The news from Wall Street this week is dire: Merrill Lynch, the nation’s largest brokerage house, sold itself in a fire sale for about $50 billion, which is only a fraction of its previous worth; Lehman Brothers, a once venerable investment bank, filed for bankruptcy — at $399 billion, the largest in American history; and American International Group, a global insurance and financial powerhouse with a value in excess of $1 trillion, is going into a government-supervised purgatory in an effort to spare markets and customers from the pain of its collapse.
This triple-barreled blast of economic calamity is only the latest bulletin in an ongoing and frightening saga of economic dislocation and decline. In the wake of the subprime mortgage scandal, housing prices have plummeted and mortgage foreclosures have skyrocketed to levels not seen since the Great Depression. The distressed sale of Bear Stearns in March and the government bailout of seemingly whimsically named Fannie Mae and Freddie Mac, the mortgage insurers of last resort, were clearly only dress rehearsals for this week’s meltdown.
What is truly scary is that the worst may not be over. Some investment experts fear another round of grassroots bank failures similar to the savings-and-loan crisis of almost 20 years ago. Although individual deposits are insured up to $100,000, the Federal Deposit Insurance Corporation, which safeguards savers, has only $50 billion to guarantee more than $1 trillion in deposits. Add to this bitter cocktail the growing suspicion that the wounded auto giant General Motors will fail without a government-guaranteed rescue plan, and you begin to understand that the crisis is far worse than anyone with authority in either government or business is admitting.
The criminally irresponsible policies — foreign and domestic — of President George W. Bush triggered this emergency. For the first time in American history, a president is waging war (in Iraq and Afghanistan — and maybe, before long, in Iran) without raising taxes. In other words, Bush is fighting with American blood and foreign credit. To keep voters fat, happy, and compliant, the Bush administration kept credit easy and regulation of the ensuing financial shell game ridiculously lax. Housing prices ballooned as people who had trouble keeping up with their big-box-store bills bought into the scam using home-equity lines of credit and their credit cards. Their housing prices — together with the economy and the financial superstructure — then crashed when these delusional souls failed to make their mortgage payments. The nation is now learning what junkies have long known: withdrawal is a bitch.
The real roots of today’s crisis go much deeper. Twenty-three years ago this week (September 16, 1985, according to the Commerce Department), the United States became a debtor nation, borrowing money so that its households, businesses, and government could stay afloat. This trend intensified throughout the presidencies of Democrats and Republicans alike, although it was most pronounced during Republican administrations. President Bill Clinton came close to breaking this cycle, but Bush erased his gains and made matters generally worse than they had ever been since the 1930s. How the Republicans can call themselves responsible, let alone conservative, is an affront to not only the English language but to common sense.
Not surprising, it is difficult to get anyone to agree on the degree to which our nation is indebted. A combined estimate of $50 trillion dollars for individuals, corporations, and government is not, however, an unreasonable figure. That’s $50,000,000,000,000 — a lot of jing. Economists call it debt, but an Old Testament prophet would surely recognize it for what it is: greed, unbridled and, thanks to the Republicans with the passive assent of too many Democrats, unregulated.
Republicans enjoy touting President Ronald Reagan’s victory in the Cold War by boasting that we forced the Russians to spend themselves into bankruptcy. Maybe we did. But with the national government debt increasing at a rate of $1.7 billion a day, it certainly appears that we have turned that weapon on ourselves.
The idea that Republican presidential nominee Senator John McCain, a self-confessed economic ignoramus, is up to the task of dealing with the economic crisis is laughable. After all, his idea of executive backup is Alaska Governor Sarah Palin. Your witness.
In addition to McCain’s deeply flawed sense of personal judgment, there is his record as a member of the Senate Committee on Commerce, where his idea of government regulation helped foster the savings-and-loan scandal. McCain may not be the architect of today’s economic emergency, but as a stone-cold opponent of financial regulation, he was certainly one of its enablers, and as such is unqualified to face our grave new financial realties.
Regular readers of this newspaper will not be surprised that we believe the Democratic presidential candidate, Senator Barack Obama, is better equipped by vision and temperament to referee the conflicting needs of social justice and economic reality that will be required to navigate this crisis.
Promising to break the cycle of greed with smarter regulation will not be enough.