Out of Thin Air

What is money? It sounds like a simple question, right? Better yet, where does money come from? Doesn't it come from, as my wife jokingly said, "... the ATM?" While you can get money from an ATM, that is clearly not it's ultimate source. In reality the concept of money is not all that complicated, however, I'm willing to bet that many readers have some serious misconceptions about it. I would also argue that this is no accident. For the most part we are not taught nor encouraged to think in detail about the more fundamental concepts around money, and more broadly, economics. I think this is partly so because the corporate elites in our society, those who control most of the money and its power are more than happy for us to stay ignorant. What better way to push through outrageous bailouts, bonuses and job cuts than when most people are content to shrug their shoulders and mutter, "well, these guys are really smart, right, they must know what they are doing, right?" Moreover, if people understood better, understood the outrageous injustices present in our economic and monetary systems they might get so pissed off as to march off and change it! After all, we still live in a political democracy, and with enough mobilization and commitment the will of the people can still be a powerful force.

So, this will begin a series of posts where I attempt to focus in on some common misconceptions about our economic system, and why I think it needs to be reorganized around the needs of people, and not the needs of money. Before beginning I have to confess to harboring from a rather young age a strong dose of skepticism around the wonders of "free market" economics. In college I remember taking a first economics course and upon finishing deciding I could not stomach any more. I think this revulsion was largely a combination of two factors. First, it often seemed that the simple models of how our market driven system was supposed to work were so crude and simplistic as to be virtually worthless when applied in the real world, and second, even in spite of this apparent crudeness the implication was that these economic "laws" were somehow akin to physics. The assumption being that they held as much predictive power as, for example, the laws of gravity. This is very serious indeed, because I think many people are of the belief that they are natural laws and thus could not be changed, when nothing could be further from the truth. Anyway, let's get back to the topic at hand, money.

Let's start with a somewhat silly, but rather illustrative example. A group of 10 people are midway on a trip across a vast desert when their vehicle fails and they find themselves stranded. After stretching their legs for a bit the vehicle suddenly explodes and all the provisions they had with them are destroyed. They decide that in order to survive an "economy" will have to be set up. They find 100 pennies amongst the whole group so they decide to issue 10 to each as their new "currency." Each agrees they will work to provide some useful service or product that will help them survive. Joe decides that he will make simple pottery vessels to store and transport water. He is able to make ten in a week, and he sells nine for 1 penny each and keeps the tenth for his own use. He uses his money to buy necessary items from his colleagues. The pots work well but break rather easily. Joe starts to get the hang of making his pots and he finds he can double his production, making now 20 a week. His mates now would like to buy two each but they do not have enough pennies to pay the previous price of 1 penny per pot. Joe is faced with a dilemma, he will have to cut his price in half if he is to sell his pots. His colleagues face a similar situation, price deflation, and must cut their production, or rather, have no incentive to increase production. This is a result of scarcity of their "money" supply. The group endures and eventually multiplies, but the total number of pennies remains the same. Joe cannot feed his offspring on the poor income from his pots. He has the capacity to produce more, but is shackled by the "tight" money supply. Joe asks to borrow pennies from a friend, but he also needs his money and will only agree to lend if Joe pays him interest. But are there enough pennies in the money supply to pay this additional interest fee? The money supply is fixed. If one of the group were able to lend his coins in this way, using compound interest, it is not hard to see that eventually this one individual would own the entire money supply, all the others would be flat broke and probably in debt bondage to the one "banker." If this scenario sounds a little bit like the beginnings of industrial capitalism, when the money supply was tied to a limited, controlled commodity, like gold, then you are right. Those in charge of such a tight money supply understand that they can control everyone and that over time more and more of the money will accrue to them if they lend it with interest compounded annually.

Now, consider changing the scenario slightly. Rather than fussing about the pennies, one of the group volunteers to act as group accountant and goods merchant. He will issue a small wooden stick to record the production of a good or service by his mates, and they will bring their goods to him for distribution and purchase. The group agrees that the accountant should be "paid" for this service, so he gives himself 10 sticks per week as a salary. Now, when Joe produces a pot, he is paid a stick, and there is no arbitrary limit on how many pots he can produce, he just gets a money stick for each one. He now has an obvious incentive to increase production. The accountant can easily make sticks from the trees and bushes. The sticks themselves are plentiful and have no intrinsic value, but they keep account of the production of goods and services and can be traded for them, they are the group's "money." All the others do the same, as they increase their production their money supply grows along with it, they all have more purchasing power and can now buy multiple pots from Joe at the penny per pot price he initially set. There is no inflation or deflation, prices can stay stable, and the amount of money simply grows with the increase in production of goods and services. The stranded group finds it is able to prosper and multiply.

