Greenspan "in a state of shocked disbelief" about deregulation

Professor Norman Markowitz trying to explain the need to "regulate" and provide "oversight" for the capitalist economy to students wondering how they are going to pay off their student loans...



This is a very typical middle class/liberal/Democratic Party perspective. Norman Markowitz is a Barack Obama booster who sees the salvation of capitalism in regulation and oversight.

Typical of this middle class/liberal/Democratic Party perspective is the absence of any concern for, or acknowledgment of, the day-to-day problems of working people. Also noticeable is the lack of concrete solutions.

Professor Markowitz has been known to flirt with Marxism from time-to-time but the Professor has obviously failed to grasp the fact that capitalists have made tremendous profits and left the working class with all the problems.

However, given these noted shortcomings of Alan Greenspan's ideas by this wannabe Marxist Professor, Markowitz does bring forward some very significant points regarding the limitations of Alan Greenspan's thinking and ideas which served his corporate clients so well--- until now.

Unfortunately, Professor Markowitz fails to bring forward what kind of thinking and ideas are needed to replace all this "free market" ideology of Alan Greenspan and his little Ayn Rand led "think tank" which met regularly in Rand's home.

Markowitz gloats with Congressman Waxman exposing the failure of Greenspan's ideology; but, the Professor never wonders why Waxman has refused to ask the all important question of Greenspan or any of the other capitalist sooth-Sayers:

Can capitalism escape a major depression?

Of course in answering this question one then has to ask the question:

Is the problem one of a failed ideology or a failure of the capitalist system?

Perhaps Professor Markowitz would like to answer these questions here.

Without answers to these two questions from middle-class/liberal/Democratic Party intellectuals we really can't say that Professor Norman Markowitz and the Obama crowd have any better ideas than Alan Greenspan when it comes to finding solutions to the problems of working people.

No wonder Karl Marx has become a best-selling author in spite of being buried numerous times in university classrooms and in the pages of the mainstream media, only to be resurrected as this capitalist economic crises deepens--- could there really be something to the Marxist idea that the capitalist economy operates in boom-bust cycles and the system is taking one hard belly-flop?

We are living in what is increasingly being referred to as a "Marx moment."

Professor Norman Markowitz might blow the dust off all those copies of Marx' "Capital" stored away in the Rutger's University Library and get his students reading because it doesn't look like this little blip in what George Bush describes as a "robust free market economy... the strongest in the world," is going to pass by the world of Ivory Towers... whether Oxford or Rutgers.

Alan L. Maki










Thursday, October 23, 2008

by Norman Markowitz, Professor, Rutgers University

Alan Greenspan told a House Committee investigating the deluge in finance today of his shock that banks could not regulate themselves. Greenspan then went on to say that he had "found a flaw" in his "free market" world view, adding "I don't know how significant or permanent it is. But I have been very distressed by that fact." When asked by committee chair Henry Waxman if "your ideology was not right, it was not working," Greenspan added Absolutely, precisely....the reason I have been shocked because I have been going for forty years with very considerable evidence that it was working exceptionally well."

Forty years? Exceptionally well? A flaw? Don't know how significant or permanent it is? These are the comments of the man who was Chair of the Federal Reserve, the the second most powerful executive position in the U.S., for eighteen years? And this ahistorical irrational and comical response to a disaster of this dimension is what he has to say?

First, Greenpan's statements make little historical sense because the deregulation that we are talking about didn't develop forty years ago during the Johnson administration but a generation ago in the Reagan administration, and not all at once. Maybe Greenspan forgot that because in the 1960s, he was a follower of Ayn Rand, whose Objectivist cult looked to free market Supermen,a sort of extreme right-wing individualist anarchism as far removed from reality as the extreme left collectivist underground of the Weathermen which Bill Ayers belonged to at the time. Of course, Randians were never connected to acts of violence against the government. Of course, But then again, Weathermen never served in cabinet positions, not to mention chair of the Federal Reserve.

The Savings and Loan collapse of that period which occurred when Paul Volcker, Greenspan's predecessor, was Chair of the Federal Reserve, might have suggested to Alan that there was a "flaw" in this kind of policy, but it apparently didn't. The decline in real wages, huge rise in income inequality, increase in human suffering that these policies visibly produced in the U.S. didn't factor into Greenspan's thinking either, since the great majority of the victims, particularly children, were either marginal or completely outside of a political process where less than half the eligible voters were voting and non voters were drawn overwhelmingly from lower-income groups whose living standards were deteriorating.

As I read Greenspan I see an interesting hybrid of man, someone who was smart on the specifics, know about the ins and outs of finance, but was totally out of it in terms of the larger picture, a "perfect fool" so to speak for those who would rob the system blind because he was completely blind to their abuses until they overwhelmed the economy--a bit like those in the 1920s Republican governments who didn't have to be bribed to hand over to corporations public property because they believed in a kind of divine right of business.

Perhaps if Greenspan had not gone from being a not so successful Jazz saxophonist to being a follower of Ayn Rand, he might have discovered that the "flaw" in his argument was discovered by capitalist economists in the late 19th century, those who didn't need Karl Marx to explain to them that the way real markets worked had little to do with the theory of the a "self regulating" rational "free market" governed by a "law of supply and demand" where rational "economic man" ate fish when the price of meat was to high and then the price of meat would come down, and bankers invested their capital prudently to seek both the highest and the safest investment and those who didn't would run out of money and collapse just as the economic man who continued to eat meat would run out of money and starve. That system, even without bailouts for the banks or food stamps for the economic man, never had any relationship to reality with the rise of mass production industrial capitalism

Alan Greenspan won't lose his home and I am sure can protect his pension. His distress will be very different from the millions who have for years faced the economic consequences of the policies that he championed, the "forgotten millions" of the 1980s and 1900s whose jobs and pensions were casualties of what some called "the Reagan revolution." Now, when those millions are on the brink of multiplying, when a greatly weakened and under supplied safety net is about to face a huge increase in demand for services, Alan Greenspan's economic theories and policies should be returned to the pre Ragtime nineteenth century world where they already considered relics by many.

Greenspan denies blame for crisis, admits 'flaw'

Oct 23, 9:16 PM (ET)

By MARTIN CRUTSINGER and MARCY GORDON


WASHINGTON (AP) - Badgered by lawmakers, former Federal Reserve Chairman Alan Greenspan denied the nation's economic crisis was his fault on Thursday but conceded the meltdown had revealed a flaw in a lifetime of economic thinking and left him in a "state of shocked disbelief."

Greenspan, who stepped down in 2006, called the banking and housing chaos a "once-in-a-century credit tsunami" that led to a breakdown in how the free market system functions. And he warned that things would get worse before they get better, with rising unemployment and no stabilization in housing prices for "many months."

Gloomy economic reports backed him up. New jobless claims soared to just under 500,000 for last week, and Goldman Sachs, Chrysler and Xerox all said they were cutting thousands more workers. On Wall Street, the Dow Jones industrials bounced erratically all day before finishing up 172 points - after a two-day drop of nearly 750.

The financial crisis even prompted the Republican Greenspan, a staunch believer in free markets, to propose that government consider tougher regulations, including requiring financial firms that package mortgages into securities to keep a portion as a check on quality.

He said other regulatory changes should be considered, too, in such areas as fraud.

Also looking for solutions, another banking regulator told Congress the government was working on a loan-guarantee plan that could help many homeowners escape foreclosure as part of the $700 billion bailout legislation. That plan is being discussed by the Treasury Department and the Federal Deposit Insurance Corp., said FDIC Chairman Sheila Bair, who is pushing the idea.

Greenspan's interrogation by the House Oversight Committee was a far cry from his 18 1/2 years as Fed chairman, when he presided over the longest economic boom in the country's history. He was viewed as a free-market icon on Wall Street and held in respect bordering on awe by most members of Congress.

Not now. At an often contentious four-hour hearing, Greenspan, former Treasury Secretary John Snow and Securities and Exchange Commission Chairman Christopher Cox were repeatedly accused by Democrats on the committee of pursuing an anti-regulation agenda that set the stage for the biggest financial crisis in 70 years.

"The list of regulatory mistakes and misjudgments is long," panel chairman Henry Waxman declared.


Greenspan, 82, acknowledged under questioning that he had made a "mistake" in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that "a flaw in the model ... that defines how the world works."

He acknowledged that he had also been wrong in rejecting fears that the five-year housing boom was turning into an unsustainable speculative bubble that could harm the economy when it burst. Greenspan maintained during that period that home prices were unlikely to post a significant decline nationally because housing was a local market.

He said Thursday that he held to that belief because until the current housing slump there had never been such a significant decline in prices nationwide. He said the current financial crisis had "turned out to be much broader than anything that I could have imagined."

Greenspan's much-anticipated appearance before the House panel came as the Senate Banking Committee held its own hearing on what the government is doing now to get out of the mess.

Assistant Treasury Secretary Neel Kashkari, who is overseeing the $700 billion financial rescue effort that passed Congress on Oct. 3, said the administration was not only working to get federal purchases of bank stock started quickly but also the program to mop up troubled mortgage-related assets. He also said the government was working to make sure that directives in the legislation to help struggling homeowners avoid foreclosure were being addressed.

Kashkari said the plan could include setting standards that banks should follow for reworking mortgages to make them more affordable. He said the administration was considering a recommendation to provide government loan guarantees to cover the reworked mortgages to make the program more attractive to banks.

"We are passionate about doing everything we can to avoid preventable foreclosures," Kashkari told the committee.

The FDIC's Bair told the same Senate panel that the government needs to do more to help tens of thousands of people avoid foreclosure.

She said the FDIC was working "closely and creatively" with the Treasury Department to come up with a plan.

Greenspan was asked to defend a variety of actions he took as Federal Reserve chairman - resisting recommendations to use the Fed's powers to crack down on subprime mortgages, for one. And opposing efforts to impose regulations on derivatives, the complex financial instruments that include credit default swaps, which have also figured prominently in the current crisis.

He said that outside of credit default swaps, the bulk of financial derivatives had not caused major problems. He said the boom in subprime lending occurred because of the huge demand for investment opportunities in a global economy, and he blamed the crash on a failure by investors to properly assess the risks from such mortgages, which went to borrowers with weak credit.

As for firms that package mortgages into securities, he said, "As much as I would prefer it otherwise, in this financial environment I see no choice but to require that all securitizers retain a meaningful part of the securities they issue."

