Oct 12, 2008

October 9, 2008: The Party of Darwin, Wall Street Meltdown, Promise of a New Deal

It is one of the delicious ironies of history that the political party most at war with Darwin should, in the end, embrace a bastard form of “Darwinism”. The 'free market' ideology, it is held, recognizes the 'fittest' and rewards them accordingly and, if they should falter in the face of fortune, it is right and proper to come to their aid given that they have demonstrated themselves to be the 'most deserving' among us. It is for this reason that conservatives have been at once so loathe to intervene on behalf of those afflicted and so quick to aid of the comfortable.

It is good, perhaps, that greed has its representation, for not in our lifetime have the comfortable been so afflicted. Yesterday an article in “MSN Money” graphically charted the Wall Street Meltdown. Since October 9, 2007 the Dow Jones Industrial Average had lost 33.3% of its value; the Standard and Poor's 500 index was down 36.35%; the Standard and Poor 100 down 35.10%. The emerging financial emergency has become global in scope as is evident by the 41.83% decline in Japan's Nikkei index since October 11, 2007; the 31.58% decline of the British FTSE 100 since October 12, 2007; and the decline of the German DAX index of 33.76% in the same period.(1) Not since the 1930's have the markets given so much ground. So serious is this that the U.S. Markets alone have lost well over 8 trillion dollars, including over 2 trillion in pension and retirement funds. Nevertheless as we watch the savings of a generation evaporate before our eyes greed continues to win out. This week saw the collapse of Wachovia Bank (known down here as “walk over ya”) and a nasty fight emerge between Citigroup and Wells Fargo Bank over the stinking carcass. This crisis, we are told, is the result of a “liquidity” problem in which banks do not have enough money to lend to other banks or to put out on loans threatening to shut down the economy. Indeed there is emerging anecdotal evidence that this is occurring. Caterpillar Tractor has experienced cash flow problems, Bill Heard, one of the oldest and largest auto dealerships in the Southeast, in business since 1908, closed its doors because it couldn't finance its floor plan, Neptune irrigation in Chicago has gone belly up for the same reason. Yet Wells Fargo could come up with two billion to purchase the failing Wachovia, and Citigroup found 15 Billion to make a counteroffer.

I remember many years ago watching Orrin Hatch (R-Utah) as the ranking member of the Senate Judiciary Committee defend Bill Gates' “right to a monopoly”, not understanding that if someone has a monopoly then he “owns” the market. If the market is “owned”, that is it has been “cornered” as we used to say, then it cannot be free. To own the market is to eliminate competition by definition. A market free of competition is no free market at all. Hatch, and his ilk, driven as they are by the ideological imperative, cannot see the implicit contradiction. What disturbs many of us on the outside is watching those “most select”, the very “fittest” as it were, swallow whole their former competitors as they use this crisis to further concentrate wealth and power. This not only gives lie to the myth of the “free market” in that insofar as the market forces are allowed to run free the result is that capital continues to reconfigure itself into fewer hands, but those involved in executing the final coup de grace do so in the sure knowledge that government will come to their rescue should they fail.

We have seen ample evidence of this in our recent past, under the aegis of nominally “conservative” stewardship. The S&L bailout in the late 80's in the wake of Reagan's suspension of rules restricting S&L real estate investments and the ensuing lax supervision of the industry. The Chrysler bailout in the late 70's, and now the bailout of Freddie Mac and Fannie Mae, AIG, and now the entire investment sector of the American economy with this 700 billion dollar “rescue” package passed last week and signed into law by that great “conservative” 'Ol Two-Cows himself. You see these institutions are too big to let them fail. To let the “free market” forces hand these scoundrels their just reward would devastate the rest of the economy.

Indeed Kevin Phillips, in his latest work “Bad Money” makes precisely this point. The investment sector, which composed roughly 7 percent of the national economy in 1960, now comprises nearly a quarter of the Gross National Product.(2) Banking and investments now comprise nearly a quarter of the national economy. For this reason, and this reason alone, a broad consensus was quickly reached to rescue the industry from it's own greed and folly; to save these bankers from themselves.

But deep fissures lie beneath the surface. Three weeks ago after waiting until as mother would say, “the last dog is hung”, the Bush administration sent Treasury Secretary Paulson before the cameras to tell the nation that we were in dire straights. The sub-prime mess had created such a credit problem that the entire economy was due to shut down if Congress did not act immediately. Presenting the Congress with a three page plan, essentially giving the Secretary unlimited control over a 700 billion dollar appropriation, Congress balked. Early that week the Democrats worked with the White House to place oversight and regulatory authority and introduce a modicum of transparency into the measure. Then the Good Marshall of Tombstone announced that he was “suspending” his campaign and marched on Washington playing his best Gary Cooper in “High Noon”. 'Ol Two-Cows, smelling a rat, announced that he would hold a meeting with both presidential candidates which would include congressional leadership, Treasury and Budget officials, and the Chairman of the Federal Reserve. At this meeting, held late in the week, McCain sat silent as Obama rigorously questioned those attending on the nature and scope of the problem and the proposed remedies, finally asking John if he had anything to add. The good Marshall would have us believe that he descended upon Washington and shook things up negotiating in the process a better deal for the people. Indeed it was otherwise.

What had in fact transpired was telling. Obama was given authority by Nancy Pelosi and Harry Reid to speak for the Democrats. McCain arrived speaking only for himself and his campaign. What the crisis revealed was not only the erratic behavior of the senator from Arizona but the deep fissures of the Republican Party. The White House and the Republican caucus in the Senate approved the measure. House Republicans, the product of Newt Gingrich's recruiting efforts and his “contract on America”, held their ideological line and voted the measure down. Democrats told the White House that they would support the measure only if a majority of the minority party would sign on. It didn't happen and all of the Marshall’s men could not convince the ideologically pure House Republicans to do otherwise. McCain left town leaving congressional leaders to iron out the final product.

The country was not impressed and the stock market went South. Eventually the measure passed, the Marshall voting for it but imploring the president to veto the measure nonetheless. Here we had McCain begging 'Ol Two-Cows to save him from himself.

Deep fissures like beneath the surface and the ground moves beneath the foundations of the republic threatening as it does the ruling coalition and promising a new deal.



2. Phillips, Kevin. “Bad Money Reckless Finance, Failed Politics, and The
Global Crisis of American Capitalism”. 2008, The Penguin Group, Inc.,
375 Hudson Street, New York, New York. 239 pages.

No comments: