The Real Legacy of the ‘Reagan Revolution’
http://www.truthdig.com/report/item/20080715_the_real_legacy_of_the_reagan_revolution/
Posted on Jul 15, 2008
By Robert Scheer
McCain campaign co-chair Phil Gramm is right: We have “become a nation of whiners.” But who is whining more than the bankers that former Sen. Gramm’s financial deregulation legislation benefited? The very bankers who now expect a government bailout, such as those at UBS Investment Bank, where Gramm found lucrative employment.
As chair of the powerful Senate Banking Committee, Gramm engineered passage of legislation that effectively ended the major regulatory restraints applied to the financial industry in response to the Great Depression. The purpose of the Gramm-Leach-Bliley Act—co-authored by Gramm, passed in 1999 by a Republican-controlled Congress and signed by President Bill Clinton—was to liberate the banks, stockbrokers and insurance companies from restraints imposed on their activities more than seven decades ago. It was legislation that the financial community, which contributed heavily to Gramm’s campaigns in the previous five years, desperately wanted and obviously has abused. So why now bail these institutions out?
Hows about some “tough love” for those bankers suddenly in trouble? You know, the sink-or-swim approach of “welfare reform” that Gramm and Clinton applied to poor people to end their addiction to government handouts. Or, perhaps a heavy dose of “faith-based” personal responsibility initiatives to get those knaves who messed up our entire housing market back on the straight and narrow. Sounds ridiculous I know, because nothing but the bleeding-heart, big-government, throw-money-at-the-problem approach will do when it comes to salvaging corrupt corporations.
That is the real legacy of what has been ballyhooed as the “Reagan Revolution,” which Clinton went along with, but which found its full flowering in the administration of George W. Bush. The bookends of the Bush years are the Enron debacle and the federal bailout of bankers drunk on their own greed. And no two people in this country are more responsible for enabling this sordid behavior than the power couple Phil and Wendy Gramm.
Enron, lest we forget, was their baby. Then-Sen. Gramm sponsored the Commodity Futures Modernization Act of 2000, which allowed Enron’s scamming to happen. As Ken Lay, who was chair of Gramm’s election finance committee, put it quite candidly when asked for the secret of Enron’s success, “basically, we are entering or in markets that are deregulating or have recently deregulated.”
Part of that deregulation involved rulings of the U.S. Commodity Futures Trading Commission, then chaired by Wendy Gramm, who upon retiring from that post became a highly compensated member of the Enron board of directors, serving for eight years. She even was on the board’s audit committee during the time of the corporation’s despicable financial shenanigans. While on the Enron board, Wendy Gramm also chaired an anti-regulatory think tank that received funding from Enron and other corporations that benefited directly from the policies her institute espoused.
My point here is not to expose the dubious ethics of the Gramms’ various business ventures but rather to question why Sen. John McCain turned to Phil Gramm for leadership in his presidential campaign. Indeed, until his verbal gaffe, Gramm was highly visible and rumored to be the choice for secretary of the treasury should McCain win.
McCain has long promised voters that he learned the hard lessons provided by his being one of the infamous Keating Five in the nefarious savings and loan scandal that cost taxpayers hundreds of billions of dollars. Yet he chose as his campaign co-chair a former senator whose push for government deregulation facilitated the far deeper scandal we now are experiencing. Here is a man whose legislation created what financial guru Warren Buffett termed “financial weapons of mass destruction.”
Why in the world would you designate as your key economic adviser someone who left the Senate to become an officer of the bank that is at the very center of this mess, a former senator who not only secured highly paid employment with a banking giant that benefited from legislation he helped pass, but who then lobbied Congress for even more of the deregulatory breaks that got the bank into such deep trouble?
The answer cannot simply be that McCain doesn’t care much about economics, as he himself has indicated. Perhaps that would explain his having voted for all of the measures pushed through the Senate by Gramm. Perhaps it even would explain McCain’s having been chair of Gramm’s own failed presidential bid. But indifference to economics does not explain the prominence of Gramm in the McCain campaign as the top economic adviser during these past months of the U.S. financial crisis. Indifference to the folks losing their homes is a more plausible explanation.