On the billions of dollars of losses suffered by financial institutions because of their investments in subprime mortgages, Greenspan said he had been shocked by the failure of banking officials to protect their shareholders from their bad loan decisions.

"A critical pillar to market competition and free markets did break down," Greenspan said. "I still do not fully understand why it happened."

SEC Chairman Cox told the House panel that "somewhere in this terrible mess, laws were broken." And Snow said that lawmakers should have responded more quickly to his pleas for stronger regulation for mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), which were taken over by the government last month.

In the meantime, Kashkari, the Treasury official overseeing the bailout program, said there has been much progress, resulting in "numerous signs of improvement in our markets and in the confidence in our financial institutions." Still, he cautioned, "the markets remain fragile."

The Depression: A Long-Term View

Note: I have placed several things in bold.

Please do not reply to the listserv. To correspond with the author, write <immanuel.wallerstein@yale.edu>. To correspond with us about your e-mail address on the listserv, write <dunlop@binghamton.edu>. Thank you.


Commentary No. 243, Oct. 15, 2008

"The Depression: A Long-Term View"

By: Immanuel Wallerstein



The depression has started. Journalists are still coyly enquiring of economists whether or not we may be entering a mere recession. Don't believe it for a minute. We are already at the beginning of a full-blown worldwide depression with extensive unemployment almost everywhere. It may take the form of a classic nominal deflation, with all its negative consequences for ordinary people. Or it might take the form, a bit less likely, of a runaway inflation, which is simply another way in which values deflate, and which is even worse for ordinary people.

Of course everyone is asking what has triggered this depression. Is it the derivatives, which Warren Buffett called "financial weapons of mass destruction"? Or is it the subprime mortgages? Or is it oil speculators? This is a blame game, and of no real importance. This is to concentrate on the dust, as Fernand Braudel called it, of short-term events. If we want to understand what is going on, we need to look at two other temporalities, which are far more revealing. One is that of medium-term cyclical swings. And one is that of the long-term structural trends.

The capitalist world-economy has had, for several hundred years at least, two major forms of cyclical swings. One is the so-called Kondratieff cycles that historically were 50-60 years in length. And the other is the hegemonic cycles which are much longer.

In terms of the hegemonic cycles, the United States was a rising contender for hegemony as of 1873, achieved full hegemonic dominance in 1945, and has been slowly declining since the 1970s. George W. Bush's follies have transformed a slow decline into a precipitate one. And as of now, we are past any semblance of U.S. hegemony. We have entered, as normally happens, a multipolar world. The United States remains a strong power, perhaps still the strongest, but it will continue to decline relative to other powers in the decades to come. There is not much that anyone can do to change this.

The Kondratieff cycles have a different timing. The world came out of the last Kondratieff B-phase in 1945, and then had the strongest A-phase upturn in the history of the modern world-system. It reached its height circa 1967-73, and started on its downturn. This B-phase has gone on much longer than previous B-phases and we are still in it.

The characteristics of a Kondratieff B-phase are well-known and match what the world-economy has been experiencing since the 1970s. Profit rates from productive activities go down, especially in those types of production that have been most profitable. Consequently, capitalists who wish to make really high levels of profit turn to the financial arena, engaging in what is basically speculation. Productive activities, in order not to become too unprofitable, tend to move from core zones to other parts of the world-system, trading lower transactions costs for lower personnel costs. This is why jobs have been disappearing from Detroit, Essen, and Nagoya and factories have been expanding in China, India, and Brazil.

As for the speculative bubbles, some people always make a lot of money in them. But speculative bubbles always burst, sooner or later. If one asks why this Kondratieff B-phase has lasted so long, it is because the powers that be - the U.S. Treasury and Federal Reserve Bank, the International Monetary Fund, and their collaborators in western Europe and Japan - have intervened in the market regularly and importantly - 1987 (stock market plunge), 1989 (savings-and-loan collapse), 1997 (East Asian financial fall), 1998 (Long Term Capital Management mismanagement), 2001-2002 (Enron) - to shore up the world-economy. They learned the lessons of previous Kondratieff B-phases, and the powers that be thought they could beat the system. But there are intrinsic limits to doing this. And we have now reached them, as Henry Paulson and Ben Bernanke are learning to their chagrin and probably amazement. This time, it will not be so easy, probably impossible, to avert the worst.

In the past, once a depression wreaked its havoc, the world-economy picked up again, on the basis of innovations that could be quasi-monopolized for a while. So, when people say that the stock market will rise again, this is what they are thinking will happen, this time as in the past, after all the damage has been done to the world's populations. And maybe it will, in a few years or so.

There is however something new that may interfere with this nice cyclical pattern that has sustained the capitalist system for some 500 years. The structural trends may interfere with the cyclical patterns. The basic structural features of capitalism as a world-system operate by certain rules that can be drawn on a chart as a moving upward equilibrium. The problem, as with all structural equilibria of all systems, is that over time the curves tend to move far from equilibrium and it becomes impossible to bring them back to equilibrium.

What has made the system move so far from equilibrium? In very brief, it is because over 500 years the three basic costs of capitalist production - personnel, inputs, and taxation - have steadily risen as a percentage of possible sales price, such that today they make it impossible to obtain the large profits from quasi-monopolized production that have always been the basis of significant capital accumulation. It is not because capitalism is failing at what it does best. It is precisely because it has been doing it so well that it has finally undermined the basis of future accumulation.

What happens when we reach such a point is that the system bifurcates (in the language of complexity studies). The immediate consequence is high chaotic turbulence, which our world-system is experiencing at the moment and will continue to experience for perhaps another 20-50 years. As everyone pushes in whatever direction they think immediately best for each of them, a new order will emerge out of the chaos along one of two alternate and very different paths.

We can assert with confidence that the present system cannot survive. What we cannot predict is which new order will be chosen to replace it, because it will be the result of an infinity of individual pressures. But sooner or later, a new system will be installed. This will not be a capitalist system but it may be far worse (even more polarizing and hierarchical) or much better (relatively democratic and relatively egalitarian) than such a system. The choice of a new system is the major worldwide political struggle of our times.

As for our immediate short-run ad interim prospects, it is clear what is happening everywhere. We have been moving into a protectionist world (forget about so-called globalization). We have been moving into a much larger direct role of government in production. Even the United States and Great Britain are partially nationalizing the banks and the dying big industries. We are moving into populist government-led redistribution, which can take left-of-center social-democratic forms or far right authoritarian forms. And we are moving into acute social conflict within states, as everyone competes over the smaller pie. In the short-run, it is not, by and large, a pretty picture.

by Immanuel Wallerstein


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These commentaries, published twice monthly, are intended to be reflections on the contemporary world scene, as seen from the perspective not of the immediate headlines but of the long term.]



Becky Dunlop, Secretary
Fernand Braudel Center
http://fbc.binghamton.edu/

Anti-democratic nature of US capitalism is being exposed

By: Noam Chomsky

Friday, October 10, 2008


Bretton Woods was the system of global financial management set up at the end of the second World War to ensure the interests of capital did not smother wider social concerns in post-war democracies. It was hated by the US neoliberals - the very people who created the banking crisis writes Noam Chomsky

THE SIMULTANEOUS unfolding of the US presidential campaign and unravelling of the financial markets presents one of those occasions where the political and economic systems starkly reveal their nature.

Passion about the campaign may not be universally shared but almost everybody can feel the anxiety from the foreclosure of a million homes, and concerns about jobs, savings and healthcare at risk.

The initial Bush proposals to deal with the crisis so reeked of totalitarianism that they were quickly modified. Under intense lobbyist pressure, they were reshaped as "a clear win for the largest institutions in the system . . . a way of dumping assets without having to fail or close", as described by James Rickards, who negotiated the federal bailout for the hedge fund Long Term Capital Management in 1998, reminding us that we are treading familiar turf. The immediate origins of the current meltdown lie in the collapse of the housing bubble supervised by Federal Reserve chairman Alan Greenspan, which sustained the struggling economy through the Bush years by debt-based consumer spending along with borrowing from abroad. But the roots are deeper. In part they lie in the triumph of financial liberalisation in the past 30 years - that is, freeing the markets as much as possible from government regulation.

These steps predictably increased the frequency and depth of severe reversals, which now threaten to bring about the worst crisis since the Great Depression.

Also predictably, the narrow sectors that reaped enormous profits from liberalisation are calling for massive state intervention to rescue collapsing financial institutions.

Such interventionism is a regular feature of state capitalism, though the scale today is unusual. A study by international economists Winfried Ruigrok and Rob van Tulder 15 years ago found that at least 20 companies in the Fortune 100 would not have survived if they had not been saved by their respective governments, and that many of the rest gained substantially by demanding that governments "socialise their losses," as in today's taxpayer-financed bailout. Such government intervention "has been the rule rather than the exception over the past two centuries", they conclude.

In a functioning democratic society, a political campaign would address such fundamental issues, looking into root causes and cures, and proposing the means by which people suffering the consequences can take effective control.

The financial market "underprices risk" and is "systematically inefficient", as economists John Eatwell and Lance Taylor wrote a decade ago, warning of the extreme dangers of financial liberalisation and reviewing the substantial costs already incurred - and proposing solutions, which have been ignored. One factor is failure to calculate the costs to those who do not participate in transactions. These "externalities" can be huge. Ignoring systemic risk leads to more risk-taking than would take place in an efficient economy, even by the narrowest measures.

The task of financial institutions is to take risks and, if well-managed, to ensure that potential losses to themselves will be covered. The emphasis is on "to themselves". Under state capitalist rules, it is not their business to consider the cost to others - the "externalities" of decent survival - if their practices lead to financial crisis, as they regularly do.

Financial liberalisation has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy. Free capital movement creates what some have called a "virtual parliament" of investors and lenders, who closely monitor government programmes and "vote" against them if they are considered irrational: for the benefit of people, rather than concentrated private power.

Investors and lenders can "vote" by capital flight, attacks on currencies and other devices offered by financial liberalisation. That is one reason why the Bretton Woods system established by the United States and Britain after the second World War instituted capital controls and regulated currencies.*

The Great Depression and the war had aroused powerful radical democratic currents, ranging from the anti-fascist resistance to working class organisation. These pressures made it necessary to permit social democratic policies. The Bretton Woods system was designed in part to create a space for government action responding to public will - for some measure of democracy.