The above examples are borrowed, with some paraphrasing, from the book The Web of Debt, by Ellen Hodgson Brown. I read this book recently and was frankly astounded with how well these simple examples highlighted both the basic concepts around money as well as the stark differences in systems where the money itself is thought of as the thing of value rather than simply the productive capacity of every individual. In the first example, the productive capacity is strangled because there is not enough money to go around. Naturally, under such conditions it is easier for the supply of money to be unscrupulously controlled by a small minority of the community, enriching itself at the expense of the rest of the group. Sound familiar? The second example shows what money really is, it is just an agreed upon system to account for the production and distribution of goods and services, it has no intrinsic value of itself, but serves as a medium of trade and accounting, providing the lubrication for the gears of commerce. When money comes into existence with the production of goods and services there is never a shortage of it and the supply of money simply grows with the increase in production, so that supply and demand increase together, without price inflation or depression of output.

Another paradox that comes into sharp focus in the above example is the so-called "Impossible Contract." Put simply, when money is lent at interest the money supply is not increased to cover the additional costs of the interest. The result is that there is never enough money to pay off the interest, or put another way, there will always be losers. Someone will always have to go to debtors prison. The system sets up an economic dog-eat-dog mentality, with the bankers eventually controlling all the money. The Impossible Contract was understood by many ancient cultures and is perhaps partly responsible for the ancient proscriptions against usury, and Christ's famous eviction of the "money changers" from the temple. Closer to home, it was also recognized by Benjamin Franklin, who was a proponent of state "banks" that would lend and spend money, without interest, directly into the community. His own State of Pennsylvania having successfully done this in the years prior to the American Revolution.

But perhaps the most astounding revelation in Hodgson-Brown's book is that the right to "coin" money, a right designated to Congress in the US Constitution, has been given over almost completely to private, for profit banks, the principal culprit being the Federal Reserve System (or Fed, for short). The Fed and the US Treasury department have for years reported several indicators of the US money supply. The simplest of these just count the notes and coins in circulation, and at most account for only a few percent of the total money in the system. The vast majority, measured as M3, represents loans issued by commercial banks (including the Fed). Where does this loan money come from? The answer is that it comes out of thin air! When a bank makes a loan it simply adds an accounting entry on its books for the amount of the loan (and not including the interest to be paid). Normally when we think of borrowing and lending we are thinking about things that already exist, like your neighbor's milk or eggs, but the banks don't actually have the vast majority of money that they lend! It is really your money! Your agreement to pay back the loan based on your productive capacity, but with additional enormous interest costs! The banks are largely just unproductive middlemen who extract an enormous cost from all of us as we go about our productive lives. Curiously, the Fed is no longer reporting the value of M3. Now I wonder why that could be? Let's look at the impossible contract again. So where does the additional money come from that must eventually cover the interest charges? Well, it can only come from additional bank loans, but these are also issued with interest due, so we have a pyramid scheme of gargantuan proportions, that is slowly but steadily inflating the money supply, and simultaneously devaluing the purchasing power of every dollar in your pocket. If by now you are muttering that I must be crazy, just look at this figure which shows the value of the US dollar over time. Also note that from the time of the Federal Reserve Act the value of the dollar in real purchasing power has been steadily declining, as it must based on the above reasoning.

Our present monetary and economic system is slowing but steadily impoverishing the public at the expense of a small minority of private banking and corporate fiefdoms. As the simple examples demonstrate, the system cannot endure, and indeed appears now to be teetering near the verge of collapse. While many additional factors also contribute to our present, unjust system that has "monetized" the productive capacity of the people and turned it over to a private minority, it seems clear that a first step towards regaining control of our economic future is to regain control of the monetary system for the benefit of all and not the enrichment of a small minority of parasitic "bankers." More about that to come.

Because Nothing Inspires Confidence Like Failure

If you still were not quite sure who President Obama really holds closest to his heart, banksters or working folk, then this little bit of news should clear it up for you. The AP is announcing that Obama will soon reappoint Fed Chairman Ben Bernanke to a second four year term. While the appointment requires Senate confirmation, does anyone out there really think the Senate cares for working folk more than banksters? Thus, you can rest assured that "Bailout Ben" will remain at the tiller of the Fed, dishing out taxpayer cash to his bankster buddies for the forseeable future. I don't know about you, but I'll be sleeping easy tonight, as apparently so will lots of bankers and Wall-Streeters that Obama was again so keen to appease.

