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Goldman Sachs Socialism
"Section 8.
Review. Decisions by the Secretary pursuant to the
authority of this Act are non-reviewable and committed
to agency discretion, and may not be reviewed by any
court of law or any administrative agency."
In other words, no lawsuits allowed by aggrieved
investors or American taxpayers. No complaints later
from ignorant pols who didn't know what they voted
for. Take it or leave it, suckers.
Both political parties
may submit to this extortion because they don't have a
clue what else to do and bending over for Wall Street
instruction, their usual posture, seems less risky
than taking responsibility. Paulson and Bernanke
evoked intimidating pressure for two reasons. The
previous efforts to restore investor confidence had
all failed as their slapdash interventions worsened
the global panic. Besides, the Federal Reserve was
running out of money. Nearly three-fifths of the Fed's
$800 billion portfolio is now loaded down with
junk--the mortgage securities and other rotten assets
it took off Wall Street balance sheets. The imperious
central bank is fast approaching its own historic
disgrace--potentially as discredited as it was after
the 1929 crash.
Despite its size, the
gargantuan bailout is still designed for the narrow
purpose of relieving the major banks and investment
houses of their grief, then hoping this restores
regular order to economic life. There are lots of
reasons to think it may fail. The big boys are acting,
as usual, in self-interested ways since the government
allows them to do so. Washington's money might pull
firms back from the brink--at least the leaders of the
Wall Street Club--but that does not guarantee the
banks will resume normal lending, much less capital
investing. The financial guys may well hunker down,
scavenge the wreckage for cheap profits and wait for
the real economy to get well. Likewise, global
investors--China, Japan and other major
creditors--have been burned and may step back from
pumping more capital in the wobbly house of US
finance.
Secrecy and opacity are
crucial to achieve Wall Street's purposes. It could
allow Paulson to overpay his old pals for
near-worthless assets and slyly recapitalize the
damaged banks while telling public and politicians the
money is to save the system. To achieve this, Wall
Street needs to keep control of the process whoever is
elected president (the Wall Street Journal
recommends John Thain, ex-chief of the New York Stock
Exchange to succeed Paulson). Not everyone will be
saved, of course, but high on the list of endangered
nameplates is Goldman Sachs, Paulson's old firm. The
high-flying investment house looks doomed by these
events. The Fed quickly agreed to convert Goldman and
Morgan Stanley into banks. Think of Paulson's solution
as Goldman Sachs socialism.
The most hopeful comment
I heard from an astute economist was by Nouriel
Roubini of NYU, who has been darkly prescient
during this crisis. The bailout should help, he told
the Times. "The recession train has left
the station, but it's going to be 18 months, instead
of five years," he said. Hope he's right, but
voters are unlikely to regard this as fair return on
their $700 billion. The bandits will be back in
business and partying, while the victims are still
gasping for air.
If Paulson's gamble
fails--just as possible--then maybe government will
finally undertake forceful intervention rather than
friendly solicitude for Wall Street. Washington should
literally take control of the banking and finance
sector and employ its emergency powers to oversee and
direct these private, profit-making enterprises. If
any bankers do not wish to play, cut them off from any
public assistance (and wish them good luck). Then
government can exercise temporary supervisory powers
that force banking to cooperate with economic recovery
by sustaining lending and investment to the real
economy. Washington can put profit on hold.
Order full stop to the
many financial gimmicks and accounting illusions that
led to inflated lending and falsified asset
valuations. Unwind the complicated time bombs known as
credit
derivatives and shut down this lucrative line of
business. Meanwhile, instead of throwing millions of
homeowners and debtors out of their homes and into
bankruptcy, hold them harmless temporarily so people
can work out reasonable terms for recovery. Finally,
force-feed new life into the real economy with
government spending on public projects and capital
formation. How much spending? Rescuing America from
irresponsible Wall Street is worth whatever it costs
to save the bloodied bankers.
National affairs
correspondent William Greider has been a political
journalist for more than thirty-five years. A former
Rolling Stone and Washington Post editor, he is the
author of the national bestsellers One World, Ready or
Not, Secrets of the Temple, Who Will Tell The People,
The Soul of Capitalism (Simon & Schuster) and--due
out in February from Rodale--Come Home, America.
Copyright © 2008 The
Nation
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