US Financial Crisis: The Obamas Litmus Test
Rizwan Ghani
September 30, 2008
Disappointed Bush following Monday´s revolt has publicly urged Congress to support 700-dollar bailout package. Independent observers have termed Congress´ stand as Good day for Democracy and recommend cost should be borne by those who created the problem http://www.guardian.co.uk/commentisfree/2008/oct/01/useconomy.congress. However, few are optimistic of seeing a bipartisan consensus in immediate future starting 2 Oct., when Congress returns to Capitol Hill.
US Senate instead of heading for a resolution of financial crisis needs to bring inventory details of sick units before the public to help both houses make informed choices. Senate banking committee needs to do more in this regard. In all probability a pro-active banking committee could have equally helped to avert the crisis, instead of leaving the crisis-dead corpse on the door of Securities and Exchange Commission or Allen Greenspan only.
The current Federal Reserve and Treasury leaderships are equally responsible for the economic breakdown and they should be held accountable for their failures including implementation of regulations to end predatory loaning. In all probability they followed political correctness instead of economic fundamentals. Simply put they protected their jobs at the cost of average American´s interests. Allegedly, it has accumulated toxic loans to the tune of two trillion, which prompts observations that 700 bn dollar package will be insufficient. Both Senate and Congress need to take into account such observations before finalizing any bailout package.
The crisis has tactical and strategic implications. Bush is urging Congress to bailout fat cats to save the average person. House representatives want to protect interest of Main Street and in turn their political future. Reportedly, Congress´s approval ratings are below 20 percent. The people on street want the amount spent on education, health care and protection of their pension plans that allegedly are on the line.
US financial crisis is having strategic implications at the global level. A globalized, interdependent banking system has left advanced world leaders nationalizing financial institutions, which independents observers opine, have and will undermine taxpayers´ interests, national economies and increase stagflation (inflation and joblessness).
The voices criticizing fundamentals of Capitalism are growing louder by the minute at the global stage eroding as Sec. Paulson arguments for bailout. Many a voices have dubbed Paulson as Wall Street´s lawyer than friend of Americans.
It is clear to Congress and the Senate in US that average person is not going to support the bailout package. No single politician genuinely aware of public feelings will dare support the package unless he or she is willing to prematurely end his or her career. Both Democrats and Republicans are using economic philosophy of de-regulation and regulation to keep their political bases. The language on bailout will be voter oriented. The resolution of the standoff, if any will the most be byproduct of their efforts to maintain popularity in their constituencies than crisis resolution itself.
It brings Obama as presidential nominee of the Democratic Party, US history and Capitalism center stage. Kennedy decision to adopt socialist Capitalism, end Vietnam War and scale down Cuba policy (in all probability) cost him his life. Today, America is at cross roads to learn from country´s economic history for domestic and international good. Is Obama ready to step in the shoes of Kennedy with all its dangers to protect average person not within US but rest of the world also? Unless Democrats are willing to do what needs the current calls for bipartisan solution of the problem based on the current draft will fail. And if and when there will be a consensus it will be flawed. The US history shows that the failed financial institutions should be asked to file for bankruptcy. Let the inventories not politicians or White House decide the fate of these institutions.
Here is how US history helps understand the recommendation. In 1917, American economy had adopted Globalization and Capitalism by 1917. However, due to the historic 1929 Black Monday Stock Exchange crash President Roosevelt introduced government control to revive the economy and to save the average American. Roosevelt based his decision on British economist J. M. Keynes economic philosophy given in his book, The Economic Consequence of the Peace which in wrote in 1919 http://en.wikipedia.org/wiki/The_Economic_Consequences_of_the_Peace . Keynes supported govt. control of the economy, which is commonly known as socialist Capitalism.
Keynes, supported govt. control of commanding heights namely banks, energy sector, communication infrastructure including railway, ships, roads, wages, regular pensionable jobs instead of daily wages contractual system, state supported health care and education as part of human resource development.
