Republican economic policy includes taxpayer-funded corporate daycare
Hi, it’s Meg again. I was ruminating on boarded-up buildings this weekend, and that was before hearing about Paulson’s bailout of Freddie Mac and Fannie Mae. The whole thing seemed so familiar…
One of the favorite assurances of Republicans for longer than I’ve been around is low taxes. Even the least of the politically-aware citizens of this nation know the supposed main difference between Republicans and Democrats is that Democrats tax and spend, while Republicans cut both taxes and government programs.
While the current occupant of the White House isn’t exactly known for his frugality in government spending, he is highly associated with tax cuts. Sure, the deficit is ever-growing, but how can you say a man who hands you $300 doesn’t care about gas prices and ballooning mortgages?
But what good is a tax cut when the taxes we still do pay go to rescuing failing businesses? And don’t even get me started on the proposed gas tax holiday that would pilfer federal funds dedicated to highway infrastructure!
In light of the pending bailout of Fannie Mae and Freddie Mac (on the heels of the Bear Stearns rescue operation and multiple interest rate cuts), it’s time to re-examine the idea of a tax cut, free markets, and capitalism.
First, the idea that a failing business should be bailed out as a matter of course is dangerous to the idea of free market capitalism. However, the “moral hazard” game is one Republicans would rather play with individual homeowners than corporations. “If we bail you out now,” they say to us as if we were teenagers spending our college fund on a jalopy, “you’ll never learn.”
However, as former Secretary of Labor Robert Reich so artfully points out in his blog, individuals learn from their mistakes, while corporations do not. He also notes that corporations should be held to a higher standard:
“Many of the mostly poor home buyers who got into trouble did NOT in fact know they couldn’t afford the mortgage payments they were signing on to. The banks and mortgage lenders that pulled out all the stops to persuade them to the contrary were in a far better position to know; after all, they had lots of experience at this game. So did the credit-rating agencies that gave these loans solid credit ratings, as did the financiers who bundled them with less-risky loans and sold them to other financial institutions, and the hedge fund managers who quietly tucked them into their portfolios.”
Clearly, it’s a bad precedent to set in a free market system. Furthermore, when the government bails out companies that made bad bets, it’s taxpayers who foot the bill.
After saying the government wouldn’t bail the two out last week, Treasury Secretary Henry Paulson announced the bailout of mortgage holders and backers Fannie Mae and Freddie Mac this weekend. The plan still needs Congressional approval, which Paulson hopes will come in the form of an add-on to the housing bill currently being finalized by lawmakers.
The brother and sister in mortgages guarantee nearly half of mortgages in the U.S. Paulson’s plan seems reasonable, until you look at the fact that Freddie and Fannie are not benevolent government-owned loan providers. Fannie’s been in private hands since 1968 and Freddie has been since his invention.
Even the timing of the announcement belied the true beneficiaries of the deal. With the news coming out Sunday night, Wall Street could open on a sunnier note this morning.
The debate on the housing issue has not been about whether or not the government should step in. The housing crisis is so advanced and far-reaching that there is virtually no one who would debate the merits of financial isolationism at this point. Instead, the debate rages over who should get the help.
Democrats are more likely to favor homeowner assistance plans and the restructuring of unfair and impossible-to-repay subprime mortgages.
The Bush Administration has introduced paltry homeowner rescue schemes like FHA Secure with great fanfare, while still insisting the real answer to our economy’s woes are tax cuts. Whatever happened to spending our taxes wisely?
Personally, I’d rather use my tax money to help my neighbor get a restructured loan and keep my street lined with occupied homes. Instead, the city I live in is being depopulated of stable residents and my rent is going up because of the increased demand for non-permanent housing arrangements.
The same Republican philosophy was at work with Fed Chairman Ben Bernanke’s many interest rate cuts since the true nature of the housing crisis made itself apparent last year. Sure, it made loans easier to get. For financial institutions, that is. This was most apparent in the cut Bernanke made in the discount rate, allowing banks to get cheaper federal loans.
Now come reports that students can’t go off to college this fall, not because they can’t afford it (no, that’s been the case for decades), but because they can’t secure a loan.
What it all comes down to is a repeat of financial disasters of the past. Republican-led deregulation in the banking industry led to scandal, financial chaos and finally the Resolution Trust Corporation in 1989. This was a similar bailout notion ostensibly in order to help out an economy beaten down by the trickle-up economic policies of the Reagan Administration. But instead of helping out the economy, taxpayer money again went corporations.
Joseph Stiglitz wrote that the Resolution Trust Corporation was a sufficiently confusing and opaque way for Republicans to get support for subsidizing the banking industry.