I urge you to give Philip Elliott's piece a read. It's a paragon of the "professional journalism" that dominates main stream corporate media nowadays, and whose sole purpose would appear to be the servicing of the rich and powerful. After stating that Bernanke will be reappointed, Elliott then describes Bernanke's apparent accomplishments with the following glowing text, all in the first two short paragraphs, "...as Chairman of the Federal Reserve, a position from which he guided the economy away from its worst recession since the 1930s and, the White House hopes, toward an economic recovery critical to its legacy. Widely credited with taking aggressive action to avert an economic catastrophe after the financial meltdown last year..." Well, you get the point. If you had slept through the last few years and found yourself reading this piece you might think Ben Bernanke didn't share any of the blame for bringing on a financial disaster of epic proportions. That he wasn't "asleep at the wheel" while ostensibly Fed-regulated banks over-exposed themselves to risky economic weapons of mass destruction, like credit default swaps and other toxic mortgage-backed securities. That he didn't stand by, watch it all happen, do little, but then commit trillions of dollars of taxpayer funds to try and clean up the mess. Oh, and as for the economy being "guided" away from recession, the jury still seems to be out on that one.

As for whom is "widely crediting" Bernanke with rescuing the financial system, and from whom he "received heaps of praise..., for his handling of the crisis," well, Elliott is a little less specific on that. But fear not, Elliott assures us that Bernanke is not "without his detractors," but if you were looking for any more specific criticism, maybe even just a smidgen of the many column inches detailing Bernanke's malfeasance, then you were sure to be disappointed. So, here are a few sanguine comments from Bernanke critic Dean Baker just for fun. I guess it's just more of the "Change We Need."

Kickin' Up

The payment of upwards of $200 million in bonuses to employees of one-time insurance giant AIG, after said company was bailed out to the tune of $180 billion with hard-earned taxpayer money, has rightly led to a firestorm of indignation from the public and clearly vulnerable politicians and administration officials, including President Obama, with their fingerprints all over the odious bailout legislation and policies. Apparently, AIG execs paid out "retention" bonuses, some to the tune of more than $5 million, to individuals in its financial products unit, the very division responsible for bringing the company to its knees. The ostensible argument given by AIG generalissimo Edward Liddy was that these employees needed to be persuaded to stay with the company because they were the only ones with sufficient knowledge of all the murky "deals"--bets would be a more honest description--to allow the company to "unwind" the deals and extricate itself with a minimum of additional losses. That the AIG execs felt this was a proper decision shows us the depths to which our so called financial masters and their defenders and supporters in the government have fallen. And, go figure, a significant fraction of the "bonused" just took the money and ran. While a herd of politicians and current and former administration officials had initially sworn they had no prior knowledge of the bonuses, it is now clear that both the relevant Congressional leaders and Treasury officials knew that the payments would be made and acquiesced. Read, for example, the eloquent summary of current affairs by Alexander Cockburn at Counterpunch.

Let's get a few numbers out in the open that will let us gauge the level of greed and corruption which is now being evidenced. According to the Census Bureau, the median household income in the United States for 2007 was just about $50,000. That is, half of all households made less than this, and the other half made more. Since about the mid '70s average incomes for most American workers have remained flat or actually fallen. The only reason median household incomes have risen modestly is because more people are working per household, and generally working longer. Now, consider that some of the bonuses paid by AIG execs were in excess of $5,000,000, a sum 100 times greater than half the families in the US earn in a whole year. Next, consider that these sums were paid AFTER the company was near failure and was rescued by 10's of billions of taxpayer dollars, and with the tacit approval of government officials, and one begins to see that Americans have a right to be boiling mad over this intolerable state of affairs.

I've often wondered what it is that a corporate CEO does in each 8 hour day that would justify the incredible sums they are paid in compensation, often in the region of many millions of dollars per year, not even considering so-called bonuses! From recent events one can only conclude that the ability to run a company into the ground doesn't come cheap. Ironic how a chief argument of many corporate and Wall Street apologists has been the professed need to maintain exorbitant compensation and bonuses in order to keep the "best and brightest" at these firms. With talent like that Wall Street could afford some mediocrity, or better yet, downright incompetence! One of the more "creative" recent arguments put forth in support of the bonus payments has to be that of CNBC anchor Mark Haines who suggested that, "It’s just like when the Allies were victorious over Nazi Germany in World War II, when we occupied the country, we left a lot of Nazis in place because they were the ones who made the trains run on time and the bureaucracy function properly, etc. And it was distasteful, but you needed them." Like I said, creative. Insane, but creative.

