The Bailout and Small-d Democratic Capitalism

The Bailout Bill was passed by the Senate last night, 74-25. Though it was an improvement from the original plan that the Bush Administration tried to ram through last week it's still an extremely flawed bill. There is a need for an effective, just and equitable intervention, and that's not what this bill represents. It rewards the worst actors in the financial industry while doing little to nothing for working people – people who are being asked nevertheless to pick up the tab for Wall Street's recklessness. (And, yes, it's true that taxpayers will get some stake in the companies now but there is no telling what, if any, return there will be on these toxic assets).

The action moves to the House now where a truly progressive bill could be crafted with key elements like: bankruptcy reforms and loan modifications to keep people in their homes; a surtax on the the wealthy as proposed tonight in an amendment offered by Senator Bernie Sanders (see below); re-regulation of Wall Street to curb the casino/bandit economy that got us into this mess; direct recapitalization of banks; and an economic stimulus package that includes extension of unemployment insurance and infrastructure investment that rebuilds our nation and creates jobs.

Of course, we are unlikely to see this kind of bill because it doesn't have the needed votes – certainly not in the Senate and probably not in the House where the Blue Dog Dems would be needed. But at the very least, one wonders why Democratic leadership didn't push harder for an economic stimulus for Main Street at a time when Wall Street and the Bush Administration are begging for taxpayer help? If they truly need $700 billion to save the global economy, would they really have thrown that away over – for example, a $60 billion stimulus package?

Although Senator Barack Obama spoke eloquently about the need for Congress to focus on Main Street – and his words made clear that he understands the pain people are feeling and what's at stake in this Bush economy – he was willing to put off the fight for bankruptcy reforms, loan modifications, and a stimulus package. He said: "As soon as we pass this rescue plan, we need to move aggressively with the same sense of urgency to rescue families on Main Street who are struggling to pay their bills and keep their jobs. They've been in crisis a lot longer than Wall Street has. I've said it before and I say it again: We need to pass an economic stimulus package that will help ordinary Americans cope with rising food and gas prices, that can save 1 million jobs rebuilding our schools, and roads, and our infrastructure, and help states and cities avoid budget cuts and tax increases, a plan that would extend expiring unemployment benefits for those Americans who've lost their jobs and cannot find new ones…. We also must do more in this rescue package in order to help homeowners stay in their homes. I will continue to advocate bankruptcy reforms."

Another Senator – Bernie Sanders of Vermont – believes now is the time to fight for working families. Majority Leader Harry Reid gave him one hour to introduce the sole amendment to the bailout bill. It called for a 10 percent surtax on couples with an income over $1 million a year or $500,000 for single taxpayers, raising $300 billion in revenues over 5 years to go towards the bailout. The amendment was defeated by a voice vote, but in introducing it Senator Sanders captured the frustration and outrage of people who have been shafted for eight years under George Bush; and who continue to receive the short-end of the stick with this bailout.

It's clear that the ideology of unfettered, unregulated capitalism is dead. The fight for small-d democratic capitalism that puts the public interest first while investing in people, productivity, and opportunity – is on. In his speech tonight, Senator Sanders gives us a glimpse of that fight and a glimpse of what a more democratic economy might look like.

Here are Senator Sanders' remarks on the Senate floor:

This country faces many serious problems in the financial market, in the stock market, in our economy. We must act, but we must act in a way that improves the situation. We can do better than the legislation now before Congress.

This bill does not effectively address the issue of what the taxpayers of our country will actually own after they invest hundreds of billions of dollars in toxic assets. This bill does not effectively address the issue of oversight because the oversight board members have all been hand picked by the Bush administration. This bill does not effectively deal with the issue of foreclosures and addressing that very serious issue, which is impacting millions of low- and moderate-income Americans in the aggressive, effective way that we should be. This bill does not effectively deal with the issue of executive compensation and golden parachutes. Under this bill, the CEOs and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits.

