in the firms’ later profits.


The $700 billion bailout plan is now called the Troubled Asset Relief Program (TARP). The first catch is in Section 6, which economist Nomi Prins says, puts taxpayers on the hook for future bailouts: “The Secretary’s authority to purchase mortgage-related assets under this Act shall be limited to $700,000,000,000 outstanding at any one time.” Now, to economists “any one time” means that if everything American taxpayers buy boils down to zero, the Government can buy more. So instead of protecting the taxpayer, $700 billion worth of worthless assets will be purchased!


Senator Byron Dorgan in 1999 voted against the Gramm-Leach-Bliley Act that repealed the financial protections set up after the Great Depression, warning that a “financial swamp” would result from “the casino-like prospect of merging banking with the speculative activity of real estate and securities, and that the bill will raise the likelihood of future massive taxpayer bailouts.” His words proved prophetic. He now warns that the current Treasury proposal “looks to me like a stampede in the wrong direction…to reward the very people on Wall Street who created this mess, and who pocketed more than $100 billion over the last several years making it.”


There are good reasons for Americans to distrust the White House plea to give unelected Treasury Secretary Henry Paulson power to disburse $700 billion of taxpayer money to any financial institution on his own terms and conditions. Washington also wants Paulson’s power to be exempted from review by any court of law or administrative agency. Why? Something is rotten in American democracy - the White House wants to remove all constitutional checks, legislative control, and judicial review to benefit people who have brought the leading superpower to the level of a Third World economy.


Critics point out that Paulson entered Government via Goldman Sachs where he was paid $16.4 million for heading the company deep in the current financial travesty. If given unfettered control over taxpayer funds, he may pay inflated prices for bogus mortgages and reward his former Wall Street colleagues who created the current mess. Don’t forget how oil executives have screwed up America and much of the world! Unsurprisingly, Paulson is resisting calls for tighter regulations, corporate reforms and limits on executive compensation. He is opposing using a small portion of the bailout package to help homeowners in distress, fortify the social safety net, and stimulate job creation via public infrastructure spending (the FDR way to revive the economy).


The American Model of Governance is a failure. The system which allowed Presidents to induct private sector cronies into the highest echelons of government gave de facto control of the economy, polity, and even foreign policy, to Corporates rather than professionals with accountability. Over time, this eroded all institutions through de facto privatisation of all activities, to the point that even Intelligence gathering has been out-sourced! American government today is truly a headless torso.


All political parties and Presidential candidates are in their clutches. The McCain campaign has nearly 83 staffers who have lobbied for the financial industry, namely for AIG, Lehman Brothers, Merrill Lynch, Fannie Mae, Freddie Mac, Citigroup – the very corporations behind the financial implosion, and which gain from the bailout.


McCain’s economic mentor is Phil Gramm, vice-chairman of the Swiss-based investment bank UBS, which reportedly wrote down over $18 billion in exposure to sub-prime loans and other risky securities and is considering cutting 8000 jobs. As Texas Senator and chairman, Senate Banking Committee, Gramm spearheaded Congress’ radical deregulatory agenda in the 1990s; McCain backed him for president in 1996.


Senator Barack Obama relies on Gramm's boss, UBS chairman Robert Wolf, for economic advice and fund-raising. Five of the nine people in his campaign had a role in the crisis they claim expertise in fixing, namely, former Clinton Treasury Secretaries Robert Rubin (now an executive at Citigroup) and Lawrence Summers, both of whom supported and helped negotiate the bill that repealed the Glass-Steagall Act; William Daley, Clinton administration architect of corporate-friendly trade pacts like NAFTA and now a top official at J.P. Morgan Chase; Gene Sperling, top economic adviser in the Clinton White House that deregulated Wall Street; and Paul O'Neill, former Bush Treasury Secretary.


The Wall Street hustlers are everywhere. India’s rootless elite is increasingly enamoured of the American model – oblivious of its obvious failures – precisely because it wishes to enjoy the benefits of untrammelled power without responsibility. A growing army of corporate lobbyists – abetted by media, bureaucracy, and other fellow travellers – want to distort the polity and the economy for private gain, in the name of higher efficiency. They support appropriation of farmlands for special economic zones, big industry in retail, shopping malls in place of local kirana stores, and privatisation of banks, pension and provident funds - in other words, corporate takeover of the wealth of ordinary people.


As the United States is forced to deconstruct the American Dream, to retrieve governance from the usurious classes, and stop the prostitution of intellectuals before Mammon, this class will feel both orphaned and betrayed. The rest of us will revel in the validation of the Hindu varna system as a hierarchy of values relevant to all ages – brains on top (brahmin), state power on the side (kshatriya), wealth-generators in the middle (vaishya) and the rest of the people all around (shudra). In Hindu India, wealth served the society and the state; a system where wealth subordinates society and state is Asuric, immoral, and destructive of all human values.


The author is editor, www.vijayvaani.com

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