While mainstream media attention on "bonus-gate" has shed some important light on the issue, as usual the more important story lies elsewhere, and serves to show the truly massive scale of the corruption on Wall Street and in the government as well. While AIG was "bailed-out" with more than $100 billion in public funds it now appears clear that a large fraction of this money was then funneled to the very same financial institutions--most notoriously Goldman Sachs, which received almost $13 billion--and that have been at the heart of the financial scandal and who themselves had to be rescued with billions of dollars of taxpayer funds. Democracy Now has an excellent story on this so-called "back-door bailout."

The dealing around Goldman in particular reeks of corruption. As Robert Scheer has ably discussed, the decision to save AIG, only days after Lehman Brothers had been allowed to fail, was reached after a meeting that included a host of former Goldman execs and proteges as well as the CEO of Goldman, the only CEO at the meeting. Participants at the meeting included then head of the NY Federal Reserve bank, and current Treasury secretary, Timothy Geithner; and former CEO of Goldman and then Treasury secretary (in the Bush administration) Hank Paulson. All of these parties need to be subpoenaed to testify before Congress, if not a court of law, to answer some very serious questions. Principle among these is why the CEO of Goldman would even be permitted at such a meeting, with the company having upwards of $20 billion in toxic "bets" insured by AIG? If that's not a conflict of interest then I don't know the meaning of the phrase. Moreover, the fact that President Obama has moved a number of these people into his administration, including Geithner and Lawrence Summers, the protege of one-time Goldman CEO and Clinton administration Treasury secretary Robert Rubin, is deeply troubling. Recall that is was Rubin who led the Clinton administration's support for the Financial Services Modernization and Commodity Futures Modernization Acts, both of which became law and did anything but modernize the financial industry, and in fact paved the way to unregulated credit default swaps and other financial instruments of mass destruction, in the prophetic words of Warren Buffet. Given the magnitude of the plunder, and the degree of public outrage it is hard to see how Obama can continue to support Geithner. Indeed, if Obama wishes to maintain support from working people, then he should do an about-face and start fresh with a new economic team comprised of reputable Main-street economists and not a pack of Wall Street re-treads.

Or perhaps the whole scandal is simply revealing who is really in charge of our economy and government. Wall Street financial institutions, and other corporate interests generally, have been among the largest contributors to both major political parties for decades now. Moreover, the revolving door from government to Wall Street has been operating at full speed during this time. Little wonder then that government decisions on financial deregulation and the use of public money, have so often favored these financial robber barons.

In the world of organized crime the boss has the last say, and his lieutenants and foot soldiers have to go "upstairs" to get tacit approval for their deals and to keep the boss up to speed on what's going down. Or, at least, that's how the bosses would like it to go. OK, I confess to having watched a certain trilogy of Francis Ford Coppola films more than a few times! Another key aspect of the criminal underworld is that the junior guys have to "kick up" a decent percentage of proceeds from their dealing, and of course, everybody eventually kicks up to the boss. Maybe we're just seeing the "foot soldiers," our own elected representatives, kicking up to the real bosses, the financial oligarchs who seem increasingly to have the final say in decisions which impact all Americans. Moreover, the boss always holds the fear of reprisal over the heads of his underlings. Don't let the boss find out you've been holding out on a particular deal, that's a good way to get yourself whacked. It would seem that our real economic masters are now holding the whole country hostage with a similar kind of fear, "better pay up or we'll just whack the whole economy." While undoubtedly these analogies are not perfect, they seem to hold more than a grain of truth. Chiefly, that corruption is much more endemic to "free market" capitalism than is ever admitted in our supposedly free corporate media. We love to talk about the corruption present in other countries economies and governments, but nothing can compare to the levels of corruption we have seen on Wall Street recently, and which have had devastating consequences here and around the world.

