As I read news reports about the "Stimulus Bill," I have this uneasy feeling
that we're seeing more of what got us
here in the first place. What else should one expect from the folks that
got us here to begin with?
The "Stimulus Bill" appears to be little different from other spending bills
except that it is bigger, and cobbled together in the same way as other
bills.
We're in the situation we're in because our government created a system that
is poorly regulated. It doesn't take long for a systems engineer to see that
its negative feedback loop is
seriously deficient, and without this a system is inherently unstable.
To correct it, we need to think outside the box, and put forth a clear plan
that addresses the central issues, and sends a clear message to the public
and markets so that they can begin to salvage their lives and organizations.
Leaving aside problems such as spending beyond our means, wasteful spending,
governmental policies, etc., the immediate problems are: home foreclosures,
job losses, and banks not lending.
Ultimately these are management problem requiring a multi-disciplinary
approach to finding solutions that are efficient and effective.
Using structured decision analysis, and with access to the right people one
could put together a plan that is much better than what is being reported. In
the meantime, here's a starting point for discussion:
ONE, NATIONALIZE THE BANKS: Reinstate the separation between commercial and
investment banks. For a limited time, suspend the mark to market rule. Give
commercial banks the option to remain independent, sell out, or be declared
insolvent and nationalized. Have the remaining commercial banks contribute
amounts sufficient to keep the FDIC solvent. Homeowners facing foreclosure
could go to nationalized banks for loans they can afford, and banks could
take an equity position in the home to make up for any shortfall. Investment
banks would compete in the "free market."
TWO, GIVE THE BULK OF THE "STIMULUS" TO THE STATES: States, being closer
to the problems than Washington, can better decide how to spend the
"stimulus" than Washington. Set strict guidelines for spending the stimulus,
and establish measures of performance. Set up a Federal Business
Administration (FBA) similar to the Federal Home Administration (FHA) to
make loans to businesses through channels similar to those used by the FHA.
THREE, CUT MILITARY SPENDING 5% PER YEAR FOR 10 YEARS: Former Defense
Secretary McNamara, and Lawrence J. Korb, an Assistant Secretary of Defense
in the Reagan administration, in their 1989 testimony before the Senate
Budget Committee, said "the $300 billion annual Pentagon budget could be safely cut
in half over the next decade". Our reported
military spending is about equal to that of the rest of the
world combined. Military spending hidden among other budget items is
estimated to be equal to that which is identified in the budget. Get out of
Afghanistan and Iraq in 2009. Forget about war with Iran.
FOUR, EXTEND JOBLESS BENEFITS: Cuts in military spending will cause more to
lose jobs. However, extending jobless benefits would provide time and funds
for retraining. Those accepting jobless benefits could be required to
provide some hours of work free to organizations interested in utilizing
their skills. This may lead to regular employment with these organizations.
Much more needs to be done to fix the system. Do that in the normal course
of business apart from the "Stimulus Bill."
Businesses that are "too big to be allowed to fail," should be broken up
before taxpayers are asked to bail them out. The "free market" exists in textbooks, and
for the little guy.
We also need to work with the international community to develop a financial
regulatory system consistent with the globalized economy we live in. The one
we've been peddling to the world has failed.
In a recent article,
former U.S. senator James Abourezk wrote: "As a nation, we are out of money,
bereft of ideas, and incapable of curbing the moral and financial corruption
in Washington, D.C."
It may already be too late to avert a disaster, and the window for
minimizing its impact is rapidly closing.
President Obama, the one person who may have been able to sell the needed
changes in policy, seems to be going down the path carved out by President
Bush.
"The reasonable man adapts himself to the world," said George Bernard Shaw.
"The unreasonable man adapts the world to himself. Therefore, all progress
is made by unreasonable men."
[The math is compelling: if we do not make reductions approximating 25
percent of the military budget starting fairly soon, it will be impossible
to continue to fund an adequate level of domestic activity even with a
repeal of Bush's tax cuts for the very wealthy.--Barney Frank, "Cut the Military
Budget," Nation, February 11, 2009]
[So we got cheated, to put it bluntly. What we don't know is that - whether we
will continue to get cheated. And that's really at the core of much of what
we're talking about. Are we going to continue to get cheated?
