On the fateful evening of September 18, when Treasury Secretary Henry Paulson and Federal Reserve Bank Chair Ben Bernanke pulled together a closed-door meeting to discuss the rapidly unfolding crisis plaguing the financial system, congressional leaders feigned shock and horror at its severity.
But surely these veteran Washington insiders already had an inkling that all was not well on Wall Street. Indeed, Democrats are as complicit as Republicans in enabling the same firms now being bailed out with taxpayer dollars. It could be argued that Democrats' populist rhetoric is key to the selling job needed to contain a popular revolt against the corporate greed that has brought the financial system to the brink of collapse.
One key Democrat in attendance was Christopher Dodd, the senior senator from Connecticut, who first entered Washington politics in 1975 and currently chairs the Senate Banking Committee. Another was New York's senior senator, Charles Schumer, who arrived in Washington in 1980 and also sits on the Senate Banking Committee.
And Massachusetts Representative Barney Frank, who has served in the House since 1981 and is chair of the House Financial Services Committee, was also present at the meeting. Frank's top contributors in the current election cycle include Brown Brothers Harriman & Life, Manulife Financial, the American Bankers Association and the American Society of Appraisers, according to the Center for Responsive Politics.
Back in 2003, Frank opposed the Bush administration's plan to increase regulation of mortgage companies Fannie Mae (the Federal National Mortgage Association) and Freddie Mac. (the Federal Home Loan Mortgage Corporation). At the time, Frank argued, "These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
As recently as July 11, Dodd concurred. "This is not a time to be panicking about [Fannie Mae and Freddie Mac]", Dodd argued in a press conference. "These are viable, strong institutions." Dodd's main contributors from 2003-2008 included Citigroup, SAC Capital Partners, United Technologies and the American International Group (AIG).
Schumer's top five campaign contributors from 2001 to 2006 were Goldman Sachs, JPMorgan Chase, Merrill Lynch, Bear Stearns and Citigroup. Earlier this year, he went on record supporting a federal bailout for mortgage lenders modelled on the federal government's savings and loan bailout of the early 1990s — which benefitted only the banks that recklessly created the savings and loan crisis and left taxpayers footing the bill.
"What you heard last evening is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly", Dodd told ABC's Good Morning America the morning after the closed-door meeting — as if Democrats and Republicans have been involved in an intractable war with each other in recent decades.
In reality, the two parties have been equal partners in enforcing neoliberal policies on the world's working class, and after three decades of neoliberal rule, US workers are no strangers to punishing federal intervention. Federally orchestrated bailouts always signal a steep drop down the economic ladder for those who actually work for their income.
When the Carter administration intervened to rescue Chrysler from bankruptcy in 1979, Congress refused to give Chrysler its US$1.2 billion loan guarantee unless workers gave concessions totaling $462 million. By 1985, Chrysler had been restored to profitability, and Iacocca was the second-highest paid U.S. corporate executive — but Chrysler had already cut 50,000 jobs and slashed wages.
In 1982, Congress deregulated the savings and loan industry, having already raised the level of federal insurance for all S&L deposits to $100,000 in 1980. This allowed wealthy corporations and individuals to divide up their fortunes into $100,000 deposits at exorbitantly high interest rates.
Generous campaign contributions kept both houses of Congress from blowing the whistle, even as one after another S&L became insolvent. Senator John McCain, now the Republicans' presidential nominee, was one of five senators accused of fronting for the notorious Charles Keating, head of American Continental and Lincoln Savings before it went under. The total cost to taxpayers: an estimated $300 billion.
The next government-orchestrated bailout offered a clear view of the risks engendered by the Wall Street feeding frenzy that has culminated in the current financial crisis.
The executives at Long-Term Capital Management hedge fund claimed to have discovered a foolproof computer model for betting on bond prices. Wealthy investors lined up to invest the $10 million minimum demanded by Long-Term Capital and doubled their money between 1994 and 1996.
But the computer model was flawed. Between August 1 and September 21, 1998, 90% of Long-Term Capital's equity was wiped out. Then-Federal Reserve Chair Alan Greenspan stepped in, and the New York Federal Reserve orchestrated a $3.5 billion bailout.
In 2005, Congress passed a punitive personal bankruptcy law that remains in place today. Although the vast majority of personal bankruptcies are due to medical bills, job loss and divorce, Congress refused to make exceptions for active duty soldiers or Hurricane Katrina survivors.
Now, Congressional leaders have all embraced the current federal bailout, ensuring its success.
All that's left is the tweaking, which despite much huffing and puffing from Democrats, will provide no relief from rising gas, food, housing and health care costs crippling those who rely on their own labor to earn tangible income — while salvaging the extraordinary fortunes of those who have used fictional capital to bet on fleeting schemes with no material value.
Senator Barack Obama, the Democrats' presidential nominee, and McCain are both awash in Wall Street donations, and neither plans to oppose the federal rescue of these morally bankrupt firms now receiving a lifeline from the federal government.
A Zogby Interactive poll released on September 21 showed that 84% of voters believe that more investment banks and corporations will fail in the coming months; nearly two-thirds said they blame government entities, led by the White House, for causing the crisis.
Meanwhile, 58% of respondents said they have little or no confidence in government leaders to resolve the banking system's problems, while 83% of likely voters want those responsible for the crisis to be held criminally responsible.
[Reprinted from the US Socialist Worker. Visit http://socialistworker.org.]