Bad Banking

If even after what seems a never ending string of financial debacles you were still not completely convinced that the status of the US economy was anything but abysmal, then ruminating on the following chart for just a few seconds should help to remove any remaining optimism. The figure, compiled by Speaker of the House Pelosi's office, shows the run of job losses for several recent recessions and compares them with our current economic downturn. You can easily pick out the "Republican Depression" (ie. our current economic nightmare), it's the green curve that is heading South faster than a jackrabbit fleeing the gun sights of Dick Cheney. The scary thing, other than there being no evidence for a slowing in job losses, is that it's not even clear that the rate of job losses has reached it's peak. That is, the next few months could see the economy shed even more jobs than the last few.

Having gotten their proverbial butts kicked in the recent election, the Republicans were keen to make some changes to show voters and their constituents that they had not become completely irrelevant. Thus, newly elected National Committee Chair Michael Steele's first public utterances were basically along the lines of, "wrong? what's wrong? there's nothing wrong with our party, we just have to do a better job of selling our ideas." Yes, I kid you not, it was the old, we're just not good salesmen routine. Well Michael, good luck with that.

But not to worry so much, the Republicans did manage to latch onto what they argued was a "winning" political issue, watering down and stalling what almost all reputable economists consider a vital government spending program to stimulate the "rigor mortising" economy. Not a single House Republican saw fit to vote in favor of Obama's economic recovery plan, that's right, not a single one! And over in the Senate, mental steam engines such as Mitch McConnell were arguing that the bill did not have, wait for it, enough tax cuts! Even in the face of overwhelming data that shows that the fastest way to stimulate the economy, read add jobs, is by direct government spending--and essentially everyone agrees that creating more jobs is our most pressing economic need--the Republicans are still calling for more tax cuts. Word has it that the new Republican leadership is also working on the tax cut cure for cancer bill. Maybe they should get Michael Steele working on that.

Unfortunately, the Democrats, and President Obama in particular, have not done a good job of explaining why the spending plan is so important, nor countering the specious arguments put forth by Republicans and their echo chamber of talking heads in the main stream media. Rather, Obama seemed to be selling a "bipartisanship" stimulus bill, almost as if "bipartisanship" would feed hungry mouths, and keep roofs over people's heads. "Johnny, be a good boy and pass me another helping of the bipartisanship, please." Of course, there is nothing inherently problematic about seeking votes and allies across the aisle, however, it should not be a requirement for passage of a bill, particularly when the other side preconditions its support on the same failed policies that wrecked America in the first place. In such a case, the President needs to be much more aggressive in pushing the right ideas and facing down the Republicans when they propose the same useless and counterproductive policies. Indeed, Obama's desire for the illusive "bipartisanship" has resulted in a bill out of the Senate that cut too much useful spending and included ineffective tax cuts, simply to get all of three Republican votes. No, if Republicans cannot see fit to do the right thing, then Obama needs to get tough and go directly before the American people and hammer the Republicans as the Party of Herbert Hoover, that, having driven the ship of state over a cliff, are now unwilling to aid in its recovery.

Of course, with the Republicans having suddenly discovered a voice for fiscal restraint (after running up the biggest deficits in history, and amidst a depression no less), it was not much of a surprise that they could find many a willing media servant, who, if not mouthing Republican talking points verbatim, could at least be counted on to completely obfuscate the truth. Most notable in this regard was the vanilla-brained Charlie (don't call me Charles) Gibson of ABC News. In perhaps a record low moment (among many) Gibson, while questioning President Obama couldn't seem to get his little head around the concept that government spending is, by definition, economic stimulus. Gibson argued that, "a lot of people have said it's a spending bill and not a stimulus." So much for not being able to grasp perhaps the most fundamental fact surrounding the issue. Not even able to grasp this truism, how could we expect anything more but pablum from Gibson. As economist Dean Baker so eloquently put it, "Spending that is not stimulus is like cash that is not money. Spending is stimulus, spending is stimulus. Any spending will generate jobs. It is that simple. ... Any reporter who does not understand this fact has no business reporting on the economy." How much is ABC paying Charlie Gibson?

Meanwhile, all is clearly not the "Change We Need" in the White House. Evidence of this is clear in Obama's selections to head his economic team. Both Treasury Secretary Timothy Geithner and chief economic advisor, and ex-Clintonista, Lawrence Summers are so deeply entrenched in the policy and regulatory regimes that helped to fuel and precipitate the crisis, that one can still see the umbilical cords connecting them with Wall Street. Indeed, Geithner only just recently "announced" his new plan for Treasury to prop up the collapsing banks. I put announced in quotes because when you discuss a plan but then give essential no specifics, it's not really much of an announcement is it? The response from investors was swift, they either couldn't figure out what Geithner was actually talking about doing or they felt that it perhaps wasn't the "sweet-heart" deal that they had quite hoped for from the former Wall Street man. Either way, the stock market took another significant vacation in a southerly direction.