Robert Scheer is the author, most recently, of “The Pornography of Power: How Defense Hawks Hijacked 9/11 and Weakened America,” published by Twelve Books.
AP photo / Kevork Djansezian
Wall Street Socialism
July 16th, 2008 - 10:38am ET
This weekend, Treasury Secretary Henry Paulson, former head of the Goldman Sachs investment house, provided us with a perfect demonstration of Wall Street socialism.
He announced that the Bush administration would seek congressional approval to bail out Fannie Mae and Freddie Mac, the government created but privately owned, profit-making housing finance companies that hold or guarantee nearly half of the U.S. mortgage market—some $5 trillion in debt. Paulson seeks and will get an unlimited line of credit to guarantee their debt, as well as authority to purchase their shares to supplement their capital base. The Federal Reserve announced it was ready to provide lending while waiting for Congress to act. Paulson said the new subsidies were designed to sustain the two institutions in "their current form."
Perfect. The two institutions have always been more fowl than fish. Created by the government in the 1930s to help lubricate the U.S. mortgage market by buying mortgages from the banks so they would have the cash to make more mortgages, Fannie and Freddie were able to borrow money at a discount because of a widely shared assumption that the government would stand behind their debts if push came to shove. Their operations were regulated, limited by laws detailing what mortgages they could assume. (They were essentially prohibited from diving directly into the subprime muck.)
But as they grew and profited, their executives pocketed lavish salaries and bonuses—giving them an incentive to grow even more (and as we discovered earlier this decade, to cook the books). Last year, for example, the Chair of Freddie Mac took home a cool $18,289,575. Fannie Mae CEO Daniel Mudd reaped a 7 percent rise in pay to $13.4 million in 2007 while the company lost $2.1 billion and its shares fell 33 percent. Nice work if you can get it.
Now with the bursting of the housing bubble, push surely has come to shove. Foreclosures are soaring, the two institutions have sustained billions in losses, their shares have plummeted, and, according to former St. Louis Federal Reserve President William Poole, one and possibly both would be bankrupt if their assets were marked down to their current market value.
So now the Bush administration proposes to make the federal guarantee explicit and even to offer taxpayer money to help recapitalize the two banks if needed. Everything has been nationalized—except the profits and the pay scales of the bank's executives.
That's right. If the guarantees work, private speculators, having driven the stock down, will clean up on the upside. And the bank's CEOs will continue to pocket the multimillion dollar salaries that are de rigueur on Wall Street. Call it Wall Street socialism. Their losses are socialized; their profits are pocketed. You and I will pay for their failures. And if conservatives have their way, their families will pocket their successes, without even having to pay a tax for the transfer of the estates we've helped to create.
These enterprises are operating on our tab now—completely. Why not just nationalize them, as even that font of economic convention, Sabastian Mallaby suggested yesterday in The Washington Post? Sure, we'd have to add the $5 trillion in debt to the federal balance sheet, but we could add the assets also. And after Paulson's announcement, global investors are already toting up their debts onto the federal balance sheet.
Why pay dividends to shareholders when they are essentially playing with our money? Why pay managers of public enterprises the bloated pay packages of Wall Street speculators? Why allow them to finance lobbyists to shield them from accountability? The fiction of their separate existence has been exploded; let's save the dough and run them efficiently.
The bailout of Fannie Mae and Freddie Mac is only the most recent and extreme version of Wall Street socialism. The Bush administration has done essentially the same for private providers of college loans. The Federal Reserve has made taxpayers the guarantor not simply of the banks that it regulates, but the shadow banking system of hedge funds and investment houses that it doesn't regulate. After the bailout of Bear Sterns, they basically are gambling with our money. The Federal Reserve has now traded more than $500 billion in federal bonds for the toxic paper of private banks and investment houses, some $200 billion of it in mortgage-backed securities, worth dimes on the dollar. This massive subsidy—justified as necessary to keep the banking system afloat—is not accompanied by limits on what gambles the speculators can make, how much debt they can take on, what rewards they can pocket. They are playing with house money—not exactly an incentive for prudence.