Roosevelt between 1933 and 1938, initiated sequence of programs with a goal of giving relief to unemployed- collectively known as The New Deal http://en.wikipedia.org/wiki/The_New_Deal. The first New Deal of 1933 provided short-term recovery program for all groups. The second New Deal (1935–36) included: labor union support, the WPA relief program, the Social Security Act, and programs to aid farmers (currently 16 bn US dollar subsidy and led to Home Stead law), including tenant farmers and migrant workers. The Supreme Court ruled several programs unconstitutional; however, most were soon replaced, with the exception of the NRA.
Most of the relief programs were shut down during World War II by the Conservative Coalition (i.e. the opponents of the New Deal in Congress). Many regulations were ended during the wave of deregulation in the late 1970s and early 1980s to be replaced by Reganomics in US and Thatcher´s deregulation and privatization program in UK.
In 1936, the US Supreme Court despite deciding in favor of Republicans in New Deal judgment(s), up-held several New Deal programs started by Roosevelt including 19 public welfare programs that are still active in US, with some still operating under the original names. The Federal Deposit Insurance Corporation (FDIC), the Federal Housing Administration (FHA) and the Tennessee Valley Authority (TVA). The largest programs still in existence today are the Social Security System and Securities and Exchange Commission (SEC).
Roosevelt´s socialist capitalism increased govt. control of US economy including regulatory oversight of banking sector, labor union rights and pension. All this allowed creation of social assistance measures on national level including: 1) workers right to negotiate wages, permanent jobs instead of contracts, and right to form unions to protection of legal rights of labor class. 2) health care and 3) social security and pension program.
The history of Republican Party shows that the party never accepted socialist capitalism recognizing state role in public welfare. They challenged New Deal in US Supreme Court in 1936. However, the court gave 19 decisions in the favor of New Deal. Republicans however continued to shun govt.´s control. They instead supported economic model of capitalism given by Austrian Nobel Prize winner economist F.V. Hayek philosophy explained in his book, The Road to Serfdom http://en.wikipedia.org/wiki/The_Road_to_Serfdom .
Hayek supported de-regulation as one of the fundamentals of economic growth and at the most recognized government´s role as a facilitator. Regan implemented it during his time in office, known to rest of the world as Reganomics. In UK, Thatcher played havoc with British social welfare state by adopting privatization and de-regulation. A model that Bush followed throughout his eight years in office, which also constitutes basis of Sec. Paulson´s plan seeking tax dollars without regulatory oversight, accountability and strings attached. Ideology of Republican Party is part of spin to avoid government oversight, accountability and voter backlash in upcoming Presidential election.
It explains Republicans disdain for the New Deals within America and accountability. It puts in perspective Republicans exploitation of controversies surrounding Clinton to keep him from restoring govt. control on the economy something that President Kennedy had successfully managed to do in 1964. Kennedy ended the struggle by opting to adopt Keynesian economic model that supported public welfare and public control of critical areas of the economy. In all probability, Kennedy´s support for ´socialist capitalism´ alleged decision to review US-Cuba relations and to end Vietnam War precipitated his murder.
Republicans believe that socialist capitalism is a threat to Hayek´s model of capitalism. It explains Republican standoff on global level with pro-socialist cum communist regimes of Venezuela, Bolivia, Brazil, Cuba, Russia etc. The European economies/ leaderships supporting Hayek´s economic model are friends of neo-cons. Sarkozy´s ambitious reform agenda of ending France´s social welfare structure explains his support in Republicans and unpopularity within his own country fellows. It is also true for Germany and struggling Labor in UK.
Hayek´s capitalism needs globalization, de-regulation and interconnected banking sector to sustain its exports to rest of the world to maintain domestic economic growth. It explains Republicans support for use of military power to protect their economic interests. It puts in perspective their policy of regime changes, disdain for national constitutions and independence of judiciary within America and rest of the world.
Republicans don´t want international platforms like UN, Geneva Conventions, Human Rights, pro-public governments upholding constitutions and independent judiciaries supporting main street instead of Wall Streets´ in rest of the world. It is ´us´ versus ´them´. Globalization, WTO, IMF and WB are but mechanisms to support Hayek´s capitalism.