From Geithner's terse statements and pronouncements since, it has become clear that one aspect of the new bailout plan is the formation of a fed-run "bad bank" that will essentially accrue to itself much of the toxic securities that many banks find in abundance on their rose-red balance sheets. Of course, the name is telling, because the joke's on us, guess who the "bad bankers" are? That's right, it's just us poor tax paying suckers who are going to get stuck with all the bad debts made by these rich folks for whom the requirement of being restricted to, say a paltry salary of $500,000 a year is a travesty to scarring to bear. And what do we get for assuming all the risk in this little transaction? In real capitalism those who assume the risks stand to receive the biggest rewards, but not so much in this case. There is no indication that Geithner intends to obtain stakes in the bailed out banks for the government, so that taxpayers would get some compensation if and when the banks become profitable. But this is certainly not "real" capitalism. No, what we are witnessing here is more socialism for the rich, and social Darwinism for the rest of us. This is effectively the same dynamic that has led us to this point. Profits are privatized, but losses and risk are subsidized with the public's money. Put more simply, gamblers get to play at the table with someone elses money. Not the kind of system that you would expect to generate probity and restraint is it? Nope, the operating term here is corruption of the highest order.

At this stage a much more sensible, equitable, and arguably effective plan would be for receivership (ie, nationalization) of the failed and failing institutions. Indeed, many of the economists who foresaw the devastation and were ignored are calling for nationalization as the most effective solution, but the voices of those who best understood the situation and saw it coming continue to be largely ignored. A good example here is Nouriel Roubini, professor of economics at the Stern School, NY and no communist he, who argues eloquently that from a pragmatic standpoint the only remaining workable solution is nationalization. Let's see how long it takes the likes of Geithner and Summers to reach the same conclusion. I won't be holding my breath.

The Great Shakedown

It's been remarkably refreshing to see the power struggle unfolding in the Congress this week over the attempt to pass bailout legislation for the Wall Street robber-barons. Faced with a tidal wave of righteous indignation from voters in their districts enough principled Democrats, and two thirds of the Republican House caucus--who arguably were largely voting for the preservation of their own seats--spectacularly voted down on Monday the Paulson-Bush $700 billion dollar Wall Street bailout boondoggle. Since last week the Capitol Hill switchboard and internet servers were being relentlessly hammered by irate Americans vowing to throw under the bus any Representative with the inclination to vote for this massive giveaway to the rich. For once the Congress actually expressed the will of the majority. What is it they call that, democracy?

It's been equally remarkable to watch the extent to which President Bush has been completely emasculated politically. One could not imagine a duck more lame than Bush the mallard. And what of other senior administration types, like Cheney and Rice? Completely invisible. No, it appears that King Henry Paulson is in charge these days. While the irrelevance of Dubya is fascinating, he should not feel alone, because almost equally impotent have been the Democratic Congressional leadership. There was House Speaker Nancy Pelosi trying to play the dutiful, mainstream, bipartisan pragmatist, and pass what was essentially the administration's bill. Why the Democrats would try to enact this weak, discredited, corrupt administration's proposal is almost beyond comprehension. Particularly in the face of strong condemnations of the plan from many mainstream economists. There was never any attempt by the House leadership to have hearings or a substantive debate on the many alternative proposals that had been presented in the independent media. Instead, Finance Committee chair Barney Frank obfuscated Paulson's three page fascist power grab with a smokescreen of almost meaningless, toothless conditions, and then argued they had put strong oversight and executive pay restrictions in the bill. Americans were not convinced, and neither were a significant fraction of Pelosi's own caucus.

