Socialism for Bankers, Savage Capitalism for Everyone Else?
All told, this Bush/Paulson "permissive banking/massive bailout" model may beat even the old 1980s vintage Reagan formula, which tried to force government downsizing with huge tax cuts.
Contrary to the sales pitch for that formula, of course, the tax cuts never quite produced any supply-side miracles or incremental tax revenues, let alone any significant government downsizing. As we saw under Bush after his huge tax cuts in 2001 and 2003, it simply proved too easy for the federal government to borrow. And no matter how "conservative" one is in general, it seems one can always find wars, farm subsidies, defense contractors and "bridges to nowhere" to spend gobs of money on, just as recklessly as any "liberal."
Lately, however, it appears that US debt levels may indeed be reaching the point where they might well impose a limit on increased spending--if for no other reason than foreigners, who now own about 40 percent of our publicly held federal debt, are beginning to wonder whether or not the United States isn't going to be the latest "submerging market."
Given the sheer size of Paulson's proposed additonal debt foreign creditors, I suspect that the Treasury's real borrowing costs may actually start to rise. And outside the financial services industry, some parts of Main Street are already concerned about being "crowded out" by record government borrowing.
The Alternative--A 'Get Real' New Deal
To make sure that real economic reform is still affordable, we need to demand a "Get Real/ New Deal" from Congress--right now. At a minimum, this Get Real/New Deal package should include measures like:
(1) the restoration of stiff progressive income and estate taxes on the top 1 percent of the population (with net incomes over $500,000 a year and estates over $5 million)--especially on excessive CEO and hedge fund manager compensation;
(2) much more aggressive enforcement and tougher penalties against big-ticket corporate and individual tax dodgers;
(3) tougher regulation of financial institutions--possibly by a new agency that, unlike the US Federal Reserve, the SEC and the US Treasury, is not "captive" to the industry;
(4) a crackdown on the offshore havens that have been used by leading banks, corporations, and hedge funds to circumvent our securities and tax laws;
(5) The immediate revision of the punitive bankruptcy law that Congress enacted in 2005 at the behest of this now-bankrupt elite;
(6) while we are at it, stiff "pro-green" luxury taxes on mega-mansions, private jets, Land Rovers, yachts and all other energy-inefficient upscale toys; and
(7) a national commission to investigate the root causes of this financial crisis from top to bottom, and actually (unlike the hapless, ineffectual 9/11 Commission) hold people accountable.
Finaily, if the public is really going to be asked to postpone (at least part of) the reforms it has been seeking, and provide so much of the risk capital for this restructuring, we should also demand:
(8) a decent amount of public equity in the private financial institutions that will be receiving so much of our help. This will permit taxpayers to share in the upside of this restructuring, rather than just share the downside risks.
Along the way, of course, we may also have to explain to Secretary Paulson that this country is still a democracy, not a Goldman Sachs- =style hierarchical mens' club (with great respect to Goldman's fifty-four female partners out of 383)--even after eight years of President Bush. He is not simply going to be given (contrary to his request) completely unfettered discretion to hand out vast "liquidity injections" to his buddies on the street--no matter how worthy and important..
Over time, this progressive Real/New Deal could help raise the hundreds of billions in new tax revenue that will be needed to offset the costs of this bailout. If the bailout works, the taxpayers as a whole will at least be able to receive some capital gains and perhaps some bank dividends for their trouble. Who knows, they may also even begin to feel a greater sense of solidarity with their bankers!
Such a participation will be essential if the federal government is to be able to afford key reforms like health insurance, clean energy and investments in education.
These may not matter quite so much to some Wall Street executives, financial analysts, Treasury or Federal Reserve executives or even the more than 120-130 members of Congress and forty to forty-five US Senators who happen to earn more than $1 million a year--and are already covered by a generous "national health care" package of their own design. But these are the key "systemic risks" that ordinary Americans face.
These reforms may sound ambitious. So is the bailout. And the reforms that we are discussing are only fair.
After all, we the American people have recently been the very model of forgiveness and understanding. We have tolerated and footed the bill for stolen elections; highly preventable terrorist attacks; gross mismanagement of "natural" disasters; prolonged, poorly conceived, costly wars; rampant high-level corruption; pervasive violations of the US Constitution; and the systematic looting of the Treasury by politically connected defense contractors, oil companies, oligopolistic cable TV and telecommunications firms, hedge fund operators, big-ticket tax evaders and our top classes in general.
Does "class" still matter in America? You betcha--perhaps more than ever. But enough is enough. Call your Congressperson now. Demand a"Get Real/ New Deal" qualifier to the bailout package before it is too late.
We deserve to get much more for our money. So do our kids.