Where's the Outrage--and Where Should It Be?

Money is not the issue. Power is.

A year after causing the biggest economic meltdown since the Great Depression, corporate chieftains are paying themselves big bonuses again. Many of them get more in bonuses than you or I earn in salary or wages all year. The Obama administration is mildly chiding them. Some columnists (like the Boston Globe's Derrick Jackson) are calling it an outrage. But what they are looking at is just the symptom, not the disease.

Why do corporate CEO's, top managers, and boards get to decide what to pay one another, in an orgy of "you scratch my back, I'll scratch yours"? Why does the finance industry get to accept billions in bailout money from you and me, then refuse to lend to people with good credit, including the small business around the corner? Why, when the U.S. government just saved corporate capitalism from a complete breakdown, does the government still defer to the corporate capitalists who steered us into the ditch to begin with?

Corporations in this country are more powerful than the people we elect to represent our interests. Until we squarely face that problem, shouting about exorbitant bonuses is just a way of letting off steam.

It's Still the Same Sad Story

This is really big news--except that it's not new at all.

The Pension Benefit Guaranty Corporation may go bankrupt, and if it does, a lot of people--up to 44 million people--who are expecting to collect pensions after they retire may be pinching pennies instead.

Unlike 401k's, pensions are supposed to deliver a fixed amount of money that people can count on in retirement. And just like the FDIC insures your bank account against bank failure, the PBGC is supposed to insure your pension against a corporate pension fund running dry. You would think the very first priority of an insurer like that would be to take care of its own money. But according to the Boston Globe, "Just months before the start of last year's stock market collapse...the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds." Well, we know what has happened to the value of those investments!

This is really big news because so many older Americans will never get the chance to make up for those losses. If they are to be saved, it may cost the taxpayers "several hundred billion dollars"--on top of the money we are already spending to bail out the banks.

But it is also an old story. The name of the story is "double or nothing." During the Bush administration, the director of the PBGC realized that it was falling behind on its obligations. According to the Globe again, he said that "the prior strategy of relying mostly on bonds would never garner enough money to eliminate the agency's deficit." His answer? Gamble!

This was the same reasoning that led the Savings & Loans banks to make risky investments in the 1980's. Before that, they had been resolutely local, conventional, and conservative. Then, they tried to make up shortfalls by buying and flipping real estate for a profit and by investing in all kinds of high-risk ventures, foreign and domestic. We the taxpayers ended up on the hook then too.

We cannot rely on capitalism to save us from the shortfalls of capitalism. It takes serious government policy, made by grown-ups, to do that.

Did Somebody Mention Corporate Power?

How do we know that the Obama administration will be under pressure to cave to corporations? I couldn't say it any better than Derrick Jackson did the Globe:

For the first time since 1994, the defense and healthcare industries gave a majority of campaign contributions to the Democrats - albeit bare majorities. They will expect to be first in line for loopholes from Obama. Resistance to modernization is likely from energy companies and the transportation industry, which gave about two-thirds of their funds to Republicans, according to the Center for Responsive Politics.

For all the chaos this nation was thrown into by the $700 billion bank bailout, the Washington Post reported this week that $290 billion of it has been committed without anyone yet being hired to oversee it. It also happens that the banking industry was another sector that gave Democrats a bare majority of campaign contributions for the first time since the early 1990s. How much oversight will Obama truly insist upon?

Putting the Credit Where It Belongs

I wrote last week that the main reason the Wall Street bailout might be a necessary evil was to keep credit flowing. It's not the big guys who are most affected when there's a credit crunch. It's students who can't get college loans, buyers with good income and down payments in the bank who still can't get mortgages, and small businesses, who depend on short-term loans (often from one day to the next) to pay their suppliers and issue checks to their employees.

Since then, two things have happened. The Federal Reserve has stepped in for the banks. It's become the lender of last resort. When businesses need to take out short-term loans (or "issue commercial paper," in the jargon that business people use), the Fed will lend them the money directly.

The other thing is that the bailout has failed. The stock market continues to drop, the home mortgage crisis is threatening to become a worldwide recession, and more banks are running into trouble, including Citizens, which is huge where I live.

So I wonder: If all along, the Fed could intervene to help people continue to get loans, and if the bailout didn't calm the investors anyway, then why didn't the Fed just help with credit in the first place and let the banks suffer for their actions?

Money for Nothing?

What just happened in Congress this week? Was the bailout of Wall Street investment firms a necessary evil--or just evil?

1. In this corner, arguing that it needed to happen, are almost all the "experts" in mainstream economics and "leaders" in Washington. (There's a revolving door between the two, so it's hard to tell them apart sometimes.) Bush, Clinton, McCain, Obama, Pelosi, Paulson, and Barney Frank all come down in favor, and the Boston Globe editorialized, "Pass this dreadful bailout"--because they fear the alternative is worse.

It's not a question of which businesses are too big to fail. If it were, I would simply reply as Bernie Sanders does: "If it is too big to fail, it is too big to exist." The horrible possibility that makes all these people (and half of me) support the bailout is that if we do nothing, the loans will simply stop. No new mortgages, school loans, personal loans, no short-term working capital that enables small businesses to tide things over from a bad day to a good one. Many economists think that doing nothing would lead to a deep, long-lasting recession or a replay of the Great Depression.

That's scary. But a part of me wonders whether these "experts" and "leaders" are crying wolf. Some of them are the same people who panicked America into a Global War on Terror ( instead of targeting al-Qaeda in Afghanistan and increaseing commonsense security at home) and into war in Iraq (completely optional, and it has turned out to be a disaster). Others are new voices speaking the same message: be afraid, be very afraid--and give us more power. Why did Secretary of the Treasury Henry Paulson originally ask for absolute power to buy and manage failing banks? Is it the same reason that Bush and Cheney have claimed more and more unreviewable power for the executive branch?

2. Over here, in this corner, are economists like Paul Krugman and James Galbraith. They thought the original Paulson plan was garbage but reluctantly support the compromise that passed on Friday. They are not convinced about the Depression scenario, but they believe government must act, and the bailout is only the first step. Robert Reich argues against them that the Democratic bill is not really any better than the Paulson bill, so they are selling their souls by supporting either one.

3. Sometimes these guys slip over into the third corner of the room, where economist Joseph Stiglitz is standing. Stiglitz reminds us that the basic problem isn't banking: it's housing. Banks made terrible loans because they had to find somewhere to invest the global pool of money. They were looking for payback that's just not sustainable over the long run. Stiglitz sees a need to restore the banks to solvency, but he doesn't want us to get stuck with the bill--and he does want us to control the banks more in the future, through regulation. That makes sense to me, I admit. (But isn't there a crisis that forces us to do something? See David Sirota for reasons to disbelieve.)

4. Over in the fourth corner of the room are people like Chuck Collins of United for a Fair Economy. He agrees with Stiglitz that the rich should pay for their miscalculations and greed, and he offers a practical plan on how to raise the money without soaking the taxpayers. But this is the smaller part of our problems. The bigger part is how to reverse the massive transfer of wealth from the poor and the middle class to the rich that's been going on for the last 30 years.

In other words, there's been a crisis in this country for a long time, especially for poor people and those who have become homeless. It's just now that the rich are noticing it, the government is being called to act. Now that the bailout bill has actually passed, the question of whether or not to act is moot. Our job is to make sure they don't act in a way that makes things worth for most of us--and to put pressure on to make things better. If we're going to spend $700 billion, it had better not be money for nothing.