John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement.

In dramatic contrast, in the neoliberal phase after the breakdown of the Bretton Woods system in the 1970s, the US treasury now regards free capital mobility as a "fundamental right", unlike such alleged "rights" as those guaranteed by the Universal Declaration of Human Rights: health, education, decent employment, security and other rights that the Reagan and Bush administrations have dismissed as "letters to Santa Claus", "preposterous", mere "myths".

In earlier years, the public had not been much of a problem. The reasons are reviewed by Barry Eichengreen in his standard scholarly history of the international monetary system. He explains that in the 19th century, governments had not yet been "politicised by universal male suffrage and the rise of trade unionism and parliamentary labour parties". Therefore, the severe costs imposed by the virtual parliament could be transferred to the general population.

But with the radicalisation of the general public during the Great Depression and the anti-fascist war, that luxury was no longer available to private power and wealth. Hence in the Bretton Woods system, "limits on capital mobility substituted for limits on democracy as a source of insulation from market pressures".

The obvious corollary is that after the dismantling of the postwar system, democracy is restricted. It has therefore become necessary to control and marginalise the public in some fashion, processes particularly evident in the more business-run societies like the United States. The management of electoral extravaganzas by the public relations industry is one illustration.

"Politics is the shadow cast on society by big business," concluded America's leading 20th century social philosopher John Dewey, and will remain so as long as power resides in "business for private profit through private control of banking, land, industry, reinforced by command of the press, press agents and other means of publicity and propaganda".

The United States effectively has a one-party system, the business party, with two factions, Republicans and Democrats. There are differences between them. In his study Unequal Democracy: The Political Economy of the New Gilded Age, Larry Bartels shows that during the past six decades "real incomes of middle-class families have grown twice as fast under Democrats as they have under Republicans, while the real incomes of working-poor families have grown six times as fast under Democrats as they have under Republicans".

Differences can be detected in the current election as well. Voters should consider them, but without illusions about the political parties, and with the recognition that consistently over the centuries, progressive legislation and social welfare have been won by popular struggles, not gifts from above.

Those struggles follow a cycle of success and setback. They must be waged every day, not just once every four years, always with the goal of creating a genuinely responsive democratic society, from the voting booth to the workplace.

* The Bretton Woods system of global financial management was created by 730 delegates from all 44 Allied second World War nations who attended a UN-hosted Monetary and Financial Conference at the Mount Washington Hotel in Bretton Woods in New Hampshire in 1944.

Bretton Woods, which collapsed in 1971, was the system of rules, institutions, and procedures that regulated the international monetary system, under which were set up the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF), which came into effect in 1945.

The chief feature of Bretton Woods was an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value.

The system collapsed when the US suspended convertibility from dollars to gold. This created the unique situation whereby the US dollar became the "reserve currency" for the other countries within Bretton Woods.

Noam Chomsky is professor emeritus of linguistics at the Massachusetts Institute of Technology. This article appeared first in the New York Times

From: The Irish Times

A Legislative Agenda for the First 100 Days

Note: Bill Fletcher, Jr. is a co-author of the book: Solidarity Divided, the crisis in organized labor and a new path toward social justice. Fletcher is also the founder of "Progressives for Obama."

Like all social democrats, Fletcher has a lot of ideas but no way to put those ideas into practice.

Over three-hundred authors, professors, entertainers and labor bureaucrats comprise "Progressives for Obama" but none are engaged in grassroots/rank-and-file campaigns which would exert the kind of pressure required to coerce an Obama Administration down this road.

This is classic social democracy... all talk, no action.

Before reading Fletcher's fairy-tale, perhaps read today's Associated Press reports first:

Link: http://apnews.myway.com//article/20081012/D93P0I680.html

Efforts on global warming chilled by economic woes

Oct 12, 10:22 AM (ET)

By DINA CAPPIELLO

WASHINGTON (AP) - The economic free fall gripping the nation may bring down one of the main environmental objectives: capping the greenhouse gases that are blamed for global warming.

Democratic leaders in the House and the Senate, and both presidential candidates, continue to rank tackling global warming as a chief goal next year. But the focus on stabilizing the economy probably will make it more difficult to pass a law to reduce carbon dioxide and other greenhouse gases. At the very least, it will push back when the reductions would have to start.

As one Republican senator put it, the green bubble has burst.

"Clearly it is somewhere down the totem pole given the economic realities we are facing," said Tom Williams, a spokesman for Duke Energy Corp., an electricity producer that has supported federal mandates on greenhouse gases. Duke is a member of the U.S. Climate Action Partnership, an association of businesses and nonprofit groups that has lobbied Congress to act.

Just months ago, chances for legislation passing in the next Congress and becoming law looked promising. The presidential candidates support mandatory cuts and a Democratic majority is ready to act on the problem after years of the Bush administration's resisting federal controls.

But the most popular remedy for slowing global warming, a mechanism know as cap-and-trade, could put further stress on a teetering economy.

Under such a system, the government would establish a market for carbon dioxide by giving or selling credits to companies with operations that emit greenhouse gases. The companies can then choose whether to invest in technologies to reduce emissions to meet targets or instead buy credits from other companies who have already met them.

In an interview with The Associated Press, Rep. Rick Boucher, D-Va., said that in light of the economic downturn, a bill that would give polluters permits free of charge would be preferable.

"The first way we can control program costs is by not charging industrial emitters," said Boucher, who released a first draft of a bill this past week with the chairman of the House Energy and Commerce Committee, Rep. John Dingell, D-Mich. Giving away right-to-pollute permits was one of the options.

Other Democrats, however, see a cap-and-trade bill - and the government revenues it would generate from selling permits - as an engine for economic growth. Democratic presidential nominee Barack Obama supports auctioning off all permits, using the money to help fund alternative energy.

"If you see this as a job creation opportunity for the U.S. to develop the products that are then sold around the world, then you should be optimistic about what the impact of passage would mean for the American economy," said Rep. Edward Markey, D-Mass.

Conservative Republicans who were never fans of a law to curb greenhouse gases have used the economic downturn as a rallying cry.

Oklahoma Sen. James Inhofe, the senior Republican on the Senate Environment and Public Works Committee, in a blog entry this month criticized 152 House members for releasing a set of principles to tackle global warming in the midst of the economic turmoil.

"The current economic crisis only reinforces the public's wariness about any climate bill that attempts to increase the costs of energy and jeopardizes jobs," Inhofe said.

Rep. Joe Barton, R-Texas, took the argument a step further when he said the Boucher-Dingell bill could lead the country "off the economic cliff."

But even supporters of federal regulation of greenhouse gases acknowledge that something has to give given the state of the economy.

Sen. John Warner, R-Va., a lead sponsor of a Senate bill to curb greenhouse gases that failed this year, acknowledged that the economy could delay when reductions in carbon dioxide would start.

Warner told the AP that any bill should allow the president to decide.

"We must continue to think and devise a piece of legislation that will enable the president of the United States to control timing ... dependent on the president's analysis for the ability of the economy to assume the financial burdens," he said.

The U.S. is not alone. As the economic crisis has spread to markets across the globe, work to curb greenhouse gases elsewhere has stalled.

Earlier this past week, Rajendra Pachauri, head of the U.N. climate panel, said discussions about global warming solutions were "on the back burner." Pachauri shared the 2007 Nobel Peace Prize with former Vice President Al Gore for their work on climate change.

"I'm absolutely sure that climate change will be the last thing people will think about at this point in time," he said. "Sooner or later, they will come back to it."

The upside is that in hard economic times, and with high energy prices, the amount of pollution in the air tends to decline.

That will slow global warming somewhat, but there are already enough heat-trapping gases in the atmosphere to cause the temperature to rise.

"I really wish that the science of global warming would look at the newspaper, and say we have an economic crisis so the Earth will stop warming," said Dave Hamilton, director of the Sierra Club's global warming and energy program. "But that is not going to happen."

Alan L. Maki



By Bill Fletcher, Jr.

The following piece is from the fall 2008 issue of New Labor Forum.


Preface/The Setting

Two days after the November 2008 elections, Democrats
and their allies are still celebrating the decisive
defeat of Republican John McCain. With his defeat comes
the chance to render unto history the remnants of the
Bush/Cheney regime that so ruined the lives of the
bottom 80 percent of the U.S. population, and turned
most of the world against the U.S. Eight years of
Bush/Cheney have brought incompetence, jingoism, and
neoliberalism. The wars in Iraq and Afghanistan,
disasters such as Hurricane Katrina, and the deepening
economic crisis have served to discredit much of the
conservative agenda, even going so far as to generate
despair among the right-wing evangelical base.

Let's imagine that, after several months of drafting,
the final touches are being placed on what has come to
be known as The First 100 Days: A Working People's
Agenda for the First 100 Days of the Incoming Democratic
Administration. This project, initiated by members of
the AFL-CIO, Change To Win, as well as several
independent unions and other progressive working-class
organizations, has identified several key areas where
the new Democratic administration must take bold steps
within its first 100 days. Let's also imagine that the
drafting committee collected hundreds of ideas and
developed an extensive list of recommendations for an
even more comprehensive agenda; but the committee's
delicate task was to focus first and foremost on the
emergency steps required to rescue the country from the
potentially deep, and already devastating recession, and
two disastrous wars.

Within a week, the document will be presented to the
President-elect and his transition team. The atmosphere
in this final meeting is one of both excitement and
anxiety as everyone realizes that just as this document
is being drafted, several other documents are being
drafted by various forces representing constituencies
whose interests are antithetical to those of working
people. The responsiveness of the President-elect to
The First 100 Days will depend not only on the logic and
persuasiveness of the document itself, but also on the
capacity of the constituencies uniting behind this
document to back up each word with people power.



The Crisis

The U.S. has plunged into a significant economic crisis
which, at a minimum, is heading toward a conceivably
severe recession. Yet the crisis is not simply about
the immediate economic situation. A series of factors
have contributed to an economic unraveling that is
fueled by political uncertainty:

The living standard has declined for the average U.S.
worker since the mid-1970s. While productivity has
increased, workers' pay has decreased. Structural
unemployment has worsenend as sectors of the economy
have begun to reorganize, move, or disappear altogether.
In addition, the adoption of neoliberalism as the given
economic framework in the capitalist world generally and
the U.S. in particular, has meant an assault on the
public sector and public service, a factor that became
tragically apparent when Hurricane Katrina hit.
Meanwhile, the domino effects of a credit crisis (that
began as part of the speculative boom in housing prices
and values), continue to destroy the lives and savings
of millions of working people.

