By now you’ve heard that a bipartisan group of Congressmen killed George Bush’s $700 billion bailout for Wall Street. A left-right alliance thumbed their noses at the leadership of both parties and let the stock market tank 777 points today. Since my last post, the last investment banks went out of business or transformed into regular banks. Today Wachovia, the nation’s second biggest bank, got bought out by Citigroup while Washington Mutual went under last week, the biggest bank failure in American history.
But who killed the economy?
Rome wasn’t built in a day, but it sure burnt down in one. The tinderbox that is the American financial system took a long time to be prepare like the Aggie Bonfire. Who chopped down the trees, set the pyre, and lit the flame are all different, but they’re all guilty in their own way. Here’s a partial lineup.
- Senator Enron aka “The Professor” aka Phil Gramm, the former Senate banking chairman (R-TX). A corrupt Aggie fathead of the Texas school this ex-Democrat now is the chief economic adviser to a certain president candidate named John McCain. When he isn’t calling the American people a “bunch of whiners,” he pushed outrageous bankruptcy legislation at the behest of his credit card and banking donors. His wife Wendy deregulated energy trading, retired, and then took a job on the Enron board of directors. Ol’ Phil also wrote the law than repealed the Glass-Steagall Act, a law from the Great Depression intended to prevent the concentration of economic power. The deregulation he pushed directly lead to mammoth corporations involved in insurance, stock brokerage, retail banking, and investment banking which was forbidden after the Depression while easing the ability to speculate without oversight. It’s alright though, he cashed out chips to become vice-president at Union Bank of Switzerland (UBS AG).
- The Citigroup Boys aka “The Bagman” aka former Treasury Secretary Rob Rubin. Rubinomics brought deregulatory free market fundamentalism into the halls of a Democratic White House. Bill Clinton and the neoliberal DLC Democrats swallowed whole, signing off on legislation from Congress while permitting the massive mergers that formed the monsterous Citigroup Inc. with its fingers in every financial pie under the sky. No business was too dirt for Citigroup: it paid $125 million in fines for predatory lending and bought Banamex (a former government-owned bank in Mexico) to become the banker of choice for narcotraffickers. Rubin cashed out to work for Citigroup, the house that Clinton Democrats made.
- Bonnie and Clyde aka Freddie Mac and Fannie Mae. Fannie and Freddie are two huge government-sponsored enterprises that are not officially part of the federal government but are understood to have a public service role. They work by buying mortages from banks to inject more cash into banks so that they can lend more to homeowners (see this Explainer for more). Of course, rather than actually lower the cost of homeowner lending for the average American, Freddie and Fannie used their government backing to make even more money for their stockholders and a bipartisan cast of hacks appointed to the company. The entire world, including many Asian central banks, is invested heavily in Freddie and Fannie, and their asses had to be saved in the recent nationalization of the companies if the whole world’s economy wasn’t going to topple over with them.
David Sirota – “Top 5 Reasons to Vote Against Wall Street’s $700 Billion Bailout”
James Galbraith (UT Professor and Obama adviser) – “The Predator State” and “A Bailout we don’t need”
The Economist – “End of Illusions“