Now, why that's so important is, one way of thinking about this - end of the
speech, he starts talking about a need of reforms in Social Security, put
it - you know, there's a deficit in Social Security. Well, a few years ago,
when President Bush came to the American people and said there was a hole in
Social Security, the size of the hole was $560 billion approximately. That
meant that if we spent that amount of money, we would have guaranteed
the - put on sound financial basis our Social Security system. We wouldn't
have to talk about all these issues. We would have provided security for
retirement for hundreds of millions of Americans over the next seventy-five
years. That's less money than we spent in the bailouts of the banks, for
which we have not been able to see any outcome.--"Nobel
Prize-Winning Economist Joseph Stiglitz: Obama Has Confused Saving the Banks
with Saving the Bankers," democracynow.org, February 25, 2009]
[Geithner's and his boss's main objective is to "keep the banks in private
hands" regardless of the cost to the taxpayer.--Mike Whitney, "It's Time to
Break Up the Big Banks," counterpunch.org, February 26, 2009]
[Greider . . . outlines the full substance of the predicament we find
ourselves in as exhibited by the financial collapse: a culmination of our
decaying democracy, the negative effects of globalism, the dominance of
militarism in our financial policy, the destruction of the middle class, and
the threat of global climate change.--William Greider, "Come
Home, America: The Rise and Fall (and Redeeming Promise) of Our
Country," Rodale Books, March 17, 2009]
[When the U.S. payments deficit pumps dollars into foreign economies, these
banks are being given little option except to buy U.S. Treasury bills and
bonds - which the Treasury spends on financing an enormous, hostile military
build-up to encircle the major dollar-recyclers - China, Japan and Arab OPEC
oil producers. Yet these governments are forced to recycle dollar inflows in
a way that funds U.S. military policies in which they have no say in
formulating, and which threaten them more and more belligerently. That is
why China and Russia took the lead in forming the Shanghai Cooperation
Organization (SCO) a few years ago.--Michael Hudson, " Financing the
Empire: Does US Face G20 Mutiny?," counterpunch.org, March 30, 2009]
[In fact, our investigation suggests that by the time AIG had entered the
CDS fray in a serious way more than five years ago, the firm was already
doomed. No longer able to prop up its earnings using reinsurance because of
growing scrutiny from state insurance regulators and federal law enforcement
agencies, AIG's foray into CDS was really the grand finale. AIG was a Ponzi
scheme plain and simple, yet the Obama Administration still thinks of AIG as
a real company that simply took excessive risks. No, to us what the fraud
Bernard Madoff is to individual investors, AIG is to the global financial
community.--"AIG: Before Credit Default Swaps, There Was Reinsurance," The
Institutional Risk Analyst, April 2, 2009]
[Well, the way that you do it is to make really bad loans, because they pay
better. Then you grow extremely rapidly, in other words, you're a Ponzi-like
scheme. And the third thing you do is we call it leverage. That just means
borrowing a lot of money, and the combination creates a situation where you
have guaranteed record profits in the early years. That makes you rich,
through the bonuses that modern executive compensation has produced. It also
makes it inevitable that there's going to be a disaster down the road.--VIDEO: "William
K. Black: CSI Bailout," pbs.org, April 3, 2009]
[Krugman's suggestion that the government could take over the banking system
is deeply impractical, Obama aides say.--Evan Thomas, "Obama's Nobel Headache,"
Newsweek, April 6, 2009]
[Debtor countries must borrow a trillion from the IMF not to revive their
own faltering economies, not to pursue counter - cyclical policies to restore
market demand (that is only for creditor nations), but to pass on the IMF
"aid" to the poisonous banks that have made the irresponsible toxic
loans.--Michael Hudson, "The IMF Rules the
World," counterpunch.org, April 6, 2009]
["The Democrats have replaced the Republicans as the big benefactors to the
financial community," said Kevin Phillips, author of "Bad Money: Reckless
Finance, Failed Politics, and the Global Crisis of American
Capitalism."--Daniel Trotta, "Author
who predicted crisis sees inflation ahead," Reuters, April 8, 2009]
[The committee agrees with the vast majority of reputable economists who
think the banks should be taken over (liquidated) and the bad assets put up
for auction. This is the committee's number one recommendation.--Mike
Whitney, "Elizabeth
Warren's Devasting Report to Congress," counterpunch.org, April 10,
2009]
[Yes, we have a long-run budget problem, and we need to start laying the
groundwork for a long-run solution. But when it comes to inflation, the only
thing we have to fear is inflation fear itself.--Paul Krugman, "The big inflation
scare," mercurynews.com, May 29, 2009]
[But two things must be achieved: first, the core financial institutions
must become credibly solvent; and, second, no profit-seeking private