Republicans seem ideologically committed to these kinds of arrangements. In Medicare for example, conservatives have demanded that the government subsidize private insurance companies to compete with public Medicare, even though Medicare provides health care much less expensively. When Bush and the Tom DeLay Congress drove through the prescription drug bill, they included a provision that prohibits Medicare from negotiating cheaper prices for drugs, effectively turning the bill from a benefit to seniors to a multibillion-dollar subsidy to private drug companies (not surprisingly, after Wall Street, the drug companies finance one of the most lavish and powerful lobbies in Washington).
Now it makes sense to me for the government to subsidize housing mortgages and college loans. Encouraging home ownership and higher education are central to sustaining the broad middle class that is America's triumph. But I can't imagine why we need to let bankers and investors pocket the upside, when they are playing with our money and we're covering their losses. Public enterprise may be staid and bureaucratic, but it's a lot cheaper and more efficient than the perils of Wall Street socialism.
Class Warfare and the New Gilded Age
During the 2000 campaign, George W. Bush and many conservative commentators attacked Al Gore for engaging in "class warfare" after Gore promised to help the little guy and criticized Bush for favoring the rich. Four years later, the Republicans, using a page from the same playbook, attacked John Kerry and John Edwards for being populist class warriors because of their talk of Two Americas.
In this year's campaign, there's a big difference, at least so far. John Edwards, Hillary Clinton and Barack Obama have all used robustly populist language about the problems facing America's have-nots, but this year the attacks for engaging in class warfare have largely disappeared.
The reason for this may well be that the news media, political commentators and even many Republicans have come to recognize that income inequality has grown far worse and that many Americans are angry about the widening gap between those at the top and everyone else.
In recent years, the statistics regarding income disparity in America have been startling. After-tax annual income for the bottom fifth of American households inched up just 6 percent form 1979 to 2005, according to the Congressional Budget Office. During that time, income for the middle fifth of households grew by a modest 21 percent, with much of that gain caused by women in many households working more hours. Over that same period, income for the top fifth of households jumped by an impressive 80 percent, while income for the top 1 percent more than tripled, soaring by 228 percent.
The highest-earning fifth of households received 51.6 percent of the nation's after-tax income in 2005, meaning that the income of the top fifth exceeded that of the bottom four-fifths. As for the top 1 percent of households, they received more after-tax income than the bottom 40 percent, according to the Congressional Budget Office. A study that Thomas Piketty and Emmanuel Saez did based on federal tax returns found that the top 1 percent of households, averaging $1.1 million in annual income, received nearly 22 percent of all reported income in 2005, up from 9 percent in 1980. That income shift helped create the greatest level of inequality since the Roaring Twenties.
Lawrence Summers, the former Harvard president and Treasury Secretary, found that were it not for this increased inequality the bottom 80 percent of Americans would be doing considerably better. If the distribution of income today were the same as in 1979, Summers said, assuming the same level of economic growth since then, income of the bottom 80 percent of Americans would be about $670 billion more a year--or about $8,000 per family. For many households in the bottom half, this would mean a welcome 20 to 30 percent increase in income, perhaps the boost needed to avoid foreclosure.
An objective outsider who laid fresh eyes on America's economic scene, a twenty-first century Tocqueville, would probably think that the federal government would be eager to use tax policy to offset these widening disparities.But the tax cuts that President Bush and Congress enacted since 2000 have in many ways aggravated the disparities, according to statistics from the Tax Policy Center, a respected, nonpartisan research group. Those tax cuts gave $20 on average to the bottom 20 percent of American households, $744 on average to the middle fifth, and $118,477 to those with income or more than $1 million annually.