Bush´s eight year in office have shown that Hayek´s trickledown economy has failed to deliver at grassroots within US and other capitalist-based economies across the world. The deep divide between rich and poor has eliminated middle class. It is threatening the social and economic fundamentals of the countries. It explains developing world´s disdain for Bush capitalism.UK is nationalizing its banks. France will follow suit. Reportedly, Sarkozy is receiving the flake for his comments that it is end of Capitalism. Japan is injecting 24 bn US dollars in its economy.
Reportedly, within US, Capitalism has left America under 11.2 trillion-dollar debt. Allegedly if the bailout is adopted it will leave every American under 30,000 US dollars debt, which will be in addition to cost of Iraq war. It is opined that Republicans used consumerism as opium to cover war just like the Nixon regime used drugs to keep public away from Vietnam war.
Next, one hundred seven million Americans are without health care insurance and two million Americans have lost homes in 2007 mortgage meltdown. Some five million Americans have been forced to take two or more than two jobs to make both ends meet, which in turn has its own social and psychological challenges.
According to ABC report parents earning around 80,000 dollars annual salary can afford to send one child out of two for college education. The parents earning around 35,000 dollars annually will only be able to afford to send one child out of 17 children to college. Due to high cost of professional education UK´s health sector is dependent on 40 percent overseas doctors. In USA reportedly there are 120,000 Pilipino English teachers. Schoolteacher and resident doctors are one of the lowest paid within America. A teacher gets around 34,000 dollars as compared to railway conductor´s take home salary of 100,000 plus (2006 magazine: who gets paid what?)
It is opined that for want of regulation the hourly wages in US are almost stagnant for last thirty years. Congress´ two-phase two dollar hourly wage increase is too little too late. Economic experts opine that as compared to 1976 proportionately the purchasing power of average hourly wages in 2006 has decreased by 60 percent.
In contrast, in some cases company executives´ have been drawing salaries at the ratio of 479:1. Reportedly, company executive has drawn one-month´s salary that was more than his company worker´s 20 year salary. Private companies have skimmed hefty profits, leaving left taxpayers to foot the bills of ailing infrastructure. The oil network, national electric grid and aging bridges are cases in point.
It is equally true for UK, majority of African and Asian states with capitalist economies. The adverse effects of corruption, privatization of energy, health, communication, banking and education sector and replacement of permanent pension jobs with contract and long working hours without state protection has destroyed public´s support for capitalism.
Next, it can be argued that Republican seeking bipartisan support on the bailout package in its current form is an attempt to restrict Democrat President´s term to four years only. It is opined that economy will decide the presidential election and Republicans unable to avoid the defeat in ´08 presidential and house elections will use the very package to stage a comeback in 2012. It would be interesting to see how Democrats negotiate through this complex challenge.
It can therefore be argued that it is this ugly side of de-regulation and Hayek´s capitalism that Bush, Paulson and Republicans are trying to protect in their support for the bailout in the name of America, which is nothing but a golden parachute for the greedy unscrupulous fat cats of Wall Street.
Democratic Party has to put its house in order and stand up to protect economic interests of average American. Obama in step President Roosevelt and Kennedy needs to restore ´socialist capitalism´ and offer a comprehensive plan to regulate national economy based on the successful precedent of historic New Deals. Following steps can help: 1) introduce salary ration of 7:1 for executives and workers to bridge divide between rich and poor. 2) Nationalize energy, banking, education and health care sectors. 3) Regulate insurance sector. 4) In terms of job market replace contractual jobs with permanent pensionable jobs, revive unions and their right to negotiate salaries in accordance to relevant laws to keep wages in step with inflation etc. 5) Across the board accountability.
In all probability, it will be the Obamas litmus test to: 1) Follow personal example of President Kennedy and restore Robert Frost´s lost stature at national level by adopting his teachings of ´good fences make good neighbors´ for successful domestic and foreign policy. 2) Michael Obama in step with Eleanor Roosevelt poses with the portrait of ´Whistler´s mother´ to help America understand importance of austerity. Whistler´s Mother 3P stamp should also be brought back to public life which has been successfully kept hidden by the proponents of consumerism. China has used austerity to scale heights of success (Chinese save 52% of their earnings against Americans who save minus two percent saving).