History keeps repeating itself. A Republican administration trashes the economy until businesses begin to suffer (well after people like you and me lose our houses and jobs). Then, the government bails out businesses with a fancy word or two about bootstraps on the side.
July 15th, 2008 at 12:05 am
There will be pain, but it won’t be shared by all. Those who aren’t even capable of feeling your pain, certainly don’t want to feel pain themselves.
We the sheeple get to, once again, bail out the big bad wolf.
July 15th, 2008 at 1:11 am
actually - i waited for a post like that after the news
isn’t it a joke - the High Priests of Privatization DO clean and pure socialism (what else is buying the shares with taxes => ownership: government, huh?)
the “good” is to support “our elites”, not the “dull people” - we need elites! You know, “egalitarian = dull = regimented = communism”
= Pavlov Reflex, perfectly implemented by the Mind Making Money (The “Man” behind the Curtain)
= best protection against a working democracy, against “for the people, by the people”…
but that’s the same with import duties and subsidies to protect MY market, with Eads and Boeing, with tax paid wars for oil while not “caring about gas prices and ballooning mortgages” for the common people
Privatization and Free Market is not a fact/science - it is a religion. You can see it by just looking at the way they preach Free Market and Profits - they do it as maximum, not as optimum, mathematically seen. They talk about maximizing profits - but without restrictions. It is not about “maximizing profits under consideration of…” (e.g. “unworthy things” like future or humanity or environment), no! “Maximizing profits” is an end in itself. And a strategy like that is not survivable in a universe of conservation of energy
but an optimum would be - optima are survivable
the next thing you can see, that Privatization is a religion - and as most religions made for supporting the current Brahmans - is the way, they preach it. Privatization should fix everything - from First to Third World it brings happiness and heaven - that’s pure religion, isn’t it? Since the Fall of the Wall Privatization flooded the world - long enough to verify the results! But the wealth has not grown, to the contrary (at least not in the promised way - the superrich got richer, that is true - paid by the rest of the world)
the Holy Privatization did not repair the world - it just took the infrastructures, paid by taxes and exploited it without caring for it, because “care and repair is too expensive - we need TAXES to build the infrastructures”
isn’t that the song, we hear always and ever and everywhere?
and so - it is not really a surprise, when priests say something and do the other, isn’t it?
Think of the love, the Pope preaches - and what happens to the children…
only the latter is true, because corporations as “bodiless” information processing systems cannot “feel” the consequences of their deeds - but that is the same for rich and powerful individuals - like Mr. George W. Bush
born in an elite family, his money always protected him from paying for his failures - so he never could and will learn
only the “common individuals” have to pay the prices for their mistakes => learn from mistakes
it is always about physics - isn’t it? About cause and effect - and if you cannot see/feel the effect, you will never understand the power of the cause…
griiiiiiiiiiiiiiiin - i guess, Steve would raise his eyebrows
July 15th, 2008 at 1:34 am
The cemetery business is big business. In most big cemeteries, they guarantee upkeep. I hope that every ass who voted for Phil Gramms bills to deregulate industries, (and Gramm,as well) will be lying in weed-infested plots with tipped-over, graffitti marked headstones, having paid the earth to be there. All of them should have epitaphs that read: “What goes around, comes around.”
July 15th, 2008 at 2:34 pm
More computer trouble?
I thought about you yesterday when I used one of your words (sheeple) in my comment. Good to hear from you.
July 16th, 2008 at 1:31 am
We will have to bail-out the airlines next, plus all the banks going under. Shades of the Savings and Loan Debacle. Neil Bush was in on that mess up to his a.. Was rescued by Daddy Bush, as usual.
I have gotten two emails from airline executives asking me to go to a website called: “Stop Oil Speculators”, and answer their action alerts. I am glad to do it, as I have known that oil specualtion was driving the price of gasoline for years now. But, here are the fat-cat corporate types asking their coach class customers to help them out against corrupt capitalism. I admit to a bit of Schadenfreude. I am sure they all hot-footed it to the polls in 2000 and 2004 to vote for their free-market Darling Dubya. Ha! Shot themselves in the foot, by golly! I emailed them back to let them know that McCain is not going to alleviate their pain. His economic advisor is Phil Gramm, who would de-regulate everything that moves, let the bodies fall where they may. There WERE regulations against speculating, but Old Fart Phil had them done away with. Voila! Oil speculation. Voila! Home Foreclosure Crisis. Voila! Bank Closings. But, he IS McCAIN’S GO-TO GUY on the ECONOMY!!! Want to see more bailouts, collapses and crises? Vote McCain For More of the Same.
