And it just gets worse for George Bush’s ‘democratic capitalism’, the political and economic system that he last week described as the ‘best system’ the world had ever seen.
Today the US House rejected Treasury Secretary Paulson's $700 billion Emergency Economic Stabilization Act of 2008. Paulson claimed he had the votes but he’s been clearly making it up as he goes along. The House rejected Paulson's claim that buying up the bad assets from America’s banks would be enough to save the financial system from meltdown.
And just to make matters worse for ‘democratic capitalism’, the conflagration has now spread to Europe. Its political leaders had assumed they could manage the Wall Street mess, but the situation has worsened. Over the weekend three more struggling European banks were bailed out by their governments.
Paulson’s bill is seriously flawed. As Mike Whitney of Counterpunch writes:
'Paulson's bill was designed to avert a system-wide crash by clearing the banks' balance sheets so they could resume extending credit to consumers and businesses. The hope was that massive infusion of capital would "turn back the clock" to the happy days of low interest speculation and bubble economics. Paulson is a "one trick pony" who firmly adheres to the belief that wealth creation depends on maximum leverage and an ever-weakening currency. But that world view is no longer applicable after reaching Peak Credit, where consumers are no longer able to make the interest payments on their loans and businesses and financial institutions are forced to curb their spending and dump their toxic assets at firesale prices. The system is deleveraging and nothing can stop it. Paulson has yet to accept the new reality.'
Whitney also points out that there is no guarantee that Wall Street will use the money the way Paulsen hopes. The probability is that Wall Street will simply use the money to prop up share prices so that it can manage the damage while they offload the shares. The broader American economy and working class Americans paying for all this will get nothing.
Indeed the evidence is that the Paulsen scheme won’t work – and it is simply a way for Paulsen’s Wall Street cronies to extricate themselves from the mess they created in the first place.
While the American economy is clearly heading into a serious recession – and watch it impact on the New Zealand economy, folks – there is no certainty that a far bleaker future is not on the horizon.
Privately, leading Republicans within the Bush Administration are telling journalists that the economy is in meltdown and falls as high as 4000 points could be seen on the Dow Jones. This is a capitalist meltdown of epic proportions.
The public backlash against the Paulson bill continues to grow which has added to the panic in Congress – especially with an election looming.
The Democratic senator Dennis Kucinich gave voice to that anger when he said:
"The $700 bailout bill is being driven by fear not fact. This is too much money, in too short of time, going to too few people, while too many questions remain unanswered. Why aren't we having hearings…Why aren't we considering any other alternatives other than giving $700 billion to Wall Street? Why aren't we passing new laws to stop the speculation which triggered this? Why aren't we putting up new regulatory structures to protect the investors? Why aren't we directly helping homeowners with their debt burdens? Why aren't we helping American families faced with bankruptcy? Isn't time for fundamental change to our debt-based monetary system so we can free ourselves from the manipulation of the Federal Reserve and the banks? Is this the US Congress or the Board of Directors of Goldman Sachs?"
It’s a pity that Barack Obama isn’t voicing similar sentiments. Despite the rhetoric, Obama is following a similar pro-Wall Street line as his Republican counterparts.
Indeed the Democrats and the Republicans, despite massive public opposition, are still protecting Wall Street while pretending it is in the ‘national interest’. Of course these Wall Street bankers and speculators are the very same people who have donated millions to the Obama and McCain election campaigns.