Wall St campaign contributions pay off big time
|September 20, 2008||Posted by Staff under Progress Report, The Progress Report|
Wall St campaign contributions pay off big time
US Seizes Control of AIG with $85 Billion Bailout
You hear “crisis” but it’s not housing becoming affordable again. Thats good and necessary. It’s government bailing out the insiders rather than shoring up everyone with fair shares of social surplus, of the multi-trillion dollar flow of peoples spending for nature, for sites and resources. Recent bailouts show why finance, insurance, and real estate are joined in FIRE. We trim this interview by Amy Goodman of Democracy Now with Michael Hudson, chief economic adviser to Rep. Dennis Kucinich, and Nomi Prins, ex-banker at Bear Stearns.
by Goodman, Hudson, and Prins
Amy Goodman: The US government seized control of insurance giant American International Group in a $85 billion bailout. AIG verged on bankruptcy because it bought bundled subprime home mortgages which plunged in value. This government bailout comes just over a week after that of mortgage giants Fannie Mae and Freddie Mac and six months after the Fed bailed out Bear Stearns. It brings the total amount of government rescue efforts to about $900 billion.
Nomi Prins: AIG speculated in mortgages, borrowing to take on risk (leverage) and borrowing again and borrowing again, twenty-five to thirty times the amount of money that they had to back the borrowing they were doing.
Michael Hudson: Government bailout, ostensibly to protect the public, means taxpayers get stuck with the bill; the debts cant be paid. Every banker knew that the loans they were making were going to go bad. For them to come out a winner, make government bail you out. It needed an emergency to do it. Its really not an emergency. This has been building up for many years. Its really a war of creditors against debtors. When the debts exceed the ability to pay, theres only one thing any economy can do: wipe them out.
AG: The argument was, if you dont bail out AIG, it could lead to a global financial meltdown.
MH: If you didnt, then you would be able to bring the debts down to the size borrowers could repay, and you would save four million homeowners from defaulting and being kicked out of their houses. Now the economy is being sacrificed to pay the gamblers.
AG: What started all this?
NP: In the Great Depression, President Roosevelt told bankers to pick a side. You want to be an investment bank? Be an investment bank. You want to be a commercial bank, take deposits, take savings, make mortgage loans? Well create an insurance company, the FDIC, to back deposits for the public. Over the years, these sides have merged and merged and merged. In late 1999, Glass-Steagall was repealed by Congress.
MH: Glass-Steagall was to keep investment banking apart from commercial banking. Now banks merge with the most crooked companies, like Countrywide Financial thats under indictment by attorney generals all over the country. Banks commit their deposits to recycle savings not into industrial investment, but into exploitive loans.
AG: About the money that Obama and McCain get. According to the Center for Responsive Politics, Obama, its nearly $10 million from the securities investment industry; McCain, its nearly $7 million. So Obama actually gets more. The industry ranks as the third-biggest giver to Senator Obamas presidential campaign. How does this influence the debate, and what are the proposals of the two men?
NP: Wall Street was the biggest contributor to all the politicians in Washington over the last decade. So McCain wants to set up a commission to understand whats going on. Well, we have seven different regulatory bodies in Washington, and theyre supposed to be watching the financial community. We have state ones that are supposed to be watching over insurance companies. Obama has basically said the same thing; he wants to strengthen the ones that do exist.
MH: The regulatory agencies dont collect the information; the government has no adequate statistics on what the value of real estate is, what the amount of debt is. The volume of debt is far in excess of the ability of debtors to pay. And when you have that, you would have to do something about it.
NP: If youre effectively nationalizing banking, youre nationalizing the worst portion. Youre taking on risk you dont understand, and youre not even trying to. And youre not even running it as a public entity.
AG: But Obama is not against this.
MH: He is not against it. It was a Democratic president, Clinton, who repealed Glass-Steagall. It was a Democratic Treasury secretary, Robert Rubin, who supported all of this.
AG: Top adviser to Obama.
NP: Robert Rubin was at Goldman. So was the current Treasury secretary, Hank Paulson. So are a number of people in Washington.
MH: While the Republicans are a wholly owned subsidiary of Wall Street, the Democrats are a partially owned subsidiary.
Imagine if Republicans had privatized Social Security. These jokers would be managing your Social Security. Theyd stick you with the losses.
AG: Theyve always said that Social Security cant be bailed out, but that its going broke.
MH: Now it could be. Obviously, this is not a free market. They say theyre acting on behalf of Adam Smith. Adam Smith said no government has ever repaid its debts. And it could be said that no private sector has, either. So, this is not a free market; this is a guaranteed gamble for Wall Street against industry and against labor.
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