But, with the bill defeated in the House it was predictable that the Wall Street apologists would look to the Senate, a veritable House of millionaires, for smoother sailing. And so, Wednesday evening, after a series of hysterical, sky-is-falling speeches predicting the coming of Armageddon, and, get this, the adding of $150 billion in additional provisions, mostly various tax breaks, because, go figure, the original bill was too fiscally conservative! the Senate dutifully passed the bill by a 74-25 margin. Also instrumental in passage of the bill has been the pathetic reporting in the mainstream media concerning opposition to the bailout. The overriding media narrative has been that any opponent of the bill must be either crazy, or un-patriotic, or both! There has been very little accurate reporting of the many alternatives to the Paulson give-away plan, and that, most interestingly, a consensus has emerged among many American economists that this bailout bill will not address the fundamental problems in the financial system. Particularly sad and frustrating was the sight of a fear-mongering Barack Obama, sounding very much like George W. Bush, scaring Americans into thinking that failure to pass THIS rancid bill would result in their financial and economic ruin, and usher in a long, painful and deep recession. Note to Obama, we are already in the midst of what will likely be a long and painful recession, and gifting irresponsible Wall Street financiers with $700 billion borrowed dollars is not likely to change that fact one iota. At a time when strong leadership is desperately needed; at a time when the Presidential front runner should be decisive, and side with the American people, all we get from Obama is the cautionary, equivocating, weakness all to evident in the Democratic Party. Make no mistake, John McCain has arguably been even worse, but the behavior of both candidates simply emphasizes that the two major parties have simply suffocated the democratic process in our country. Americans should persist in their opposition to this criminal shakedown of their childrens' futures and insist on Congressional action that actually addresses the root causes of the problem; principally the foreclosure crisis; and does so by making those responsible foot the bill.

The Bailout Express

Why does the Congressional Democratic leadership appear so hell-bent on getting a Wall Street bailout bill passed? Word from Capitol Hill today is that the framework of a deal is close to being agreed upon, but that some contentious aspects still need to be hammered out. However, opposition to any bailout of Wall Street with taxpayer funds apparently runs deep, on both sides of the political spectrum. Indeed, Republicans appear to be scared shitless to vote yes on such a massive transfer of government funds. I don't think it is hard to see why. They already face the daunting task of getting re-elected in the midst of a massive economic meltdown, and add to that the eight years of disaster under Dubya, and you can see that this would likely be the last nail in the coffin for many a Republican congressman. They would prefer not to have to go back to their districts to face an angry constituency, and explain how this Republican administration just cooked up the "mother of all waffles," to the tune of $700 billion dollars,

“We do not support government bailouts of private institutions. Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself.”

-- 2008 Republican Platform

That pretty much sums up the state of the Republican Party, don't you think? Thanks to Craig Markwardt for forwarding that gem. Still, we are left with the question of why the Democratic leadership seems to want to take ownership of this noxious bill. A number of leading economists have recently questioned the need, indeed the usefulness, of the scheme outlined by Paulson. The ultimate albatross around the neck of our economy is debt, so it is not at all clear that borrowing nearly a trillion dollars to throw at the perpetrators of the debacle will be of any lasting value. More likely, it may simply speed up the flight from the dollar in the long run, more like gasoline on a fire rather than water.

Nevertheless, in the face of all of this opposition, the Democratic leadership still appears to be more concerned with the wishes of the administration and the so-called wizards of Wall Street than the average American. For one thing, Democrats should simply consider the source of this massive request. When was the last time Bush and Co. were right about anything? But for some reason, even with historic levels of dissatisfaction with Bush and the Republican party, there would appear to be nothing the Democrats in Congress would deny the Mediocrity in Chief.

While the times clearly call for strong leadership, all we continue to get from Pelosi and Reid is caution and unwarranted bipartisanship. Indeed, it has become the hallmark of this pair that the appearance of so called bipartisanship seems to be their raison d'etre. No matter what horrendous legislation they are passing, as long as they can appear "bipartisan", they seem to think that the American people will sit back and applaud. This is a calculation Democrats have been making now for a long time, and what success has it brought them? Very little. They still appear weak and unprincipled, and too willing to act in the interests of big money rather than their supposed base of support among working Americans. Before passing perhaps the biggest public bailout of corporate interests, the Democratic leadership needs to go before the people and clearly explain how and why this bailout will work, how it will be done, how it will be overseen, and how it will be paid for. If these issues are not clearly addressed in a rush to pass something, then the Democrats will also, rightly, face the ire of many outraged voters in November.

A Financial Patriot Act

Twice in the George W. Bush era a catastrophe has had its epicenter on Wall Street. We know all about the first, the terrorist attacks on September 11, 2001. The second, the financial "storm" engulfing our corrupt banking and financial system, will now play itself out over the weeks and months to come. Already it has claimed hundreds of billions of dollars of the public trust, and the end may be nowhere in sight. The circumstances surrounding these two events, ironically, have much in common.