Neoliberal globalization, in both its military and
non-military forms, has brought unprecedented levels of
migration. In the U.S., as part of this global
migration, we have seen a steady increase in immigration
from the 1970s (particularly from Indochina), through
the 1980s (largely as a result of the Central American
wars), into the 1990s and today (stemming from the
collapse of the Soviet bloc, along with the passage of
the North American Free Trade Agreement (NAFTA) and the
migration of Mexicans into the U.S.).

Efforts at some form of national health care have been
undermined since World War II, largely by the political
Right. Renewed attention to the more than 44,000,000
people lacking any health insurance, along with the
legions of people who have inadequate healthcare
coverage, surfaced in the early 2000s.

An environmental crisis has enveloped planet Earth
sooner than many people, including many scientists,
expected.

Workers remain under attack, and not just as a result
of a problematic economy. The ability of workers to
join or form unions has worsened with each year.

The global community is becoming more unequal. In
terms of income and wealth, inequality has consistently
grown under the neoliberal order. In the U.S., the top
one percent controls more than 35 percent of the wealth.
At the global level, the richest 225 individuals have
more wealth than the bottom 47 percent of the world's
population. This dramatic wealth disparity, not seen in
the U.S. since the 1920s, is a major source of social
instability and resentment, undermining the entire
notion of democracy.

Inequality in the U.S. also has a racial and gendered
face to it, due to a regression from the victories of
the civil rights and women's movements, along with the
growing tendency to blame the setbacks of white men on
those who have been subjected to historic
discrimination.

War (in Iraq and Afghanistan) and the national
security/neoliberal authoritarian state have changed the
terms of domestic and international politics. In
addition to destroying the countries involved, these
wars are a tremendous drain on the U.S. budget (with a
cost of approximately $845 billion by the end of
2008).[1] Insecurity in the U.S. has also increased in
response to the rising global resentment toward.U.S.
policies abroad. The growth of the neoliberal
authoritarian state has brought a decrease in actual
democracy and civil liberties.

While the situation facing the U.S. and the rest of the
world could be described in greater detail, the
preceding depicts the key elements of the current
emergency. The Bush administration and its allies (as
well as the McCain campaign) have lived in denial,
perpetuated lies (such as those in connection with the
illegal U.S. invasion of Iraq, as well as the hostility
toward Iran), and promoted the interests of the rich.

The time has now come to fight for the bottom 80
percent.



The Federal Emergency Response

The new administration's first initiatives must be both
domestic and global in scope. There is little time to
engage in the politics of symbolism, playing to a
particular constituency, rallying troops to the 'flag,'
without speaking to the deep-seated nature of the
challenges that we face.

At the same time, it must be understood that the efforts
within the first 100 days cannot represent the totality
of the new administration's program. A mandate to bring
about more sweeping change must be organized and
mobilized over the coming months and years. This will
require a combination of movement-building and building
a broader social consensus in favor of significant
structural change.

With that in mind, let us itemize the agenda:

1. Immediate withdrawal of U.S. troops, bases, and
mercenaries from Iraq and Afghanistan.

This should involve the following:

Asking the United Nations (UN) and Arab League for
assistance in creating a multi-national, transitional
team to bring the various forces on the ground together,
along with regional powers, to negotiate a long-term
resolution of the conflict and the stabilization of
Iraq.

The elimination of any obligation on the part of the
Iraqi government to fulfill agreements imposed upon Iraq
during the reign of Paul Bremer.

Bilateral discussions with Iran regarding future
policies and relations with the U.S.

Multi-party discussions between the U.S., Pakistan, and
the various political forces in Afghanistan regarding a
permanent political settlement.

Reparations from the U.S. (and any other country or
group that interfered in the internal affairs of Iraq
and Afghanistan) placed into a reconstruction fund
established by the UN.

A renouncement of any U.S. intentions to have permanent
bases in Iraq or Afghanistan; a withdrawal of U.S. bases
from Saudi Arabia; a renouncement of U.S. intentions to
secure control over oil and/or natural gas reserves in
the region.

Immediate talks toward establishing a U.S./European
Union/Russian/Arab League/Israeli/Palestinian joint
committee on the resolution of the Israeli/Palestinian
conflict. Deployment of a special envoy to lay the
foundations for this project.

2. Economic Triage.

The ongoing economic meltdown, particularly the collapse
of the housing bubble and the lending/credit/foreclosure
calamity, calls for both immediate relief and long-term
management. This will require the sort of economic aid
that has been diverted to cover the Iraq/Afghan war
costs, and attention must ultimately be paid to
reversing the more than thirty years of attacks on
working people and their declining living standards. In
the short-term, however, several steps need to be taken,
including, but not limited to:

A moratorium on foreclosures and evictions. Immediate
steps must be taken to halt foreclosures and evictions,
while providing immediate assistance to those affected
by these actions to renegotiate the terms of their debt.
This may mean federal assistance to pull individuals out
of usurious loans, allowing them to more comfortably
rebuild their financial standing; this would be a step
just short of declaring personal bankruptcy. The
Republicans' efforts to restrict individuals' ability to
declare personal bankruptcy must be reversed. The new
administration must also re-establish the Home Owners'
Loan Corporation (HOLC). This would be a 21st century
version of the New Deal measure that statutorily
arranged a temporary corporation to stabilize uncertain
mortgage markets.[2] Upon any reinstitution of it
today, the HOLC would acquire defaulted loans from
mortgage lenders and offer sustainable refinancing
options for homeowners to prevent future
foreclosures.[3]

An extension of both unemployment and food stamp
benefits. The Bush administration has adamantly held the
line against such expansion. But greater numbers of the
working poor have come to depend on food stamps in order
to survive, and the current apportionment insufficiently
reflects today's cost of living. The U.S. Department of
Agriculture (USDA) estimates that the current food stamp
benefit averages about $1 per meal per individual.[4]
Benefit amounts are based on the USDA's "Thrifty Food
Plan"— a theoretical diet created in the 1930s to
provide a minimally adequate diet at a low cost —which
hasn't been updated since 2003.[5] Additionally,
according to the Bread for the World group, most food
stamp households spend 80 percent of their benefits by
the 14th of each month.[6] Thus, the food stamp system
must be retooled to meet the full nutritional needs of
its recepients.

Immediate public service job creation. The federal
government needs to infuse the economy with funds to
prevent further collapse. As part of a longer-term
initiative, the federal government must begin emergency
public sector reconstruction work, focusing on bridges,
tunnels, and levees. We need a program along the lines
of that proposed by Barack Obama, who suggested the
dedication of $210 billion to create construction and
environmental jobs: $60 billion would be directed to a
National Infrastructure Reinvestment Bank to rebuild
public projects such as highways, bridges, airports; and
$150 billion would be earmarked for the creation of five
million green-collar jobs to develop more
environmentally friendly energy sources.[7] This would
be funded through cuts in military spending.[8]

Federal intervention to halt the collapse of student
loan programs. A hidden crisis, that is part of the
larger credit crunch, has been the declining number of
banks that offer affordable student loans. This has
resulted in a higher demand for available loans and the
elimination of higher education opportunities for many
students. A federal intervention, therefore, is needed
to make sufficient funds available. This could take the
form of legislation proposed by Senator Kennedy in April
2008 to increase federal student aid. This proposal
would, among other things, reduce students' need to take
out costly private loans by increasing their access to
guaranteed low-interest federal loans.[9] The bill would
increase federal loan limits by $1000 a year for
dependent undergraduates, and by $2000 a year for
independent undergraduates and students whose parents'
credit score disqualifies them for federal parent
loans.[10] The new administration should also take
steps aimed to restrain predatory lending.

Elimination of Bush tax cuts. Bush's tax cuts, along
with the Iraq and Afghan wars, have been bleeding the
economy. Steps must be taken to reclaim the money that
has been disproportionately funneled to corporations and
the wealthy. Though longer-term tax reform will be
necessary, the first step is to stop the hemorrhaging.

Federal aid to the states. Despite growing constraints
on state budgets (particularly within the context of the
rising unemployment and foreclosure rates), the federal
government has increasingly meted out severe budget
cuts. Federal assistance should provide the states with
more of a safety net as they struggle to balance their
budgets.

3. A Marshall Plan for U.S. cities and depressed
regions.

The Hurricane Katrina disaster and the 2007 Minneapolis
bridge collapse exposed significant problems with our
political leadership, economic choices, and the basic
U.S. infrastructure (not to mention race, gender, and
class politics when it came to Katrina). Another
assortment of projects must be undertaken to make the
infrastructure address our environmental crisis. With
all of this in mind, the following initiatives should be
announced:

A national commitment to launch a domestic version of
the Marshall Plan. This program would involve a renewal
of the U.S. physical and social infrastructures. With
regard to the physical infrastructure, in 2005, the
American Society of Civil Engineers estimated that
rehabilitation should cost $1.6 trillion over five
years. The National Urban League, which has been a
strong proponent of a social Marshall Plan, has
identified ten areas that are integral to revamping the
socio-economic infrastructure.[11] We must combine the
elements of these two proposals in order to lift the
U.S. from the abyss. A successful modern-day Marshall
Plan would also build upon the work of groups such as
the National Jobs for All Coalition, which has proposed
a 21st-Century Public Investment Act, featuring: a
Public Works Authority that, while working with state
and local authorities to create permanent jobs, would
provide long-term funding for high priority public works
and infrastructure projects, ensuring that these
projects employ the unemployed and underemployed; a
Public Investment Fund that would fund a Public Service
Employment Program designed to close job gaps, while
continuing to encourage job creation; and a National
Employment Accounting Office that would evaluate
progress and assess ongoing needs for job creation and
public investment.[12]

The immediate establishment of a regional public agency
to oversee the reconstruction of the post-Katrina Gulf
Coast and the repatriation of its native population.

The establishment of a 21st century version of the Works
Progress Administration to oversee the
infrastructure-related work. Priority in employment
would go to the chronically and structurally unemployed.
Wages would be paid according to the Davis-Bacon
Act.[13] Building trades contractors and unions would
agree to 50 percent residential set-asides for entry
into apprenticeship programs and journeyman work in
connection with any of these efforts. At least 25
percent of such jobs should be staffed by people of
color, with at least another 25 percent staffed by
women.