Finally, restoration of socialist capitalism will bring relief to average person in Asian, African and European states following capitalism.The change of economic model will also help end US imperialism and restore peace in rest of the world.
US Senate instead of heading for a resolution of financial crisis needs to bring inventory details of sick units before the public to help both houses make informed choices. Senate banking committee needs to do more in this regard. In all probability a pro-active banking committee could have equally helped to avert the crisis, instead of leaving the crisis-dead corpse on the door of Securities and Exchange Commission or Allen Greenspan only.
The current Federal Reserve and Treasury leaderships are equally responsible for the economic breakdown and they should be held accountable for their failures including implementation of regulations to end predatory loaning. In all probability they followed political correctness instead of economic fundamentals. Simply put they protected their jobs at the cost of average American´s interests. Allegedly, it has accumulated toxic loans to the tune of two trillion, which prompts observations that 700 bn dollar package will be insufficient. Both Senate and Congress need to take into account such observations before finalizing any bailout package.
The crisis has tactical and strategic implications. Bush is urging Congress to bailout fat cats to save the average person. House representatives want to protect interest of Main Street and in turn their political future. Reportedly, Congress´s approval ratings are below 20 percent. The people on street want the amount spent on education, health care and protection of their pension plans that allegedly are on the line.
US financial crisis is having strategic implications at the global level. A globalized, interdependent banking system has left advanced world leaders nationalizing financial institutions, which independents observers opine, have and will undermine taxpayers´ interests, national economies and increase stagflation (inflation and joblessness).
The voices criticizing fundamentals of Capitalism are growing louder by the minute at the global stage eroding as Sec. Paulson arguments for bailout. Many a voices have dubbed Paulson as Wall Street´s lawyer than friend of Americans.
It is clear to Congress and the Senate in US that average person is not going to support the bailout package. No single politician genuinely aware of public feelings will dare support the package unless he or she is willing to prematurely end his or her career. Both Democrats and Republicans are using economic philosophy of de-regulation and regulation to keep their political bases. The language on bailout will be voter oriented. The resolution of the standoff, if any will the most be byproduct of their efforts to maintain popularity in their constituencies than crisis resolution itself.
It brings Obama as presidential nominee of the Democratic Party, US history and Capitalism center stage. Kennedy decision to adopt socialist Capitalism, end Vietnam War and scale down Cuba policy (in all probability) cost him his life. Today, America is at cross roads to learn from country´s economic history for domestic and international good. Is Obama ready to step in the shoes of Kennedy with all its dangers to protect average person not within US but rest of the world also? Unless Democrats are willing to do what needs the current calls for bipartisan solution of the problem based on the current draft will fail. And if and when there will be a consensus it will be flawed. The US history shows that the failed financial institutions should be asked to file for bankruptcy. Let the inventories not politicians or White House decide the fate of these institutions.
Here is how US history helps understand the recommendation. In 1917, American economy had adopted Globalization and Capitalism by 1917. However, due to the historic 1929 Black Monday Stock Exchange crash President Roosevelt introduced government control to revive the economy and to save the average American. Roosevelt based his decision on British economist J. M. Keynes economic philosophy given in his book, The Economic Consequence of the Peace which in wrote in 1919 http://en.wikipedia.org/wiki/The_Economic_Consequences_of_the_Peace . Keynes supported govt. control of the economy, which is commonly known as socialist Capitalism.
Keynes, supported govt. control of commanding heights namely banks, energy sector, communication infrastructure including railway, ships, roads, wages, regular pensionable jobs instead of daily wages contractual system, state supported health care and education as part of human resource development.
Roosevelt between 1933 and 1938, initiated sequence of programs with a goal of giving relief to unemployed- collectively known as The New Deal http://en.wikipedia.org/wiki/The_New_Deal. The first New Deal of 1933 provided short-term recovery program for all groups. The second New Deal (1935–36) included: labor union support, the WPA relief program, the Social Security Act, and programs to aid farmers (currently 16 bn US dollar subsidy and led to Home Stead law), including tenant farmers and migrant workers. The Supreme Court ruled several programs unconstitutional; however, most were soon replaced, with the exception of the NRA.