This bill does not deal at all with how we got into this crisis in the first place and the need to undo the deregulatory fervor which created trillions of dollars in complicated and unregulated financial instruments such as credit default swaps and hedge funds. This bill does not address the issue that has taken us to where we are today, the concept of too big to fail. In fact, within the last several weeks we have sat idly by and watched gigantic financial institutions like the Bank of America swallow up other gigantic financial institutions like Countrywide and Merrill Lynch. Well, who is going to bail out the Bank of America if it begins to fail? There is not one word about the issue of too big to fail in this legislation at a time when that problem is in fact becoming even more serious.

This bill does not deal with the absurdity of having the fox guarding the hen house. Maybe I'm the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the Secretary of the Treasury, the former CEO of Goldman Sachs, who along with other financial institutions, actually got us into this problem. Now, maybe I'm the only person in America who thinks that's a little bit weird, but that is what I think.

This bill does not address the major economic crisis we face: growing unemployment, low wages, the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy.

There is one issue that is even more profound and more basic than everything else that I have mentioned, and that is if a bailout is needed, if taxpayer money must be placed at risk, whose money should it be? In other words, who should be paying for this bailout which has been caused by the greed and recklessness of Wall Street operatives who have made billions in recent years?

The American people are bitter. They are angry, and they are confused. Over the last seven and a half year, since George W. Bush has been President, 6 million Americans have slipped out of the middle class and are in poverty, and today working families are lining up at emergency food shelves in order to get the food they need to feed their families. Since President Bush has been in office, median family income for working-age families has declined by over $2,000. More than seven million Americans have lost their health insurance. Over four million have lost their pensions. Consumer debt has more than doubled. And foreclosures are the highest on record. Meanwhile, the cost of energy, food, health care, college and other basic necessities has soared.

While the middle class has declined under President Bush's reckless economic policies, the people on top have never had it so good. For the first seven years of Bush's tenure, the wealthiest 400 individuals in our country saw a $670 billion increase in their wealth, and at the end of 2007 owned over $1.5 trillion in wealth. That is just 400 families, a $670 billion increase in wealth since Bush has been in office.

In our country today, we have the most unequal distribution of income and wealth of any major country on earth, with the top 1 percent earning more income than the bottom 50 percent and the top 1 percent owning more wealth than the bottom 90 percent. We are living at a time when we have seen a massive transfer of wealth from the middle class to the very wealthiest people in this country, when, among others, CEOs of Wall Street firms received unbelievable amounts in bonuses, including $39 billion in bonuses in the year 2007 alone for just the five major investment houses. We have seen the incredible greed of the financial services industry manifested in the hundreds of millions of dollars they have spent on campaign contributions and lobbyists in order to deregulate their industry so that hedge funds and other unregulated financial institutions could flourish. We have seen them play with trillions and trillions dollars in esoteric financial instruments, in unregulated industries which no more than a handful of people even understand. We have seen the financial services industry charge 30 percent interest rates on credit card loans and tack on outrageous late fees and other costs to unsuspecting customers. We have seen them engaged in despicable predatory lending practices, taking advantage of the vulnerable and the uneducated. We have seen them send out billions of deceptive solicitations to almost every mailbox in America.

Most importantly, we have seen the financial services industry lure people into mortgages they could not afford to pay, which is one of the basic reasons why we are here tonight.

In the midst of all of this, we have a bailout package which says to the middle class that you are being asked to place at risk $700 billion, which is $2,200 for every man, woman, and child in this country. You're being asked to do that in order to undo the damage caused by this excessive Wall Street greed. In other words, the "Masters of the Universe," those brilliant Wall Street insiders who have made more money than the average American can even dream of, have brought our financial system to the brink of collapse. Now, as the American and world financial systems teeter on the edge of a meltdown, these multimillionaires are demanding that the middle class, which has already suffered under Bush's disastrous economic policies, pick up the pieces that they broke. That is wrong, and that is something that I will not support.