Regional planning authorities should be established in
depressed regions bringing together the business
community, worker organizations including, but not
limited to, unions, academia, and governmental
representatives. Such authorities would explore
economic development strategies such as industrial
cooperatives, public/private partnerships, and
governmental incentives to encourage the creation of new
industries or the introduction of industries which had
been discouraged from emerging.

Emergency measures to provide more low-income housing.
This would include an Executive commitment to push
through: the National Affordable Housing Trust Fund
Act,[14] which would establish a federal housing trust
fund to ensure housing for the lowest income earners who
have the most serious housing problems; and the Housing
Assistance Tax Act which would, among other provisions,
provide tax credits to first-time homebuyers, while
improving access to low-income housing, allowing
families to deduct property taxes.[15]

4. Immediate signing of the Kyoto Protocol.

The U.S. is way behind the rest of the world on the
environment, and the Bush administration has flouted the
gravity of the matter. Our over-dependence on fossil
fuels has straightjacketed the global economy (making
the greater international community highly dependent on
oil), which has contributed to the rising global
temperature. The environmental crisis, however, is not
limited to global warming. The epidemic of bee colony
die-offs and the endangerment of various species paints
a disturbing picture of an unraveling ecology. Most
urgently, the new administration must:

Sign the Kyoto Protocol, while making a commitment to
launch international negotiations toward a new and
stronger pact.

Push through the Renewable Energy and Job Creation
Act[16] to promote renewable energy, green-collar jobs,
and tax benefits to middle-class families.

Establish a "Green Commission" that brings together
labor, business, environmental groups, community-based
organizations, and government representatives to
recommend technological, economic, and developmental
changes geared toward building a sustainable economy.

5. Pass and sign the Employee Free Choice Act (EFCA).

As a step toward jettisoning the one-sided class war
against workers, the new administration must:

Reaffirm the National Labor Relations Act (NLRA)'s
mandate that it is within U.S. public policy to promote
collective bargaining.

Sign the EFCA.

Draft legislation that proscribes any employer
involvement in their workers' choice of bargaining
representatives.

6. A universal health care initiative.

Universal, single-payer health care cannot take flight
within the first 100 days. The groundwork, however,
must be laid immediately. The new administration must:

Expand the State Children's Health Insurance Program
(SCHIP), as proposed by the Democratic Congressional
leadership in 2007.[17]

Establish a commission to draft legislation for
universal, single-payer coverage. Plan for a one year
drafting period, followed by national town meetings and
hearings. Aim for passage before the midterm elections.

7. Immigration reform.

Immediate steps must be taken to lay out an immigration
reform program that is coupled with changes in U.S.
foreign policy (therefore, points # 7 and # 8 are
integrally linked). This program must include:

Amnesty (in the form of permanent residency status) for
undocumented workers who have no criminal record.

Priority given to family reunification interests.

A revised application process that gives priority to
refugees from areas of political conflict where the U.S.
has been historically involved.

Elimination of guest worker programs. Investigation of
already existing guest worker programs' impact on both
domestic and foreign born workers.

Unionization rights for all workers within U.S. borders,
irrespective of their immigration status.

8. Forge global partnerships.

Changing U.S. foreign policy is an uphill, long-term
process. Nevertheless, certain immediate measures are
imperative. In addition to withdrawing from Iraq and
Afghanistan, the new administration must:

Create a 21st Century Partnership Program to develop
foreign aid and trade programs designed to promote more
self-reliance among nation-states, while responding to
the civilian needs in those areas.

Develop targeted programs of repair in areas where U.S.
involvement has distorted regional development (e.g.,
Southeast Asia, Angola, and Central America).

Promote trade relations that are based on fairness
rather than on corporate interests. Explore a
renegotiation of NAFTA.

Implement the Nuclear Non-Proliferation Treaty with
steps toward de-nuclearization.

Employ special envoys for peace and development who will
work with regional representatives to address matters
such as political conflict, economic underdevelopment,
and environmental devastation.



Conclusion/A Qualifying Thought

This agenda will be moot without a strong backing from
social forces that are prepared to press for its
implementation. Any demobilization of those who
successfully brought the Democratic candidate to victory
will buoy the political Right's leverage to assert its
own agenda. Right-wing forces will push for a
continuation of the Bush administration's
anti-progressive policies. Thus, if we are not prepared
to consistently place enough pressure on our "friend" in
the White House, we should expect a repeat of the Bill
Clinton years—an era in which there was (technically) a
high degree of access to the President and top cabinet
officials, but the progressive social movements were
afforded very little actual power.



The choice is ours, and we have precious little time to
decide how we want to proceed.


[1] See "Iraq war will cost $12 billion a month,"
Associated Press, March 9, 2008,
http://www.msnbc.msn.com/id/23551693/ (citing Joseph E.
Stiglitz and Linda J. Bilmes, The Three Trillion Dollar
War:The True Cost of the Iraq War,W.W. Norton, 2008).

[2] See HOLC_release.html>http://www.house.gov/apps/list/press/
il10_kirk/HOLC_release.html,

accessed July 7, 2008.

[3] See id.

[4] See www.
results.org/website/article.asp?id=358,

accessed July 7, 2008.

[5] See id.

[6] See id.

[7] See "Obama vows $210 billion for 'green,' building
jobs," The Los Angeles Times, February 14, 2008,
obama14>http://articles.latimes.com/2008/feb/14/nation/
na-obama14,

accessed July 7, 2008.

[8] See "Obama's Pocketbook Speech," Jason Horowitz, The
New York Observer, May 3, 2008,

http://www.observer.com/2008/obamas-pocketbook-speech,

accessed July 7, 2008.

[9] See
=C7BF90E6-D809-4274-900D-109ADC11ED76>http://kennedy.
senate.gov/newsroom/press_release.cfm?id=C7BF90E6-D809-
4274-900D-109ADC11ED76,

accessed July 7, 2008.

[10] See id.

[11] Their proposal, as of July 2007, included areas
such as mandatory early childhood education beginning at
age 3, universal healthcare, building economic
self-sufficiency for working people, and an urban
infrastructure bank. See

www.nul.org/PressReleases/2007/2007PR417.html,

accessed July 7, 2008.

[12] See the National Jobs for All Coalition's Shared
Prosperity and the Drive for Decent Work report,
www.njfac.org/
sharedpros/pdf.

[13] Under the Davis-Bacon Act, federal government
construction contracts are required to include
provisions for paying workers nothing less than the
prevailing
wages paid for similar projects in the geographical
area.

[14] This bill passed in the Senate in May 2008, after
an overwhelming passage in the House. See
http://www
.nlihc.org/template/page.cfm?id=40,

accessed July 7, 2008.

[15] In April 2008, Congressman Charles Rangel
introduced this bill in the House. See
index.php#hata>http://www.novoco.com/low_income_housing/
legislation/index.php#hata,

accessed July 7, 2008.

[16] See
GreenEnergyBill.shtml>http://moran.house.gov/apps/list/
press/va08_moran/GreenEnergyBill.shtml,

accessed July 7, 2008.

[17] See
http://www.schip-info.org/.

Reversal of Fortune

The Economy



The past as prologue? Lining up for food and water, Louisville, Kentucky, 1937. By Margaret Bourke-White/Time & Life Pictures/Getty Images.


Reversal of Fortune

Describing how ideology, special-interest pressure, populist politics, and sheer incompetence have left the U.S. economy on life support, the author puts forth a clear, commonsense plan to reverse the Bush-era follies and regain America’s economic sanity.

By: Joseph E. Stiglitz

From: Vanity Fair

November 2008

When the American economy enters a downturn, you often hear the experts debating whether it is likely to be V-shaped (short and sharp) or U-shaped (longer but milder). Today, the American economy may be entering a downturn that is best described as L-shaped. It is in a very low place indeed, and likely to remain there for some time to come.

Virtually all the indicators look grim. Inflation is running at an annual rate of nearly 6 percent, its highest level in 17 years. Unemployment stands at 6 percent; there has been no net job growth in the private sector for almost a year. Housing prices have fallen faster than at any time in memory—in Florida and California, by 30 percent or more. Banks are reporting record losses, only months after their executives walked off with record bonuses as their reward. President Bush inherited a $128 billion budget surplus from Bill Clinton; this year the federal government announced the second-largest budget deficit ever reported. During the eight years of the Bush administration, the national debt has increased by more than 65 percent, to nearly $10 trillion (to which the debts of Freddie Mac and Fannie Mae should now be added, according to the Congressional Budget Office). Meanwhile, we are saddled with the cost of two wars. The price tag for the one in Iraq alone will, by my estimate, ultimately exceed $3 trillion.

This tangled knot of problems will be difficult to unravel. Standard prescriptions call for raising interest rates when confronted with inflation, just as standard prescriptions call for lowering interest rates when confronted with an economic downturn. How do you do both at the same time? Not in the way that some politicians have proposed. With gasoline prices at all-time highs, John McCain has called for a rollback of gas taxes. But that would lead to more gas consumption, raise the price of gas further, increase our dependence on foreign oil, and expand our already massive trade deficit. The expanding deficit would in turn force the U.S. to continue borrowing gargantuan sums from abroad, making us even more indebted. At the same time, the higher imports of oil and petroleum-based products would lead to a weaker dollar, fueling inflationary pressures.

Millions of Americans are losing their homes. (Already, some 3.6 million have done so since the subprime-mortgage crisis began.) This social catastrophe has severe economic effects. The banks and other financial institutions that own these mortgages face stunning reverses; a few, such as Bear Stearns, have already gone belly-up. To prevent America’s $5.2 trillion home financiers, Fannie Mae and Freddie Mac, from following suit, Congress authorized a blank check to cover their losses, but even that generosity failed to do the trick. Now the administration has taken over the two entities completely, a stunning feat for a supposedly market-oriented regime. These bailouts contribute to growing deficits in the short run, and to perverse incentives in the long run. Market economies work only when there is a system of accountability, but C.E.O.’s, investors, and creditors are walking away with billions, while American taxpayers are being asked to pick up the tab. (Freddie Mac’s chairman, Richard Syron, earned $14.5 million in 2007. Fannie Mae’s C.E.O., Daniel Mudd, earned $14.2 million that same year.) We’re looking at a new form of public-private partnership, one in which the public shoulders all the risk, and the private sector gets all the profit. While the Bush administration preaches responsibility, the words are addressed only to the less well-off. The administration talks about the impact of “moral hazard” on the poor “speculator” who borrowed money and bought a house beyond his ability to pay. But moral hazard somehow isn’t an issue when it comes to the high-stakes speculators in corporate boardrooms.

