Det danske Fredsakademi
Kronologi over fredssagen og international politik 15. April 2009 / Time Line April 15, 2009
Version 3.014. April 2009, 16. April 2009
04/15/2009
Economic Recovery for Whom?
By Don Monkerud
Banks and financial institutions created a speculative bubble in
the housing market and made huge profits selling exotic securities
bought with borrowed money. Somehow, they lost control.
Now people are discovering they aren't as rich as they thought they
were. Home values fell precipitously; they lost their jobs and
credit dried up. No one is to blame except perhaps the generic
"bank," yet everyone is to blame because they spent money they
didn't have.
With the economy overextended and corporations overleveraged, banks
suddenly couldn't cover their outstanding obligations. A resulting
credit freeze threw the U.S. and the international economies into a
tailspin.
That's the message of two former directors of the Office of
Management and Budget: Alice Rivlin from Clinton's administration
and Jim Nussle from Bush's administration, speaking at the Panetta
Institute 2009 Lecture Series in Monterey on April 13.
Nussle contended the worst is behind us. Decreasing housing values
were only on paper; a hard concept to explain to people who thought
their property was worth its accessed evaluation and were overtaken
by a "reckless euphoria." We shouldn't waste our time finding
"someone to blame" because we fooled ourselves into thinking we
didn't have to pay our debts. Illegal bank activities should be
prosecuted but, essentially, the fault is our own.
"The good news is we missed the grand depression," said Nussle.
"I'm an optimist and we have to plug away in a positive
direction."
Rivlin was much more nuanced throughout the discussion, stating
frankly that we don't know if the crisis is over or whether the
stimulus package will work-call her guardedly optimistic:
Government intervention is aggressive and has a good chance of
working; recovery depends upon whether credit begins to flow again;
and unemployment will continue to rise for some time.
"People in high places should have known better," Rivlin said.
"Lending standards got very lax and regulators took no
responsibility. People making loans took no responsibly for them:
They revealed a serious flaw in the system."
Both Nussle and Rivlin agree that some banks are "too large to
fail," and need a bailout. Toxic assets must be taken off the books
and TARP, the Troubled Asset Relief Program, may succeed. While the
two clashed over the role of government, they both agreed that the
government must play a role because the whole financial system is
so dependent on banks that their failure could lead to a deep
depression. Both claim bankers shouldn't be rewarded by a bailout,
but reiterate our dependence on banks.
Considered a "hard-core conservative" for his anti-abortion,
anti-gay, anti-environmental, pro-NRA, pro-war and 90 percent
pro-business voting positions while in Congress, Nussle yammered
away on favorite GOP topics: lowering taxes and eliminating
government waste. "It's your money," he declared. Freeze the
federal budget, cut Social Security and Medicare funding, oppose
regulation that will starve innovation, and create new
"entrepreneurs." He failed to recognize that such moves led to the
Great Depression.
"Capitalism still works and we can't throw it overboard," Nussle
said. "We have to make the U.S. more attractive to investments if
we are to be successful. We are still one of the best deals in
town."
Nussle marches with the GOP; the two percent of the budget that
goes for earmarks is terrible (now that Democrats control them),
and over 50 percent of the stimulus package is wasted on
Congressmen's reelection campaigns. He favors indirect use of
government funding to boost the economy and cut taxes on the
wealthiest taxpayers: Cut inheritance, capital gains, corporate and
progressive income tax and replace them with a "flatter tax." He
ignored the failure of the Bush tax cuts for the rich, insisting
they increased government revenue.
Rivlin supports progressive income taxes and proposes new taxes on
carbon and changes in healthcare and mortgage deductions. Current
tax deductions aren't fair, she claims: While the top-income
brackets get a 30 percent deduction, the bottom gets only 15
percent. A single rate for everyone would make deductions more
equitable. We don't pay a particularly high proportion of income in
taxes compared to other countries and our government supports
programs because people want them.
William K. Black, author of The Best Way to Rob a Bank is to Own
One, contends that the calculated dishonesty of bankers perpetuated
a huge fraud. Financial corporations made bad loans, grew rapidly
and leveraged assets to increase executive compensation. With the
bailout, powerful bankers have taken over the government.
Banks are bankrupt and remain solvent by behind the scenes
manipulation and changing the "mark-to-market" rules to revalue
toxic assets. As of February, the government has committed over $10
trillion as an investor, lender and insurer of bank debt and by
September the Fed plans to print $14 for every $1 in circulation
today. Will these moves alleviate the economic crisis or deepen
it?
Behind the scenes, banks are rapidly reshifting power, wealth and
control of the U.S. economy. We don't know what the economy will
look like in the future: We do know the past is gone, the wealthy
increased their share of national wealth, and taxpayers are left to
pay for it.
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