If we are going to bail out Wall Street, it should be those people who have caused the problem, those people who have benefited from Bush's tax breaks for millionaires and billionaires, those people who have taken advantage of deregulation, those people are the people who should pick up the tab, and not ordinary working people. I introduced an amendment which gave the Senate a very clear choice. We can pay for this bailout of Wall Street by asking people all across this country, small businesses on Main Street, homeowners on Maple Street, elderly couples on Oak Street, college students on Campus Avenue, working families on Sunrise Lane, we can ask them to pay for this bailout. That is one way we can go. Or, we can ask the people who have gained the most from the spasm of greed, the people whose incomes have been soaring under president bush, to pick up the tab.

I proposed to raise the tax rate on any individual earning $500,000 a year or more or any family earning $1 million a year or more by 10 percent. That increase in the tax rate, from 35 percent to 45 percent, would raise more than $300 billion in the next five years, almost half the cost of the bailout. If what all the supporters of this legislation say is correct, that the government will get back some of its money when the market calms down and the government sells some of the assets it has purchased, then $300 billion should be sufficient to make sure that 99.7 percent of taxpayers do not have to pay one nickel for this bailout.

Most of my constituents did not earn a $38 million bonus in 2005 or make over $100 million in total compensation in three years, as did Henry Paulson, the current secretary of the Treasury, and former CEO of Goldman Sachs. Most of my constituents did not make $354 million in total compensation over the past five years as did Richard Fuld of Lehman Brothers. Most of my constituents did not cash out $60 million in stock after a $29 billion bailout for Bear Stearns after that failing company was bought out by J.P. Morgan Chase. Most of my constituents did not get a $161 million severance package as E. Stanley O'Neill, former CEO Merrill Lynch did.

Last week I placed on my Web site, www.sanders.senate.gov, a letter to Secretary Paulson in support of my amendment. It said that it should be those people best able to pay for this bailout, those people who have made out like bandits in recent years, they should be asked to pay for this bailout. It should not be the middle class. To my amazement, some 48,000 people cosigned this petition, and the names keep coming in. The message is very simple: "We had nothing to do with causing this bailout. We are already under economic duress. Go to those people who have made out like bandits. Go to those people who have caused this crisis and ask them to pay for the bailout."

The time has come to assure our constituents in Vermont and all over this country that we are listening and understand their anger and their frustration. The time has come to say that we have the courage to stand up to all of the powerful financial institution lobbyists who are running amok all over the Capitol building, from the Chamber of Commerce to the American Bankers Association, to the Business Roundtable, all of these groups who make huge campaign contributions, spend all kinds of money on lobbyists, they're here loud and clear. They don't want to pay for this bailout, they want middle America to pay for it.

Comments (17)

1. man,

   if people had jobs actually making things,

   they'd have been able to pay their mortgages.

   well, at least the price of shipping may drive (pun intended) some of these jobs back westward.

   Posted by frosty zoom at 10/02/2008 @ 2:05pm

2. "The amendment was defeated by a voice vote, but in introducing it Senator Sanders captured the frustration and outrage of people who have been shafted for eight years under George Bush"...

   Yes, well, actually ACCOMPLISHING it would be a bit better than "capturing frustration", wouldn't it?

   and since Sen. Sanders DIDN'T accomplish anything....so what?

   Sorry to be so cynical...but I don't take "He or she TRIED to do something and that means a whole lot!" from the Right or the Left. Remember what the little long-eared Muppet said...

   "Do or do not...there is no try!"

   Posted by Maskdelta at 10/02/2008 @ 2:05pm

3. nonetheless, having so much fiat money around means that lenders will desperately search for some way of lending it.

   THE NEXT TIME!

   Posted by frosty zoom at 10/02/2008 @ 2:06pm

4. We also need corporate healthcare to return millions of dollars they made in Medicare scams by overtreating the elderly with unnecessary procedures in the hospitals. "Non profit" hospital CEO's are running away with their profits instead of reinvesting in our run down hospitals. Furthermore, they should be prosecuted for crimes against humanity.

   Posted by nursevic at 10/02/2008 @ 3:16pm

5. Yes, sock it to the plutocrats, big time, but what amazes me is how the "average" investor with retirement tied up in Wall Street, didn't scream bloody murder about the insane salaries awarded to exec officers of these firms. The golden parachutes & other graft devices only make these sickos candidates for exile. Let them reside in the community nearest their P.O. Box business address. Somewhere so far offshore their stench won't pollute the countryside.