How Did We Get into This Mess?

A unique combination of ideology, special-interest pressure, populist politics, bad economics, and sheer incompetence has brought us to our present condition.

Ideology proclaimed that markets were always good and government always bad. While George W. Bush has done as much as he can to ensure that government lives up to that reputation—it is the one area where he has overperformed—the fact is that key problems facing our society cannot be addressed without an effective government, whether it’s maintaining national security or protecting the environment. Our economy rests on public investments in technology, such as the Internet. While Bush’s ideology led him to underestimate the importance of government, it also led him to underestimate the limitations of markets. We learned from the Depression that markets are not self-adjusting—at least, not in a time frame that matters to living people. Today everyone—even the president—accepts the need for macro-economic policy, for government to try to maintain the economy at near-full employment. But in a sleight of hand, free-market economists promoted the idea that, once the economy was restored to full employment, markets would always allocate resources efficiently. The best regulation, in their view, was no regulation at all, and if that didn’t sell, then “self-regulation” was almost as good.

The underlying idea was, on the face of it, absurd: that market failures come only in macro doses, in the form of the recessions and depressions that have periodically plagued capitalist economies for the past several hundred years. Isn’t it more reasonable to assume that these failures are just the tip of the iceberg? That beneath the surface lie a myriad of smaller but harder-to-assess inefficiencies? Let me venture an analogy from biology: A patient arrives at a hospital in serious condition. Now, it may be that the patient has simply fallen victim to one of those debilitating ailments that go around from time to time and can be cured by a massive dose of antibiotics. In this case we have a macro problem with a macro solution. But it could instead be that the patient is suffering from a decade of serious abuse—smoking, drinking, overeating, lack of exercise, a fondness for crystal meth—and that it has not only taken a catastrophic toll but also left him open to opportunistic infections of every kind. In other words, a buildup of micro problems has led to a macro problem, and no cure is possible without addressing the underlying issues. The American economy today is a patient of the second kind.

We are in the midst of micro-economic failure on a grand scale. Financial markets receive generous compensation—in the form of more than 30 percent of all corporate profits—presumably for performing two critical tasks: allocating savings and managing risk. But the financial markets have failed laughably at both. Hundreds of billions of dollars were allocated to home loans beyond Americans’ ability to pay. And rather than managing risk, the financial markets created more risk. The failure of our financial system to do what it is supposed to do matches in destructive grandeur the macro-economic failures of the Great Depression.

Economic theory—and historical experience—long ago proved the need for regulation of financial markets. But ever since the Reagan presidency, deregulation has been the prevailing religion. Never mind that the few times “free banking” has been tried—most recently in Pinochet’s Chile, under the influence of the doctrinaire free-market theorist Milton Friedman—the experiment has ended in disaster. Chile is still paying back the debts from its misadventure. With massive problems in 1987 (remember Black Friday, when stock markets plunged almost 25 percent), 1989 (the savings-and-loan debacle), 1997 (the East Asia financial crisis), 1998 (the bailout of Long Term Capital Management), and 2001–02 (the collapses of Enron and WorldCom), one might think there would be more skepticism about the wisdom of leaving markets to themselves.

The new populist rhetoric of the right—persuading taxpayers that ordinary people always know how to spend money better than the government does, and promising a new world without budget constraints, where every tax cut generates more revenue—hasn’t helped matters. Special interests took advantage of this seductive mixture of populism and free-market ideology. They also bent the rules to suit themselves. Corporations and the wealthy argued that lowering their tax rates would lead to more savings; they got the tax breaks, but America’s household savings rate not only didn’t rise, it dropped to levels not seen in 75 years. The Bush administration extolled the power of the free market, but it was more than willing to provide generous subsidies to farmers and erect tariffs to protect steelmakers. Lately, as we have seen, it seems willing to write blank checks to bail out its friends on Wall Street. In each of these cases there are clear winners. And in each there are clear losers—including the country as a whole.

What Is to Be Done?
As America attempts to work its way out of the present crisis, the danger is that we will listen to the same people on Wall Street and in the economic establishment who got us into it. For them, our current predicament is another opportunity: if they can shape the government response appropriately, they stand to gain, or at least stand to lose less, and they may be willing to sacrifice the well-being of the economy for their own benefit—just as they did in the past.

There are a number of economic tools at the country’s disposal. As noted, they can yield contradictory results. The sad truth is that we have reached the limits of monetary policy. Lowering interest rates will not stimulate the economy much—banks are not going to be willing to lend to strapped consumers, and consumers are not going to be willing to borrow as they see housing prices continue to fall. And raising interest rates, to combat inflation, won’t have the desired impact either, because the prices that are the main sources of our inflation—for food and energy—are determined in international markets; the chief consequence will be distress for ordinary people. The quandaries that we face mean that careful balancing is required. There is no quick and easy fix. But if we take decisive action today, we can shorten the length of the downturn and reduce its magnitude. If at the same time we think about what would be good for the economy in the long run, we can build a durable foundation for economic health.

To go back to that patient in the emergency room: we need to address the underlying causes. Most of the treatment options entail painful choices, but there are a few easy ones. On energy: conservation and research into new technologies will make us less dependent on foreign oil, reduce our trade imbalance, and help the environment. Expanding drilling into environmentally fragile areas, as some propose, would have a negligible effect on the price we pay for oil. Moreover, a policy of “drain America first” will make us more dependent on foreigners in the future. It is shortsighted in every dimension.

Our ethanol policy is also bad for the taxpayer, bad for the environment, bad for the world and our relations with other countries, and bad in terms of inflation. It is good only for the ethanol producers and American corn farmers. It should be scrapped. We currently subsidize corn-based ethanol by almost $1 a gallon, while imposing a 54-cent-a-gallon tariff on Brazilian sugar-based ethanol. It would be hard to invent a worse policy. The ethanol industry tries to sell itself as an infant, needing help to get on its feet, but it has been an infant for more than two decades, refusing to grow up. Our misguided biofuel policy is taking land used for food production and diverting it to energy production for cars; it is the single most important factor contributing to higher grain prices.

Our tax policies need to be changed. There is something deeply peculiar about having rich individuals who make their money speculating on real estate or stocks paying lower taxes than middle-class Americans, whose income is derived from wages and salaries; something peculiar and indeed offensive about having those whose income is derived from inherited stocks paying lower taxes than those who put in a 50-hour workweek. Skewing the tax rates in the other direction would provide better incentives where they count and would more effectively stimulate the economy, with more revenues and lower deficits.

We can have a financial system that is more stable—and even more dynamic—with stronger regulation. Self-regulation is an oxymoron. Financial markets produced loans and other products that were so complex and insidious that even their creators did not fully understand them; these products were so irresponsible that analysts called them “toxic.” Yet financial markets failed to create products that would enable ordinary households to face the risks they confront and stay in their homes. We need a financial-products safety commission and a financial-systems stability commission. And they can’t be run by Wall Street. The Federal Reserve Board shares too much of the mind-set of those it is supposed to regulate. It could and should have known that something was wrong. It had instruments at its disposal to let the air out of the bubble—or at least ensure that the bubble didn’t over-expand. But it chose to do nothing.

Throwing the poor out of their homes because they can’t pay their mortgages is not only tragic—it is pointless. All that happens is that the property deteriorates and the evicted people move somewhere else. The most coldhearted banker ought to understand the basic economics: banks lose money when they foreclose—the vacant homes typically sell for far less than they would if they were lived in and cared for. If banks won’t renegotiate, we should have an expedited special bankruptcy procedure, akin to what we do for corporations in Chapter 11, allowing people to keep their homes and re-structure their finances.

If this sounds too much like coddling the irresponsible, remember that there are two sides to every mortgage—the lender and the borrower. Both enter freely into the deal. One might say that both are, accordingly, equally responsible. But one side—the lender—is supposed to be financially sophisticated. In contrast, the borrowers in the subprime market consist mainly of people who are financially unsophisticated. For many, their home is their only asset, and when they lose it, they lose their life savings. Remember, too, that we already give big homeowner subsidies, through the tax system, to affluent families. With tax deductions, the government is paying in some states almost half of all mortgage interest and real-estate taxes. But many lower-income people, whose deductions are meaningless because their tax bill is too small, get no help. It makes much more sense to convert these tax deductions into cashable tax credits, so that the fraction of housing costs borne by the government for the poor and the rich is the same.

About these matters there should be no debate—but there will be. Already, those on Wall Street are arguing that we have to be careful not to “over-react.” Over-reaction, we are told, might stifle “innovation.” Well, some innovations ought to be stifled. Those toxic mortgages were certainly innovative. Other innovations were simply devices to circumvent regulations—regulations intended to prevent the kinds of problems from which our economy now suffers. Some of the innovations were designed to tart up the bottom line, moving liabilities off the balance sheet—charades designed to blur the information available to investors and regulators. They succeeded: the full extent of the exposure was not clear, and still isn’t. But there is a reason we need reliable accounting. Without good information it is hard to make good economic decisions. In short, some innovations come with very high price tags. Some can actually cause instability.

The free-market fundamentalists—who believe in the miracles of markets—have not been averse to accepting government bailouts. Indeed, they have demanded them, warning that unless they get what they want the whole system may crash. What politician wants to be blamed for the next Great Depression, simply because he stood on principle? I have been critical of weak anti-trust policies that allowed certain institutions to become so dominant that they are “too big to fail.” The harsh reality is that, given how far we’ve come, we will see more bailouts in the days ahead. Now that Fannie Mae and Freddie Mac are in federal receivership, we must insist: not a dime of taxpayer money should be put at risk while shareholders and creditors, who failed to oversee management, are permitted to walk away with anything they please. To do otherwise would invite a recurrence. Moreover, while these institutions may be too big to fail, they’re not too big to be reorganized. And we need to remember why we’re bailing them out: in order to maintain a flow of money into mortgage markets. It’s outrageous that these institutions are responding to their near-monopoly position by raising fees and increasing the costs of mortgages, which will only worsen the housing crisis. They, and the financial markets, have shown little interest in measures that could help millions of existing and potential homeowners out of the bind they’re in.

