The much-hyped US$700 billion bailout for the banks has become a grab-bag of policies and giveaways to corporations of all sorts as the Bush administration reels under the pressure of collapsing stock prices, frozen credit markets and skyrocketing unemployment.
Treasury Secretary Henry Paulson announced on November 12 that he'll use the second half of the bailout fund for direct government investment into US banks, abandoning his original plan to use the money to buy up bad mortgage-related debts from financial institutions.
Meanwhile, the lame-duck Congress, under pressure from president-elect Barack Obama, wants to use that fund to prevent the possible bankruptcy of General Motors.
If government funds are funnelled to GM and other automakers, it would only be the latest in a series of sweeping government efforts to counteract the world financial crisis — the most aggressive government intervention in the economy since the 1930s.
And that doesn't include an estimated $140 billion in tax write-offs allowed by the Treasury Department to encourage bank mergers, or the extra $1 trillion in liabilities that the Federal Reserve Bank has taken on its books since September.
Yet, the results are negligible.
Loss-ridden banks are hoarding their bailout money and refusing to make loans. Mortage insurers Fannie Mae and Freddie Mac continue to lose tens of billions of dollars.
Incredibly, insurance giant AIG has even had to be rescued from its original government rescue!
The Treasury Department is lowering the interest rate on the company's government loan, investing $40 billion in AIG stock, and spending another $50 billion to create off-the-books holding companies to buy up the toxic securities that the company owned — the same type of off-the-books operations that allowed the banks to hide their bad assets in the first place.
The credit squeeze drags on, choking off consumer spending that's already constrained by falling real wages and rising joblessness.
The biggest impact of this pull-back by consumers is in the auto industry, with the three Detroit automakers reporting their worst sales figures in decades.
As a result, the Democrats are attempting to use the lame-duck session of Congress to pass an economic stimulus bill that may include an emergency loan for the auto industry.
Paulson argues the $700 billion allocated to the Troubled Asset Relief Program (TARP) shouldn't be used to bail out the car companies. Beyond that, though, pretty much anything goes.
In a November 12 press conference, Paulson announced that TARP funds — originally slated for buying up bad mortgage-related securities from banks — will now be used almost exclusively for direct government investments in banks and financial institutions.
This latest flip-flop comes under pressure from Europe, where governments have partially nationalised their biggest banks.
The US had to follow suit or see money flow across the Atlantic to take advantage of foreign governments' financial guarantees.
Already, the first $350 billion of the TARP fund is committed, and competition for the remaining funds is fierce.
Insurers Allstate and MetLife have asked for bailout money, and American Express got federal regulators' approval to transform itself into a bank holding company, which makes it eligible for TARP.
While lobbyists turn the TARP into a pinata for Corporate America, the US economy appears to be in free fall.
The big jump in unemployment from 6.3% in September to 6.5% in October means that more than 10 million people are out of work — a figure that doesn't include those forced to settle for part-time work or who have dropped out of the labour market altogether.
The plunge in consumer spending — the worst since 1980 — reflects not only rising unemployment and shrinking real wages, but the wipeout of $5 trillion in wealth since the housing bubble burst last year.
The US economy is likely to get worse — much worse — before it gets better. According to one widely watched measure, manufacturing is at its lowest level since 1981.
And the continued refusal of banks to lend to one another, let alone to profitable companies and credit-worthy consumers, is jamming the gears of the US and world economy, further suppressing demand.
Thus, what seemed to be a shortage of raw materials just a few months ago now appears as a glut, with the price of oil at about half the level it was at in July.
In the short term, the problem of overcapacity is most acute in the auto industry. "Blame will fly as the damage deepens, but the unhappy fact is that the market really doesn't need three big U.S. automakers any more", wrote US News and World Report columnist Rick Newman.
"The Detroit Three had too many factories during the boom times, and their overcapacity seems vast now that Americans are poised to buy 3 or 4 million fewer vehicles."
And with US demand cut back, countries that depend on exports to the US market — most prominently China but many others as well — are struggling with slower growth.
The November 15 summit of the Group of 20 nations — the seven industrialised countries plus rising economies like Brazil, India, Russia, China and others — was hosted in Washington by the outgoing and hapless Bush administration.
It was hastily planned and won't accomplish anything. What's presented as coordinated efforts to boost the world economy are in fact competitive measures by rival nations, each intent on using the power of the state to shore up their financial systems and main corporations.
The aim of each is to avoid the worst of the crisis by passing its cost on to others. It's only in this context that Paulson's various bailout schemes make sense.
Making up policy as he goes along, his priority is to protect his former fellow Wall Street CEOs and to shore up the banking system.
Unless and until working people are organised enough to fight for different priorities, the benefits of government intervention will go to the same business chiefs who created this catastrophe.
[Abridged from Socialist Worker.]