   Posted by Sorelish at 10/02/2008 @ 4:01pm

6. Recovery and the New Deal March 1933 was the rock bottom of the Depression and the inauguration of Franklin D. Roosevelt represented a sharp break with the status quo. Upon taking office, a bank holiday was declared, the United States left the interwar gold standard the following month, and the government commenced with several measures designed to resurrect the financial system. These measures included: (i) the establishment of the Reconstruction Finance Corporation which set about funneling large sums of liquidity to banks and other intermediaries; (ii) the Securities Exchange Act of 1934 which established margin requirements for bank loans used to purchase stocks and bonds and increased information requirements to potential investors; and (iii) the Glass–Steagal Act which strictly separated commercial banking and investment banking. Although delivering some immediate relief to financial markets, lenders continued to be reluctant to extend credit after the events of 1929–33, and the recovery of financial markets was slow and incomplete. Bernanke (1983) estimates that the United States' financial system did not begin to shed the inefficiencies under which it was operating until the end of 1935.

   Source: EH.Net Encyclopedia -

   Bernanke...gosh that name sounds familiar.

   Real threat is down grade of rating on US backed securities and potential subsequent default either directly or through devaluation of dollar. This bill needs serious reconsideration, including how its going to paid for. Kudos to Sanders for proposing it. Shame on those politicians who want to pass on the cost to our children and their children.

   Posted by OneVote at 10/02/2008 @ 4:16pm

7. Picture yourself with a one thousand dollar bill.

   Here is an interesting illustration provided by Ried Buckley in his book "Speaking in Public"

   "Do you know how high a pile one MILLION bucks would make in thousand dollar bills?"

   Pause. Pause. Pause.

   Answer: "Seven inches"

   "Now do you know how high a pile one BILLION bucks make in thousand dollar bills?"

   Pause. Pause. Pause.

   Answer: "Twenty-eight feet higher than the Washington Monument." (or 583 feet)

   The point is people have little perspective when you start talking big figures and big money.

   That was 1 billion.

   Well, I thought, now how about 700 billion

   700 x 583 feet = 408,100 feet

   408,100 feet = 124.38888 kilometers

   408,100 feet = 77.2916667 miles

   That is …

   Beyond the troposphere

   Beyond the stratosphere

   Beyond the mesosphere

   Somewhere in the thermosphere

   In the Sub-Orbital Zone

   Just below the Low Earth Orbit

   http://en.wikipedia.org/wiki/Boundary_of_space

   Picture yourself with one thousand dollar bill.

   Picture yourself adding it to the top of the stack

   Use that vision when you hear the politicians start talking about tacking on (or funneling) another mile or two of thousand dollar bills for pet projects. (Acorn or La Raza or others)

   Posted by CrtclThnkr at 10/02/2008 @ 11:11pm

8. The problems with KVH's solutions are that no matter what the issue, the answer is always the same. Big taxes on the "rich". Endless quotes about wealth/income inequality, with a call for a return to the golden age of 90% marginal rates. But somehow, whenever these "soak the rich" plans get enacted, the definition of rich seems to sink down to $50,000 or so. Obama is calling for a modest increase on incomes over $250,000. Anyone believe it will stay that high?

   Posted by sntauri at 10/03/2008 @ 6:47pm

9. Top priority should be sound fiscal policy of the sort once advocated by the Republicans before they discovered voodoo. Americans are being evicted because Republican borrow-and-spend is driving up interest rates, and the only way to prevent further stifling of economic growth is to borrow less, spend less and yes, tax more.

   Posted by samcrossett at 10/03/2008 @ 9:10pm

10. Helping the little people?? You mean with subprime mortgages? What could possibly go wrong. I guess the real chicken bone in the throat is your quote "Most importantly, we have seen the financial services industry lure people into mortgages they could not afford to pay, which is one of the basic reasons why we are here tonight." Indeed. For crying out loud, the government FORCED this to happen! And if they didn't, the thugs at ACORN would call them racist. So, the fact that they could make money at this...well, what to do...do you want to make money and not be called racist OR be called racist and not make money? Gee, let me see.... This will indeed change things but not the way you want, especially when the full fury of the public explodes.