The hardest puzzles will be in monetary policy (balancing the risks of inflation and the risk of a deeper downturn) and fiscal policy (balancing the risk of a deeper downturn and the risk of an exploding deficit). The standard analysis coming from financial markets these days is that inflation is the greatest threat, and therefore we need to raise interest rates and cut deficits, which will restore confidence and thereby restore the economy. This is the same bad economics that didn’t work in East Asia in 1997 and didn’t work in Russia and Brazil in 1998. Indeed, it is the same recipe prescribed by Herbert Hoover in 1929.

It is a recipe, moreover, that would be particularly hard on working people and the poor. Higher interest rates dampen inflation by cutting back so sharply on aggregate demand that the unemployment rate grows and wages fall. Eventually, prices fall, too. As noted, the cause of our inflation today is largely imported—it comes from global food and energy prices, which are hard to control. To curb inflation therefore means that the price of everything else needs to fall drastically to compensate, which means that unemployment would also have to rise drastically.

In addition, this is not the time to turn to the old-time fiscal religion. Confidence in the economy won’t be restored as long as growth is low, and growth will be low if investment is anemic, consumption weak, and public spending on the wane. Under these circumstances, to mindlessly cut taxes or reduce government expenditures would be folly.

But there are ways of thoughtfully shaping policy that can walk a fine line and help us get out of our current predicament. Spending money on needed investments—infrastructure, education, technology—will yield double dividends. It will increase incomes today while laying the foundations for future employment and economic growth. Investments in energy efficiency will pay triple dividends—yielding environmental benefits in addition to the short- and long-run economic benefits.

The federal government needs to give a hand to states and localities—their tax revenues are plummeting, and without help they will face costly cutbacks in investment and in basic human services. The poor will suffer today, and growth will suffer tomorrow. The big advantage of a program to make up for the shortfall in the revenues of states and localities is that it would provide money in the amounts needed: if the economy recovers quickly, the shortfall will be small; if the downturn is long, as I fear will be the case, the shortfall will be large.

These measures are the opposite of what the administration—along with the Republican presidential nominee, John McCain—has been urging. It has always believed that tax cuts, especially for the rich, are the solution to the economy’s ills. In fact, the tax cuts in 2001 and 2003 set the stage for the current crisis. They did virtually nothing to stimulate the economy, and they left the burden of keeping the economy on life support to monetary policy alone. America’s problem today is not that households consume too little; on the contrary, with a savings rate barely above zero, it is clear we consume too much. But the administration hopes to encourage our spendthrift ways.

What has happened to the American economy was avoidable. It was not just that those who were entrusted to maintain the economy’s safety and soundness failed to do their job. There were also many who benefited handsomely by ensuring that what needed to be done did not get done. Now we face a choice: whether to let our response to the nation’s woes be shaped by those who got us here, or to seize the opportunity for fundamental reforms, striking a new balance between the market and government.

Joseph E. Stiglitz, a Nobel Prize–winning economist, is a professor at Columbia University.

Rescue Wall Street--and the Rest of Us

By: United States Senator Bernie Sanders

[Note: Bernie Sanders from Vermont is the only socialist in the United States Senate.]


For years, as a member of the House Banking Committee and now as a member of the Senate Budget Committee, I have heard the Bush administration tell us how "robust" our economy was and how strong the "fundamentals" were. That was until a few days ago. Now, we are being told that if Congress does not act immediately and approve the $700 billion Wall Street bailout proposal these "free marketers" have just written up, there will be an unprecedented economic meltdown in the United States and an unraveling of the global economy.

This proposal as presented is an unacceptable attempt to force middle-income families (and our children) to pick up the cost of fixing the horrendous economic mess that is the product of the Bush administration's deregulatory fever and Wall Street's insatiable greed. If the potential danger to our economy was not so dire, this blatant effort to essentially transfer $700 billion up the income ladder to those at the top would be laughable.

Let us be clear. If the economy is on the edge of collapse we need to act. But rescuing the economy does not mean we have to just give away $700 billion of taxpayer money to the banks. (In truth, it could be much more than $700 billion. The bill only says the government is limited to having $700 billion outstanding at any time. By selling the mortgage-backed assets it acquires--even at staggering losses--the government will be able to buy even more resulting is a virtually limitless financial exposure on the part of taxpayers.) Any proposal must protect middle-income and working families from bearing the burden of this bailout.

I have proposed a four-part plan to accomplish that goal that includes a five-year, 10 percent surtax on the income of individuals above $500,000 a year, and $1 million a year for couples; a requirement that the price the government pays for any mortgage assets are discounted appropriately so that government can recover the amount it paid for them; and, finally, the government should receive equity in the companies it bails out so that when the stock of these companies rises after the bailout, taxpayers also have the opportunity to share in the resulting windfall. Taken together, these measures would provide the best guarantee that at the end of five years, the government will have gotten back the money it put out.

Second, in addition to protecting the average American from being saddled with the cost, any serious proposal has to include reforms so that we end the type of behavior that led to this crisis in the first place. Much of this activity can be traced to specific legislation that broke down regulatory safety walls in the financial sector and allowed banks and others to engage in new types of risky transactions that are at the heart of this crisis. That deregulation needs to be repealed. Wall Street has shown it cannot be trusted to police itself. We need to reinstate a strong regulatory system that protects our economy.

Third, we need to address the needs of working families in this country who are today facing very difficult times. If we can bail out Wall Street, we need to respond with equal vigor to their plight. That means, for example, creating millions of jobs through major investments in rebuilding our crumbling infrastructure and creating a new renewable energy system. We must also make certain that the most vulnerable Americans don't freeze in the winter or die because they lack access to primary healthcare.

Finally, we need to protect ourselves from being at the mercy of giant companies that are "too big to fail," that is, companies who are so large that their failure would cause systemic harm to the economy. We need to assess which companies fall into this category and insist they are broken up. Otherwise, the American taxpayer will continue to be on the financial hook for the risky behavior, the mismanagement and even the illegal conduct of these companies' executives.

These are the last days of the Bush administration, the most dishonest and incompetent in modern American history. It is imperative that, at this important moment, Congress stand up for the middle class and for fiscal integrity. The future of our country is at stake.

Capitalism reaches a crossroads

By: Carl Bloice


“Even now, someone somewhere is penning a book with a snappy title The End of Capitalism,” columnist Philip Stephens, associate editor of the Financial Times wrote recently. Not to worry, he continued, that’s not about to happen. However, eight days earlier Martin Wolf, associate editor and chief economics commentator at the same paper observed that what was “until recently, the brave new financial system is melting away before our eyes.” On the night of September 18 members of Congress were summoned to a Capitol Hill conference room where they were told that if they did not act quickly to approve a radical revamp of how the government deals with the economy, capitalism might indeed collapse. That’s before President George W. Bush said, “If money isn’t loosened up, this sucker could go down.”

Not to worry, cautioned the editor of the conservative German newspaper Die Weit. “These are all trials and crises, but they will not spell the end of America’s distinctiveness.”

“The country will never convert to socialism, nor will it become a mega-state. Faced with similar circumstances, that might be the response of the pessimistic Europeans. America’s culture of optimism - which all too often gets on the Europeans’ nerves because they consider it to be naïve and superficial - also has the power to identify a setback as exactly that and not the end of the world,” the paper editorialized. That was a few days before the U.S. Treasury took responsibility for the well-being of distressed financial institutions all over the world.

No, the U.S. is not about to become socialist any time too soon. That alternative has not been placed before the public in a way that could be considered preferable to what we’ve got. Besides, a system ceases to be when it is replaced by something else. But with each passing day, as the crisis has deepened, it has become more and more obvious that “unfettered” capitalism and “market fundamentalism” and the neo-liberal policies they produce are discredited. Indeed, most of the world had rejected them before the current crisis began.


“The globalization agenda has been closely linked with the market fundamentalists - the ideology of free markets and financial liberalization,” economist Joseph Stiglitz told Nathan Gardels on the Huffington Post recently. “In this crisis, we see the most market-oriented institutions in the most market-oriented economy failing and running to the government for help.” Everyone in the world will say now that this is the end of market fundamentalism.

“In this sense, the fall of Wall Street is for market fundamentalism what the fall of the Berlin Wall was for communism - it tells the world that this way of economic organization turns out not to be sustainable,” said Stiglitz. “In the end, everyone says, that model doesn’t work. This moment is a marker that the claims of financial market liberalization were bogus.”

Conservative commentator and political operative, Newt Gingrich, has come up with the terms “crony capitalism” and “bureaucratic capitalism,” both of which he says will be the outcome of the Bush Administration’s bailout scheme. The former will mean “a welfare state for rich investors,” he says, the latter “salary caps and other government regulatory requirements which would drive the ‘private’ out of ‘private enterprise’.”

There’s a lot of talk out there about the bailout being “socialism for the rich.” That’s all so much seemingly clever rhetoric designed to make a political point, but of no substance. Nothing the Bush Administration is pushing (with the help of a Democratic Congress) bears any resemblance to anything that could remotely be called socialism. In fact, it looks far more like Italy under Mussolini than the USSR under Brezhnev. As truthdig.com columnist Robert Sheer noted last week, “what is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as ‘financial fascism’.”

The new Treasury Department fund “will share many characteristics of the expanding government-sponsored pools known as sovereign funds,” wrote Landon Thomas, Jr. in the New York Times September 23.

“The new fund, assuming it is approved by Congress, could pull the United States deeper into a form of capitalism in which the most powerful financial entities are not risk-happy investment banks, but more cautious state-sponsored entities,” wrote Thomas. “While not necessarily a third economic way, this general approach presumes that the government - in addition to the private sector - plays a crucial role in deciding how best to deploy a nation’s investment capital.”

“This gets to the point of state capitalism and defining what the role of the government is in a free-market economy,” Douglas Rediker, a former investment banker at the New America Foundation in Washington, told Thomas.

“The result of the bailout would be that the government would virtually control many of the largest financial institutions in the country,” wrote Dan La Botz in Monthly Review online. “The U.S. government and the banks of the country would suddenly be fused - or perhaps entangled would be a better word - into one extremely powerful political-economic entity. While the proposal does not envision state control of the economy as a long-term proposition, merely long enough to save the bankers, still the impact of the current proposals now being debated in Congress will be far-reaching. The American government and the people have suddenly found themselves at a turning point which was not foreseen and for which no one was prepared.”