Most of the relief programs were shut down during World War II by the Conservative Coalition (i.e. the opponents of the New Deal in Congress). Many regulations were ended during the wave of deregulation in the late 1970s and early 1980s to be replaced by Reganomics in US and Thatcher´s deregulation and privatization program in UK.
In 1936, the US Supreme Court despite deciding in favor of Republicans in New Deal judgment(s), up-held several New Deal programs started by Roosevelt including 19 public welfare programs that are still active in US, with some still operating under the original names. The Federal Deposit Insurance Corporation (FDIC), the Federal Housing Administration (FHA) and the Tennessee Valley Authority (TVA). The largest programs still in existence today are the Social Security System and Securities and Exchange Commission (SEC).
Roosevelt´s socialist capitalism increased govt. control of US economy including regulatory oversight of banking sector, labor union rights and pension. All this allowed creation of social assistance measures on national level including: 1) workers right to negotiate wages, permanent jobs instead of contracts, and right to form unions to protection of legal rights of labor class. 2) health care and 3) social security and pension program.
The history of Republican Party shows that the party never accepted socialist capitalism recognizing state role in public welfare. They challenged New Deal in US Supreme Court in 1936. However, the court gave 19 decisions in the favor of New Deal. Republicans however continued to shun govt.´s control. They instead supported economic model of capitalism given by Austrian Nobel Prize winner economist F.V. Hayek philosophy explained in his book, The Road to Serfdom http://en.wikipedia.org/wiki/The_Road_to_Serfdom .
Hayek supported de-regulation as one of the fundamentals of economic growth and at the most recognized government´s role as a facilitator. Regan implemented it during his time in office, known to rest of the world as Reganomics. In UK, Thatcher played havoc with British social welfare state by adopting privatization and de-regulation. A model that Bush followed throughout his eight years in office, which also constitutes basis of Sec. Paulson´s plan seeking tax dollars without regulatory oversight, accountability and strings attached. Ideology of Republican Party is part of spin to avoid government oversight, accountability and voter backlash in upcoming Presidential election.
It explains Republicans disdain for the New Deals within America and accountability. It puts in perspective Republicans exploitation of controversies surrounding Clinton to keep him from restoring govt. control on the economy something that President Kennedy had successfully managed to do in 1964. Kennedy ended the struggle by opting to adopt Keynesian economic model that supported public welfare and public control of critical areas of the economy. In all probability, Kennedy´s support for ´socialist capitalism´ alleged decision to review US-Cuba relations and to end Vietnam War precipitated his murder.
Republicans believe that socialist capitalism is a threat to Hayek´s model of capitalism. It explains Republican standoff on global level with pro-socialist cum communist regimes of Venezuela, Bolivia, Brazil, Cuba, Russia etc. The European economies/ leaderships supporting Hayek´s economic model are friends of neo-cons. Sarkozy´s ambitious reform agenda of ending France´s social welfare structure explains his support in Republicans and unpopularity within his own country fellows. It is also true for Germany and struggling Labor in UK.
Hayek´s capitalism needs globalization, de-regulation and interconnected banking sector to sustain its exports to rest of the world to maintain domestic economic growth. It explains Republicans support for use of military power to protect their economic interests. It puts in perspective their policy of regime changes, disdain for national constitutions and independence of judiciary within America and rest of the world.
Republicans don´t want international platforms like UN, Geneva Conventions, Human Rights, pro-public governments upholding constitutions and independent judiciaries supporting main street instead of Wall Streets´ in rest of the world. It is ´us´ versus ´them´. Globalization, WTO, IMF and WB are but mechanisms to support Hayek´s capitalism.
Bush´s eight year in office have shown that Hayek´s trickledown economy has failed to deliver at grassroots within US and other capitalist-based economies across the world. The deep divide between rich and poor has eliminated middle class. It is threatening the social and economic fundamentals of the countries. It explains developing world´s disdain for Bush capitalism.UK is nationalizing its banks. France will follow suit. Reportedly, Sarkozy is receiving the flake for his comments that it is end of Capitalism. Japan is injecting 24 bn US dollars in its economy.