institution can remain too big to fail.--Martin Wolf, "Is America the new Russia?," Financial Times, April 14, 2009]
[The crash has laid bare many unpleasant truths about the United States. One
of the most alarming, says a former chief economist of the International
Monetary Fund, is that the finance industry has effectively captured our
government - a state of affairs that more typically describes emerging
markets, and is at the center of many emerging-market crises. If the IMF's
staff could speak freely about the U.S., it would tell us what it tells all
countries in this situation: recovery will fail unless we break the
financial oligarchy that is blocking essential reform. And if we are to
prevent a true depression, we're running out of time.--Simon Johnson, "The Quiet
Coup," Atlantic, May 2009]
[If Obama were really serious about restoring America's economic health, he
would demand military spending be slashed, quickly end the Iraq and Afghan
wars, and break up the nation's five giant Frankenbanks that now control 40%
of all deposits.--Eric Margolis, "Spending
America Into Ruin," lewrockwell.com, February 9, 2010]
[The central problem is that neither the Senate nor House bills would chop
down big banks to a more manageable and less threatening size. The bills
also donŐt eliminate the prospect of future bailouts of interconnected and
powerful companies.--Gretchen Morgenson, "Do
You Have Any Reforms in Size XL?," New York Times, April 23, 2010]
[ . . . the magnitude of the nation's fiscal crisis has inevitably evoked
warnings that our insolvency threatens our national security. One part of
dealing with this situation will entail reducing the projected level of
defense spending by several hundreds of billions of dollars over the next
decade.--Lawrence Korb and Christopher Preble, "Cut Defense
Spending," nationalinterest.org, June 16, 2010]
[What is to stop U.S. banks and their customers from creating $1 trillion,
$10 trillion or even $50 trillion on their computer keyboards to buy up all
the bonds and stocks in the world, along with all the land and other assets
for sale in the hope of making capital gains and pocketing the arbitrage
spreads by debt leveraging at less than 1 per cent interest cost?--Michael
Hudson, "Why
the U.S. has Launched a New Financial World War -- And How the the Rest of
the World Will Fight Back," counterpunch.org, October 11, 2010]
[The new Financial Stability Oversight Council (FSOC) probably didn't expect
to have its authority called on quite so soon, but Rep. Alan Grayson
(D-Florida) has just put the Kanjorski amendment to the test. It provides
federal regulators with new powers to pre-emptively break up large financial
institutions that - for any reason - pose a threat to US financial or
economic stability.--Ellen Brown, "ForeclosureGate: Time to Break Up the Too-Big-to-Fail
Banks?," truth-out.org, October 18, 2010]
[Not a single Canadian bank failed during the Great Depression, and
not a single one failed during the recent U.S. crisis now dubbed the Great
Recession. Fewer than 1 percent of all Canadian mortgages are in
arrears.--Kevin G. Hall, "Few foreclosures, no bank failures: Canada offers
lessons," McClatchy Newspapers, January 11, 2011]
[ . . . the Fed came up with $12.3 trillion in nearly interest-free credit
to bail the banks out of a credit crunch they created.--Ellen Brown, "The Fed Has Spoken: No Bailout for Main Street,"
truth-out.org, January 14, 2011]
[Paul added that he agreed with Nader on a host of issues, such as cutting
the US military's budget, ending undeclared US wars overseas, restoring
civil liberties and civil rights by dumping from the Patriot Act, and
withdrawing from the NAFTA and World Trade Organization agreements.--Nathan
Diebenow, "Ron Paul, Ralph Nader agree on
'progressive-libertarian alliance'," Raw Story, January 22, 2011
[Most unique is the crash's aftermath. This time around the bad debts
have not been wiped off the books. . . .
Altogether, the post-2008 crash saw some $13 trillion in such obligations
transferred onto the government's balance sheet from high finance,
euphemized as "the private sector" as if it were the core economy itself,
rather than its calcifying shell. Instead of losing on their bad bets, bad
loans, toxic mortgages and outright fraudulent claims, the financial
institutions cleaned up, at public expense. They collected enough to create
a new century's power elite to lord it over "taxpayers" in industry,
agriculture and commerce who will be charged to pay off this debt.--Michael
Hudson, "Bachmann vs. the
Bailouts: When Only 'Crazies' See the Bank Giveaway for What It
Was," counterpunch.org, June 17, 2011]
[Goldman Sachs and the Royal Bank of Scotland became the Mubaraks and Ben
Alis of the US and the UK--Robert Fisk, "Bankers are the
dictators of the West," Indepedent, December 10, 2011]
[While we quake in our boots from fear of "Muslim terrorists," it is
financial deregulation that is destroying us, with help from jobs
offshoring.--Paul Craig Roberts, "Recovery or Collapse? Bet on Collapse,"
paulcraigroberts.org, May 20, 2012]
[The US government should simply cancel the $230 trillion in derivative
bets, declaring them null and void.--Paul Craig Roberts, "
Collapse At Hand," foreignpolicyjournal.com, June 7, 2012]