With it's head in the sand, ignoring ample warnings suggesting that strikes inside the US were likely being organized--recall the title of that Presidential Daily Briefing, "Bin Laden Determined To Strike in US"--the Bush administration sleep-walked while the 9/11 attacks were being prepared and executed. The political results of that negligence we know all too well, expanded government powers; legislation gravely treading upon Constitutional liberties; a disastrous change in US foreign policy; torture, extraordinary rendition and Guantanamo Bay (to name but a few). Bad legislation was pushed through Congress and equally bad policies were foisted on an America kept fearful and ignorant by administration propaganda and deception. In a state of fear Congress rushed through the Orwellian-named "Patriot Act," provisions of which any true patriot would find unconscionable. Let us recap this sad tale. Those who were negligent, and by their negligence at least partially responsible, were left ultimately unaccountable, moreover, they were left in power, unchecked and with free reign to manage the aftermath of 9/11, to the disastrous ends we all now must live with.

Now, the American people, seemingly without a memory, are allowing a replay of this scenario to unfold, perhaps to equally disastrous ends. After eight years of corruption, deregulation, dismantling of any oversight and enforcement regime, and cheer-leading for corporate greed and excess, the same administration that napped while terrorists plotted, has been comatose while a largely foreseeable financial meltdown that may ultimately match or exceed the Great Depression, has been allowed to happen. And now, with the crisis at its apparent zenith, with fear and the professed need to act at near fever pitch, drastic solutions are being discussed by the administration and the Democrat-controlled Congress. Indeed, the first details of Treasury Secretary Paulson's proposed bail-out legislation has been made public this weekend, and from the looks of it has every indication of being a financial version of the Patriot Act. The remarkably terse text of the bill, essentially grants Paulson and the administration, a rolling $700 Billion slush fund with which to buy up the bad mortgage-related debts of ANY financial institution based in the US. How's that for broadly defined? Although it might seem that the $700 Billion is a cap, the text indicates that this is the amount that can be outstanding AT ANY GIVEN TIME. Thus, the total sum which American taxpayers could be on the hook for could be significantly more, say, several Trillion dollars! Now that's some serious coin! However, the most sinister and outrageous clause in the text is the following;

"Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

Yes, you might want to read that again. Decisions made by the Secretary regarding this Act would be NON-REVIEWABLE, by ANY agency, court or entity. This would be Congressionally mandated and approved fascism, nothing less. It would grant virtually unlimited financial power to the agents of the President without any accountability! Moreover, it would grant this authority to those who, Nero-like sat back, watched and indeed, precipitated the crisis with their disregard of their regulatory functions and pro-Wall Street legislation. But it would do even more than that, it would privatize the ill-gotten profits of these corporate criminals, while socializing all of the risk, on the backs of our kids, perhaps for decades to come. This is beyond outrageous. As Glenn Greenwald and others have pointed out, this should arguably be something of a "pitch-fork" moment, something that might actually get people out into the streets protesting, that is, if protests were still allowed. This must not be allowed to happen. Every thinking, responsible American needs to get on the phone and contact their representatives in Congress to oppose this monstrous draft bill.

While it may be true that some form of Government-sponsored bail-out is needed to stabilize the economy, all Americans should insist that it meet several conditions;

1. It must not reward the perpetrators of this catastrophe. That is, the Wall Street fat-cats who gambled with the public's money, lost, and now wish to be repaid!
   
2. It must be largely financed by those who sought to profit and brought about the conditions that precipitated the crisis. It must not be financed on the backs of the middle class and lower income Americans. This point has recently been emphasized by Independent Senator Bernie Sanders. Taxes should be raised on corporations and the wealthy, at a minimum.
   
3. Any deal must be conditional on major changes to the current administration. At a minimum, those economic "stewards," the Treasury Secretary (Paulson) and Federal Reserve Chairman (Bernanke) who were so demonstrably wrong must resign. However, a more reasonable requirement for Democratic approval of some bail-out would be resignation of the President and Vice President.
4. It must be accompanied by a return to close regulation and policing of the banking and finance industries, indeed, of all corporations. There can be no return to "business as usual." A new commitment to a corporate culture that benefits society must be enforced.
   
5. Those responsible for the debacle must not be allowed to manage the aftermath, and must be held accountable for their negligence and malfeasance.
   

If the Democratic controlled Congress cannot insist on these conditions, then it will have shown itself to be in the thrall of the same corporate pay-masters that run the Republican Party. If that is the case then voters should vote the whole sorry lot out of office.