Did the bailout just squander our best chance for social change?
I was calling local brokerage and investment firms, asking how the market crashes and bailouts were affecting these companies’ local clients.
I started feeling naïve. Did I really think anyone would answer? Did I expect Victoria’s Investors Group or some self-employed broker to cry, “We’re losing money like crazy! Don’t tell our clients!”
Instead, people directed me to national offices or begged off with a tone of, “We’re comfortably riding out the storm, but we’re extremely busy right now/all day/all week/please god don’t call back.”
U.S. companies were similarly secretive until the moment they tanked; after all, nothing undermines a shaky financial firm like a public admission collapse may be imminent. Criminal fraud investigations are underway against some companies, too late for the victims.
And there are more victims daily. Obviously, many here and elsewhere have been losing – by mid-October $2 trillion in U.S. worker pensions alone. By the time you’re reading this, much will have changed, so I won’t prognosticate.
But looking back, I’m starting to think our unwillingness to be openly honest just made us squander what may have been the greatest opportunity for serious social change of our lifetimes.
I’ll recap to show what I mean.
First, we shouldn’t think this crash wasn’t foreseen. It was predicted by many economists and discussed for years in left-leaning media as world governments dove into financial “deregulation” to enhance “globalization”. In particular, dire warnings emerged in 1999 when the U.S. government removed financial laws which had been specifically enacted in the wake of the Great Depression. The conservative Wall Street Journal hailed, “Finally, 1929 Begins to Fade”, but Mother Jones argued it would re-create “too-big-to-fail institutions that are someday likely to drain the public treasury as taxpayers bail out imperiled financial giants to protect the stability of the nation’s banking system.”
With that in mind, it’s misleading to say this crash was caused by subprime mortgage defaults. It gives the ludicrous impression that banks were being overly generous helping poor people buy homes! The more pervasively toxic problem was that deceptively structured, unstable mortgages were being stamped as safe investments, then misleadingly repackaged and resold again and again on newly-unregulated “shadow” and “derivatives” markets, creating a windfall for newly-unregulated investment dealers.
Like any pyramid scheme, when the bottom fell out, the biggest profiteers had already run off and ordinary savers and taxpayers were holding defaulted loans and gutted financial firms. In our globalized market, losses spread worldwide.
Within days, a $700 billion “rescue” was sketched and enacted by the same people who’d enabled the debacle. Two hundred university economists petitioned the government to slow down and explore options. Many of them proposed other solutions; Nouriel Roubini called it a “disgrace” that no economist was consulted during Congressional hearings. Indeed, when demanding that $700 billion, a U.S. Treasury spokesperson conceded they had no idea how much money effective rescue might require. “We just wanted to choose a really large number,” she told Forbes.
It is quite a number. And adding earlier bailouts, $1 trillion was being spent. It’s difficult to imagine the enormous amount $1 trillion actually is; an astounding 1/3 of the budget of the world’s biggest national economy. And even if Canadian banks stand firm, in our intertwined economies, Canadians will pay our share of that $1 trillion, just like we’re paying for the market crash.
Yet we’ve paid an even bigger price in the opportunity squandered.
Consider how much time, energy, thought and effort constantly goes into debating how to allocate government revenues in media, homes, universities, thinktanks, boardrooms, government offices and legislatures, nitpicking millions or billions. Meanwhile, some wonder, how will we ever rally the passionate public unity and leadership required to garner the much vaster amounts for, say, eco-cleansing North America’s energy?
Then, out of the blue, one-third of the U.S. budget is suddenly handed over to financial firms!
What allowed such a sweeping, quick decision?-Panic, of course, the most dangerously untrustworthy motivator. Imagine if someone had approached the U.S. government months ago calmly saying, “Give me $1 trillion to save America’s banks. I need it this week.” We’d have called him a lunatic. Yet…
So my question is, why can’t we ever seem to acknowledge these important, pressing, large-scale issues in sufficient time to reason together, without panic, and collectively enact solutions? How are we ever going to solve climate change, for example, if we need utter panic to set in before we’re culturally ready to make radical decisions?
That’s the golden opportunity we just missed. This crash exposed fundamental flaws underlying rampant growth, deregulation and globalization. Ordinary savers and taxpayers are footing the bill for the resulting corporate party that now threatens to plunge the world into depression. As Ralph Nader has said, once again, socialism has had to save free market capitalism from its own excesses. So instead of, in a panic, weakly propping up this ailing, poisonous system, then, imagine what could have been done if we’d sat down for an honest, open cultural pow-wow and really planned out that $1 trillion subsidy. Undoubtedly, important strides could have been made towards what the economy truly desperately needs: more careful corporate and financial regulation, and reconfiguration for limited growth, lower consumption, and environmental sustainability.
It likely isn’t the last crisis we’ll be facing though, so hopefully, next time we’ll explore options more seriously. Unfortunately, we’ll have trillions of dollars less to work with.