Reportedly, within US, Capitalism has left America under 11.2 trillion-dollar debt. Allegedly if the bailout is adopted it will leave every American under 30,000 US dollars debt, which will be in addition to cost of Iraq war. It is opined that Republicans used consumerism as opium to cover war just like the Nixon regime used drugs to keep public away from Vietnam war.
Next, one hundred seven million Americans are without health care insurance and two million Americans have lost homes in 2007 mortgage meltdown. Some five million Americans have been forced to take two or more than two jobs to make both ends meet, which in turn has its own social and psychological challenges.
According to ABC report parents earning around 80,000 dollars annual salary can afford to send one child out of two for college education. The parents earning around 35,000 dollars annually will only be able to afford to send one child out of 17 children to college. Due to high cost of professional education UK´s health sector is dependent on 40 percent overseas doctors. In USA reportedly there are 120,000 Pilipino English teachers. Schoolteacher and resident doctors are one of the lowest paid within America. A teacher gets around 34,000 dollars as compared to railway conductor´s take home salary of 100,000 plus (2006 magazine: who gets paid what?)
It is opined that for want of regulation the hourly wages in US are almost stagnant for last thirty years. Congress´ two-phase two dollar hourly wage increase is too little too late. Economic experts opine that as compared to 1976 proportionately the purchasing power of average hourly wages in 2006 has decreased by 60 percent.
In contrast, in some cases company executives´ have been drawing salaries at the ratio of 479:1. Reportedly, company executive has drawn one-month´s salary that was more than his company worker´s 20 year salary. Private companies have skimmed hefty profits, leaving left taxpayers to foot the bills of ailing infrastructure. The oil network, national electric grid and aging bridges are cases in point.
It is equally true for UK, majority of African and Asian states with capitalist economies. The adverse effects of corruption, privatization of energy, health, communication, banking and education sector and replacement of permanent pension jobs with contract and long working hours without state protection has destroyed public´s support for capitalism.
Next, it can be argued that Republican seeking bipartisan support on the bailout package in its current form is an attempt to restrict Democrat President´s term to four years only. It is opined that economy will decide the presidential election and Republicans unable to avoid the defeat in ´08 presidential and house elections will use the very package to stage a comeback in 2012. It would be interesting to see how Democrats negotiate through this complex challenge.
It can therefore be argued that it is this ugly side of de-regulation and Hayek´s capitalism that Bush, Paulson and Republicans are trying to protect in their support for the bailout in the name of America, which is nothing but a golden parachute for the greedy unscrupulous fat cats of Wall Street.
Democratic Party has to put its house in order and stand up to protect economic interests of average American. Obama in step President Roosevelt and Kennedy needs to restore ´socialist capitalism´ and offer a comprehensive plan to regulate national economy based on the successful precedent of historic New Deals. Following steps can help: 1) introduce salary ration of 7:1 for executives and workers to bridge divide between rich and poor. 2) Nationalize energy, banking, education and health care sectors. 3) Regulate insurance sector. 4) In terms of job market replace contractual jobs with permanent pensionable jobs, revive unions and their right to negotiate salaries in accordance to relevant laws to keep wages in step with inflation etc. 5) Across the board accountability.
In all probability, it will be the Obamas litmus test to: 1) Follow personal example of President Kennedy and restore Robert Frost´s lost stature at national level by adopting his teachings of ´good fences make good neighbors´ for successful domestic and foreign policy. 2) Michael Obama in step with Eleanor Roosevelt poses with the portrait of ´Whistler´s mother´ to help America understand importance of austerity. Whistler´s Mother 3P stamp should also be brought back to public life which has been successfully kept hidden by the proponents of consumerism. China has used austerity to scale heights of success (Chinese save 52% of their earnings against Americans who save minus two percent saving).
Finally, restoration of socialist capitalism will bring relief to average person in Asian, African and European states following capitalism.The change of economic model will also help end US imperialism and restore peace in rest of the world.