Laissez-faire capitalism is all about greed. The buck is the bottom line. Workers can die due to bad work conditions. Children can be poisoned by phthlates in their toys. Food can be tainted. The air, water and soil can be poisoned. No matter. Making a big profit is the Big Kahuna. Supposedly, the market will solve all problems. Baloney. The body count has to be considerable before any notice is taken of it. Even then, corrupt corporate practices will continue unabated without regulation, stiff fines and penalties, and serious investigations (all smirked at and abandoned by Bush.) The Chambers of Commerce of this country love to lick the boots of bums like Bush. They work themselves into a frenzy over “liberal, left-wing, pinko, tree-hugging” Democrats. As the economy continues to falter, with more and more
empty store fronts, let us see how long it takes those Chambers of Commerce types to realize they have had their heads up their patooties for too many years. There is a price to pay for greed, avarice and corruption. You can bet the farm on it.
July 17th, 2008 at 12:48 am
me too - but i have a problem. My son is young and hopeful and therefore believes in the “you can do what you want” (while most elderly people know - like Woody Allan - it is more/all about luck “There are moments in a match when the ball hits the top of the net and for a split second it can either go forward or fall back. With a little luck it goes forward and you win. Or maybe it doesn’t and you lose.”)
as i mentioned the speculators, he asked me “how do they do that”?
and i couldn’t answer that precisely/exactly - looking at history, it is very plausible, that speculators can make money from muck (”pecunia non olet”), but i always try to verify things - and he knows that and asked me “how”. Usually i would not be able to stop before i know that, but at the moment, i have no time…
so please - do YOU know how oil speculations work - precisely?
please, Larkrise et al., can you provide some links for me?
but problem in a linked world like the human society is - if you are strong enough you can “reroute” the price - and so others have to pay
those are the moments when i think about the “good” of death. Reminds me of a song i’ve heard some time ago about the lower, middle and upper class, about the people without hope, the people neither fish nor fowl and the people who stink against the wind because they make money from sh*t. But, the song says, don’t worry, be happy! In the end - we all go to hell - and there, we meet again…
on the bottom line ;-).
July 18th, 2008 at 3:12 pm
Here’s some explanation about oil commodities speculation from Ralph Nader
July 18th, 2008 at 3:18 pm
And here is Greg Palast’s even more informed input on the rise in oil prices.
July 19th, 2008 at 1:02 am
Dear Again: Here are some Links:
“Oil experts: Curb Speculation to Cut Prices” June 24, 2008
Paul Krugman does not agree that speculation is raising oil prices. I think it is a combination of factors, eg. Increased demand from China, India, U.S.,
Middle East instability, Big Oil corruption and avarice, time-limited supply, i.e. We know that we are approaching the time when major oil producers will no longer have vast reservoirs of oil, and oil speculation. These factors have combined to produce high prices. But, the commodities market is as volatile as the Stock Market. If there are big storms in the Gulf of Mexico, if another war breaks out in the Middle East, if there are major shut-downs in oil refineries, these will affect the price of oil, even if supply is not immediately affected or affected at all.
July 20th, 2008 at 8:58 am
juliinjax & Larkrise
thank you very much! Really helpful links - stored them immediately
yes, i know - and therefore, the high prices are not that bad - IMHO - because how else are people to convince to care for energy/environment? Sadly, most of them (not only the pampered rich sons) ignore the own responsibility for future, isn’t it? I remember so many persons in winter opening the window to control temperature - without turning off the heating - as long as it was not their own house - when others have to pay, why care? Maybe that will change now - and companies and cities will now bother about energy saving…
- but in julinjax links i found a very interesting quote
“Iran, for instance, is storing 25 million barrels of heavy, sour crude oil because, in the words of Hossein Kazempour Ardebili, Iran’s oil governor, “there are simply no buyers because the market has more than enough oil.”” (also: WSJ(5/21) Commodities Report: Futures Extend Oil’s Surge Crude Oil Spot Market Sees Oversupply, Not Scarcity, both referencing an article, i couldn’t find)
but i guess, now i understand, how it works
despite the fact, that i am not a fan of Mr. F. William Engdahl (Larkrise, your link was ‘Perhaps 60% of today’s oil price is pure speculation’?? ), he gave me an interesting hint in More on the real reason behind high oil prices:
“How many gullible lemmings followed behind with their money bets?”
because i often thought - in the last weeks - that the media are preparing people for high prices => they will accept it without asking questions or examining it => they will capitulate and not fight against it, but pay resignedly, when the price rises again - the Promised Land of Profits!
so i, admittedly, was suspicious about the whole situation - you know, cui bono…
in many of the articles, OTC and swap tradings are mentioned, things, more or less kept “secretly”
so if i “upgrade” my suspicion to not only fooling customers, but fooling small shareholders, too - i guess, you can make much money with that unholy alliance of the need for oil, the secrecy of the markets and the power over the media…