    Posted by pyeatte at 10/05/2008 @ 12:38am

11. Should this be analogous to the government response to your name sake in New Orleans, we will see the poor wading in sewage trying to survive by stealing can goods from a flooded Wal Mart and being blamed for taking stuff that couldn't be sold anyway. Whatever I have read about this bill doesn't convince me that these guys really understand that the class war is over and that the vast majority of workers have lost. The only hope we seem to have is to move to China and work for sub human wages. When 10 percent of Americans own 80 percent of the wealth, we have the making of a plutocracy governed by fascist.

    thanks for the article.

    Posted by lachatte at 10/05/2008 @ 11:23am

12. The Nation Magazine January 17, 2002

    Enron: Crony Capitalism

    "The rise and fall of the house of Enron should trigger comprehensive investigations--civil, criminal and Congressional….."

    The Enron scandle was to the tune of 60-70 Billion Dollars.

    The Freddy/Fannie bailout will reach 1 Trillion Dollars.

    Does it not warrant the same scrutiny?

    Posted by Incoming at 10/05/2008 @ 12:49pm | ignore this person | warn this person

    Posted by Incoming at 10/05/2008 @ 12:59pm

13. Katrina, you were great on This Week today. I had to look you up, and I was surprised to find such a great article too. We just can't afford four more years of this.

    http://www.youtube.com/watch?v=CyfIoxTDD6Q

    Posted by bilco5 at 10/05/2008 @ 11:31pm

14. Maybe in a hundred years the greedy underbelly will be exposed. I am sure there's been a good measure of unintended consequences. There is no single man behind the curtain. And I am sure there's much more than meets the eye. Enough of a conspiracy to qualify. Perhaps it was ad hod, on the fly, dumb luck - but there is no way Obama could risk the appearance, risk the corporate media spin resulting in the impression that he... opposes McCain on the bail out. This would have been the self-inflicted October surprise.

    Posted by winyahn at 10/05/2008 @ 11:52pm

15. You're never at a loss for the opportunity to promote class warfare.

    Posted by lvliberty1 at 10/02/2008 @ 11:49pm | ignore this person | warn this person

    .

    For the far right, wingnut fringe, whenever the rich suck the money from the poor, it's called 'free market capitalism', but when the poor people fight back...

    ...the wingnuts call it 'class warfare'.

    Of course, for Christians, the notion of helping 'ordinary people', is at the root of Jesus' teachings. We call it...

    ...the Golden Rule.

    Posted by Lillian at 10/06/2008 @ 12:31am

16. Katrina,

    I am glad that The Nation exists and that you and others are not afraid to speak out and tell the truth about the abuse of power that has dominated our way of life for the last century. Go on exercising your constitutional right to question authority, I am not a lemming to be led off of the cliff like so many other unthinking Americans who swallow the news pablum from corporate news and radio, but need the views of the left and the right to help find where the truth really is. I sometimes do not agree with your opinions, but I do appreciate your perspective.

    Don't ever stop being a thorn in the side of power and authority, there are many of us who need alternate points of view to help give perspective and we love you for your bravery and energy in fighting the good fight. Thomas Paine would be proud of what you and others do at The Nation.

    Kudos!

    Posted by rockit2001 at 10/06/2008 @ 5:29pm

17. Dear Editor A very thoughtful and patriotic editorial!!! Congrats!! Though your northern neighbor, may I suggest that your proposal to tax the well heeled so that $300 Billion can be collected is sound. As your readers know, we have a mixed system with a somewhat developed social net in health care and education. Since it is only a matter of time before there is an integrated North America, it would be reasonable that exchanges of working models take place. Now is the time for the USA to adopt what works, though imperfectly, in Canada and more equity for all citizens can be developed and articulated. Your concept of a democratic capitalism with social justice elements is indeed a good solution towards a more perfect union!! My best wishes Sam

    Posted by samgeorge at 10/06/2008 @ 6:23pm