One can see the economic divide widen in another way. The average income for the top 1 percent of households was ten times that for the middle fifth in 1979. By 2005, those in the top 1 percent earned 21 times as much as those in the middle. Income for the top 1 percent of households averaged 70 times that of households in the bottom fifth, the greatest gap on record, up from 23 times as much in 1979.
At the pinnacle of the inequality pyramid are the nation's CEOs. American corporations may be tightfisted about raises for most workers, but they paid their chief executives $10.5 million on average in 2005, including salary, bonuses and stock options. That was quadruple their pay a dozen years earlier. This means the typical CEO earns 369 times as much as the average worker, up from 131 times in 1993 and 36 times in 1976.
Reducing inequality won't be easy, but according to many economists, there are numerous measures that would help, among them increasing taxes on the richest Americans, increasing the earned income tax credit, ensuring greater educational opportunities to those at the bottom, making it easier to unionize low-wage workers and doing more to preserve manufacturing industries that pay middle-class wages.
When I give speeches about my new book, The Big Squeeze, Tough Times for the American Worker, (see stevengreenhouse.com), I often ask the audience, "Was it Jesse Jackson, Ralph Nader or John Edwards who said the following?"
"The average American went exactly nowhere on the economic scale" over the past two decades. "He's been on a treadmill, while the superrich have been on a spaceship." The person who actually said that was Warren Buffett, now America's richest person.
Buffett, known as the Oracle of Omaha, had another surprising insight: "There's class warfare all right, but it's my class, the rich class, that's making war and we're winning."
What is little understood is that those who accuse others of class warfare as they seek to silence anyone who criticizes America's worsening income inequality are slyly engaging in a form of class warfare themselves--with the aim of defending the interests of those at the very top of the income pyramid.
Published on Thursday, September 5, 2002 in the Baltimore Sun |
| by Molly Ivins  |
| AUSTIN, Texas -- Some days, you have to believe right-wing ideologues have lost touch with reality completely. Their latest proposal to prevent future Enrons is -- ta-da! -- cut the capital gains tax. And exactly what does that do to prevent future Enrons? Nothing. Except Ken Lay won't have to pay taxes on the stock he sold while his company cratered and his employees watched their life savings disappear. Enron & Etc. are not the consequence of a few greedy executives cutting corners -- they are the result of a series of deregulatory measures and other changes in the law that set up the opportunity for theft on a staggering scale, making it not only possible but inevitable. The Sarbanes bill, good on it, leaves quite a ways to go. In a recent issue of the National Review, television personality Larry Kudlow goes even further, suggesting: Mr. Kudlow claims the debate over reducing the capital gains tax has been "class warfare-driven and contentious at best." No kidding. It's amazing to me that only populists are ever accused of class warfare. Talk about losing a grip on reality. I'll tell you what class warfare is: This is class warfare. (All these figures are from Kevin Phillips' excellent book, Wealth and Democracy.) None of this is inevitable or even accidental. It is a consequence of oligopoly, rule by the rich through their campaign contributions. In the 1940s and '50s, the middle 60 percent of Americans got the largest share of the growth in the economic pie. In the '90s, the increase went disproportionately to the very wealthy. Mr. Phillips reports it dwarfs what happened in the Gilded Age. When George W. Bush came into office, the first thing he did was give an enormous tax break to the richest 1 percent of Americans, the same people who had gained at such a madly soaring pace. That's class warfare, too. If I may be just wildly populist here for a moment, we can't fix any of this by making it worse with even more tax cuts for the very wealthy. It puzzles me that the well-off complain so much about taxes when they pay so little relative to their wealth. (See the Web site of Citizens for Tax Justice at www.ctj.org) If Mr. Bush has his way, we are going to fight an unprovoked war with Iraq without the financial aid of any allies. The health care system is falling apart in front of our eyes, schoolteachers should be paid at least twice what they make now, lack of low-income housing is making life hell for the working class and now the right wing wants to cut taxes for the rich yet again? That's class warfare. |
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