“If you wanted to devise a name for this approach, you might pick the phrase economist Arnold Kling has used: Progressive Corporatism.,” wrote Times columnist David Brooks the same day. “We’re not entering a phase in which government stands back and lets the chips fall. We’re not entering an era when the government pounds the powerful on behalf of the people. We’re entering an era of the educated establishment, in which government acts to create a stable - and often oligarchic - framework for capitalist endeavor.”

“After a liberal era and then a conservative era, we’re getting a glimpse of what comes next,” wrote Brooks

I can hardy wait.

An inevitable consequence of globalization is that many of the critical problems facing the planet today can only be solved through international cooperation and coordination. These include: climate change and other threats to the biosphere, aids and other infectious diseases, human migration and international finance.

The current economic crisis is an international one yet the recourse chosen by Washington to deal with it globally is to “press” other countries to adopt measures similar to those adopted in the U.S. Under such circumstances the chance of a collective effort to restructure world capitalism would seem remote, if possible. But the demand for such is out there and how our country responds will go a long way in determining the contours of international affairs for decades to come. One has only to grasp the nature of the remarks at the recent opening of the United National General Assembly to appreciate the seriousness of the challenge.

Last week in New York, one after another, heads-of-state rose to the Assembly rostrum to drive home the message: the “credit crunch” in the U.S. is much more than a crisis in U.S. banking; it reflects a problem threatening economic devastation across the globe. It requires an international cooperative effort in which diktat, posing as “leadership”, cannot be tolerated. Don’t even think about handing the problem to the World Bank or the International Monetary Fund. The UN itself should be the arena for countries to discuss a solution for the global financial crisis, said Brazil’s President, Luiz Inacio Lula da Silva: “The global nature of this crisis means that the solutions we adopt must also be global, and decided upon within legitimate, trusted multilateral forum, with no impositions.”

Arguably some of the strongest remarks to the UN came from the leaders of Latin American countries but the most fundamental challenges came from traditional U.S. allies such as France and Germany. These are capitalist countries and for the foreseeable future will remain so. But they have a strikingly different view of how the international economy should function.

German chancellor, Angela Merkel, even revealed that an attempt had been made to enlist Washington in a collective effort to head off the crisis. At last year’s meeting of the major industrial powers, she said, she had - in the world of the New York Times - “strongly urged both the United States and Britain to be more rigorous in supervising financial activities, and even offered specific proposals to be applied to banks and other institutions.” But the U.S. was unresponsive, she said, while seeming “to express a certain exasperation that the United States was now asking Europe for help, after inflicting damage on the rest of the world that could have been avoided.”

“At the moment, I don’t think Japan needs to launch a program similar to that of the United States,” Japanese Vice Finance Minister Kazuyuki Sugimoto told reporters in Tokyo, while the European Union let it be known that its members would not be putting up money to rescue banks. “This crisis originated in the

US and is mainly hitting the US,” German Finance Minister Steinbeck said last week. In Europe and Germany, such a package would be “neither sensible nor necessary.”

The U.S. “has not only turned away from decades of rhetoric about the virtues of the free market and the dangers of government intervention, but it has also probably undercut future American efforts to promote such policies abroad,” wrote the New York Times’ Nelson Schwartz from Paris September 18. And most of the other governments are none to happy about it. Japanese commentators were quick to note that the Treasury bailout is precisely what Washington told them not to try when that country faced an economic crisis only a few years ago. (A condition of help for South Korea when it faced an economic crisis in the 90s was that Seoul not bail out banks and other failing enterprises.)

Last Friday, editors of the center-right German newspaper Allegemeine Zeitung compared the U.S. financial crisis to 911 saying “this time, the attack on all-American doctrines is not the work of some foreign enemy. It comes from within, from the depths of the system. Largely unobstructed by its own state controls, American capitalism has created its own suicide bomber whose explosives - derivatives - have had an even greater effect than the flying bombs of the jihadists. The whole world - and not just New York - has a new ground zero now - Wall Street.”

French political leaders immediately seized on the latest bailout moves to trumpet their own version of “economic patriotism.” “We’re not going to accept to pay for the broken dishes of a failed regulation” and a “corruption of capitalism,” said French Prime Minister Francois Fillon. Nicolas Sarkozy has called for a world to “learn the lessons of the worst financial crisis since the 1930s.” He proposed to “moralize” capitalism, freeing it from speculators whom he labeled “the new terrorists.” Last week, as President Bush went on television to admit the crisis is grave, Sarkozy stoutly defended capitalism but observed that “A certain idea of globalization is drawing to a close with the end of a financial capitalism that had imposed its logic on the whole economy and contributed to perverting it.”

“The crisis is not a crisis of capitalism,” said Sarkozy. “It is the crisis of a system that is far from the values of capitalism and betrayed capitalism.”

In 2006, long before there was any acknowledgement of the chaos to come (I put it that way because working people in the U.S. were already facing home foreclosures),when the world’s elite gathered at Davos, Switzerland, chancellor Merkel had observed that “What we have is a completely new balance of power in the world today.”

That too was evident in the General Assembly debate. In prior years no one would have expected Latin American governments to openly challenge Washington and Wall Street’s conduct in the international economy. However, over a brief recent period, left-leaning political forces have taken power electorally in a number of countries, having in common a rejection of the exploitative policies of the World Bank and IMF, and the influence of the same “market fundamentalists” that the Asians are repulsing and who have led the U.S., itself, into the present economic cul-de-sac.

No one was surprised that Cuban first vice-president Jose Ramon Machado Ventura would tell the UN that the drive for profits was increasing poverty and that the current crisis threatened the “existence of mankind.” “Fabulous fortunes cannot be wasted while millions are starving and dying of curable diseases,” he said. “For a large part of the non-aligned nations, the situation is becoming unsustainable. Our nations have paid and will continue to pay the cost and consequences of the irrationality, wastefulness and speculation of a few countries in the...north.”

“The prevailing world order, unjust and uncontained, must be replaced,” Machado Ventura said.

“We don’t want to conceive of the idea that the rescue of the dignity of the world’s poor does not have the same priority or the same urgency of saving the institutions that operate the most powerful financial centre in the world,” said Dominican Republic president Leonel Fernandez. “We need an international financial plan that is as urgent and as bold as the one to save Freddie Mac, Fannie Mae, Bear Stearns, Merrill Lynch and American International Group.” Fernandez added that while $700 billion is being set aside to rescue U.S. financial institutions, for something like $50 billion millions around the world could be spared a miserable existence.

“We’re not going to accept to pay for the broken dishes of a failed regulation” and a “corruption of capitalism,” said French Prime Minister Francois Fillon. Sarkozy called for a world to “learn the lessons of the worst financial crisis since the 1930s.” “Let’s create a regulated capitalism,” he said.

On September 24 in Berlin, German Finance Steinbruck repeated Merkel’s charge that Washington had, last year, resisted specific calls for regulations in the financial marketplace. “Crisis management alone will not rebuild the lost confidence,” he said. “We must civilize financial markets, and not just through moral appeals against excess and speculation. Self-regulation is no longer sufficient.” The US belief in “laisser-faire capitalism; the notion that markets should be as free as possible from regulation; these arguments were wrong and dangerous,” he said. “This largely under-regulated system is collapsing today.”

Steinbeck went on to propose new regulations and said that amid the current economic crisis the US is poised to lose its role as a global financial “superpower.” The new world will become “multipolar” with the emergence of stronger, better capitalized centers in Asia and Europe, he said.

Meanwhile, Oskar Lafontaine, leader of Germany’s fast growing and increasingly influential Left Party, said the world is confronted with more than a banking or economic crisis and – in the words of Der Spiegel – “but rather one of the entire intellectual and moral direction of Western society.” “We no longer have a social market economy because of the regimes of the international financial markets,” Lafontaine said the consequence of which is increased privatization of the social services and a threat to the retirement security of millions of people. Lafontaine said the Left party wants the re-creation of a Bretton Woods-style system of foreign exchange controls with fixed trading bands, controls on international capital flows and on financial products.

“We believe that financial products should be forced to get official stamps of approval just like pharmaceutical products,” Lafontaine, the former head of the country’s Social Democratic Party, said. “Because the bitter truth is that many extremely greedy bankers don’t even understand themselves what they’ve done. These are people who started something without knowing what they were doing and it’s ended in disaster.”

“When enough banks have been nationalized or gone bust, when the last reputations have been properly shredded, and when prices of Fifth Avenue apartments and Mayfair town houses have fallen finally to earth, politicians are going to have to think hard about the lessons of the financial crash of 2008,” wrote Stephens of the Financial Times. “Even now, someone somewhere is penning The End of Capitalism. Experience tells us snappy book titles should be treated with caution. The global financial system will never be the same again. But just as history survived the collapse of communism, so the market economy will weather the demise of Bear Stearns, Lehman, Merrill Lynch and HBOS.”

”The credit crunch and the financial firestorm have also provided a neat metaphor for the big shift in economic power in the world,” writes Stephens. He goes on to endorse the call for “more global governance: credible international rules.”

“Capitalism will survive these financial shocks,” said Stephens. Probably it will; in any case it’s good to have faith.

On Monday, the House of Representatives voted down the final draft of the bailout plan hurriedly crafted by the Administration and Congressional leaders from the two major parties. This set the stage for what was certain to be desperate attempts to put together a compromise that could win legislative approval. This takes place against a backdrop of widespread public opposition to the original plan and ever greater turmoil in the foreign money markets and on Wall Street.

Meanwhile, the dangers and challenges over the next few weeks and months are enormous. On the world scene, the U.S. could join in an international – and more democratic - effort at reconstructing capitalism in an effort to save it, or the White House – whoever lives there – and the Congress could lead us along a path of international isolation in which the rest of the world goes about its business, leaving us in economic mire. On the home front, the policymakers could enshrine a new form of corporate and more authoritarian capitalism or enact policies bent toward greater equality, solidarity and social and economic justice (things real socialists have never ceased advocating). The latter is what we should be insisting.

BlackCommentator.com Editorial Board member Carl Bloice is a writer in San Francisco, a member of the National Coordinating Committee of the Committees of Correspondence for Democracy and Socialism and formerly worked for a healthcare union.