The prez-elect selects those who put hi-finance first
Will Obama be America's Yeltsin and sell off the nation?
| We trim and blend a pair of 2008 articles. The first of Nov 25 is by the editor-in-chief of Truthdig and the author of The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America. The second appeared in Counterpunch on Nov 26 by a Distinguished Research Professor at University of Missouri, Kansas City and author of Super Imperialism: The Economic Strategy of American Empire. |
by Robert Scheer and by Michael Hudson
- Obama Chooses Wall Street Over Main Street
Barack Obama is picking the very folks who helped get us into this financial mess to now try and lead us out of it.
Obama picked Larry Summers and Timothy Geithner, protégés of Robert Rubin, Chairman of Citigroup Executive Committee. Geithner, thanks in part to the recommendation of Rubin, has been chairman of the New York Federal Reserve Bank and the main government official charged with regulating Citigroup. After Rubin called the Treasury recently, Geithner could hammer out a bailout deal for Citigroup.
The bailout brings to $45 billion the taxpayer money thrown at Citigroup and the guarantee of $306 billion for the bank’s toxic securities. In contrast with the bailout of AIG, this arrangement leaves the executives, including Rubin, who brought Citigroup to the brink of ruin, still in charge.
So, just as Rubin and Co. at Citi were being bailed out by the Bush administration, President-elect Barack Obama was announcing a new economic team drawn almost entirely from Rubin acolytes.
You can see the feathers coming out of their mouths as the foxes are once again put in charge of the henhouse.
- The Obama Letdown: The Neo-Yeltsin Administration?
The US media focus on personalities, not on the economic forces at work. The super rich concentrate their wealth and power in the financial, insurance, and real estate (FIRE) sectors and foreign policy. That one 1% of Americans raised their share of the returns to wealth from 37% ten years ago to 57% five years ago and an estimated nearly 70% today. The government bails out the rich on their financial investments, but not wage earners on their debts. Mr. Obama, change that.
He may give wage earners an income-tax break -- thereby enabling them to keep on paying their bank debts. As for the rich, they prefer not to earn income in the first place. Taxes need to be paid on income, so they take their returns in the form of capital gains. In the present meltdown, simply avoiding losses is the order of the day.
To participate in a hedge fund, one needs to prove that one can afford to lose their money and not be much worse off. So the $306 billion in federal guarantees of the junk mortgage packages sold by Citibank, and the $135 billion bailout of the insurance contracts written by AIG to protect swap contracts from loss, could have been avoided. The rich could have taken the hit.
If the subprime and other mortgages had been permitted to decline to the neighborhood of 22 cents on a dollar they were trading for, this would have made it possible to write down the debts to the price that mortgage holders had paid without much impact on the “real” economy. Instead, unlike previous busts, bad business debts are being transferred from the banks to the federal government, mainly the Federal Reserve and Treasury. Bloomberg has added up these programs and finds they already stand at $7.7 trillion dollars -- half an entire year’s GDP.
By preventing a write-down and keeping bad-mortgage loans inflated, the bailouts maintain the service charges on this indebtedness. Paying those charges diverts peoples’ income from consumption to paying creditors. That helps financial investors, not labor or industry. It keeps the cost of living and doing business high, preventing the economy from working its way out of debt by becoming competitive once again.
With all these trillions of dollars of bailing out the wealthy, what is being left out? For one thing, the government’s indebted Pension Benefit Guarantee Corp. State and local pension plans are almost entirely unfunded, and are at even more risk as their tax revenues plunge and property tax payments are stopped on housing and commercial buildings that have foreclosed. If the big three Detroit companies declare bankruptcy, that would annul their defined-benefit pension plans.
To administer the bailouts, Obama, with Robert Rubin as his economic advisor, has appointed the same “Yeltsin” team who sponsored Russia’s privatization giveaways in the mid-1990s that brought the kleptocrats to power. These include Rubin protégés Larry Summers, who as head of the World Bank forced privatization at give-away prices to kleptocrats; Geithner of the New York Fed; and a monetarist economist. Whereas Obama’s economic team made fortunes for Russian kleptocrats by giving them public-sector assets already in place, their American counterparts are going to have to get richer by actually building new projects.
This is where Obama’s Chicago political experience comes in handy. Obama’s mentors -- the Pritzker family, the University of Chicago, and assorted real estate reverends -- with public support rebuilt vast central sites and reaped hundreds of millions of dollars. Infrastructure spending will be just one more item adding to America’s debt overhead to make its economy even less competitive with foreign ones than it is.
Real estate owners on favorably situated sites will sell out to buyers-on-credit, creating a vast new and profitable loan market for banks. Real estate remains the largest asset category in every economy today, just as much as under feudalism. Then landlords received the rental value of land; today it’s the mortgage banker.
The gains from providing better transport infrastructure typically are larger than the costs. London’s tube extension to Canary Wharf, for example, cost the city £8 billion and increased real estate values along the route by some £13 billion. The city could have financed the entire project by issuing bonds that would have been repaid out of taxes levied on the nearby sites made more valuable. Residents in general wouldn’t have to pay, and riders could enjoy subsidized fares.
A president-elect still bragging about his “mandate for change” could close loopholes and recover the socially-generated values of prime locations.
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