This is so messed up. I sure hope Obama is ready because the things
they are doing up there now will tie his hands once he gets in office
and business as usual between Wa****ngton and Wall Street will not get
us out of this colossal clusterf#@[EMAIL PROTECTED]
Praise of a Rocky Transition
By Naomi Klein
This article appeared in the December 1, 2008 edition of The Nation.
November 13, 2008
The more details emerge, the clearer it becomes that Wa****ngton's
handling of the Wall Street bailout is not merely incompetent. It is
borderline criminal.
In a moment of high panic in late September, the US Treasury
unilaterally pushed through a radical change in how bank mergers are
taxed--a change long sought by the industry. Despite the fact that
this move will deprive the government of as much as $140 billion in
tax revenue, lawmakers found out only after the fact. According to the
Wa****ngton Post, more than a dozen tax attorneys agree that "Treasury
had no authority to issue the [tax change] notice."
Of equally dubious legality are the equity deals Treasury has
negotiated with many of the country's banks. According to Congressman
Barney Frank, one of the architects of the legislation that enables
the deals, "Any use of these funds for any purpose other than lending--
for bonuses, for severance pay, for dividends, for acquisitions of
other institutions, etc.--is a violation of the act." Yet this is
exactly how the funds are being used.
Then there is the nearly $2 trillion the Federal Reserve has handed
out in emergency loans. Incredibly, the Fed will not reveal which
cor****ations have received these loans or what it has accepted as
collateral. Bloomberg News believes that this secrecy violates the law
and has filed a federal suit demanding full disclosure.
Despite all of this potential lawlessness, the Democrats are either
openly defending the administration or refusing to intervene. "There
is only one president at a time," we hear from Barack Obama. That's
true. But every sweetheart deal the lame-duck Bush administration
makes threatens to hobble Obama's ability to make good on his promise
of change. To cite just one example, that $140 billion in missing tax
revenue is almost the same sum as Obama's renewable energy program.
Obama owes it to the people who elected him to call this what it is:
an attempt to undermine the electoral process by stealth.
Yes, there is only one president at a time, but that president needed
the sup****t of powerful Democrats, including Obama, to get the bailout
passed. Now that it is clear that the Bush administration is violating
the terms to which both parties agreed, the Democrats have not just
the right but a grave responsibility to intervene forcefully.
I suspect that the real reason the Democrats are so far failing to act
has less to do with presidential protocol than with fear: fear that
the stock market, which has the temperament of an overindulged 2-year-
old, will throw one of its world-shaking tantrums. Disclosing the
truth about who is receiving federal loans, we are told, could cause
the cranky market to bet against those banks. Question the legality of
equity deals and the same thing will happen. Challenge the $140
billion tax giveaway and mergers could fall through. "None of us wants
to be blamed for ruining these mergers and creating a new Great
Depression," explained one unnamed Congressional aide.
More than that, the Democrats, including Obama, appear to believe that
the need to soothe the market should govern all key economic decisions
in the transition period. Which is why, just days after a euphoric
victory for "change," the mantra abruptly ****fted to "smooth
transition" and "continuity."
Take Obama's pick for chief of staff. Despite the Republican braying
about his partisan****p, Rahm Emanuel, the House Democrat who received
the most donations from the financial sector, sends an unmistakably
reassuring message to Wall Street. When asked on This Week With George
Stephanopoulos whether Obama would be moving quickly to increase taxes
on the wealthy, as promised, Emanuel pointedly did not answer the
question.
This same market-coddling logic should, we are told, guide Obama's
selection of treasury secretary. Fox News's Stuart Varney explained
that Larry Summers, who held the post under Clinton, and former Fed
chair Paul Volcker would both "give great confidence to the market."
We learned from MSNBC's Joe Scarborough that Summers is the man "the
Street would like the most."
Let's be clear about why. "The Street" would cheer a Summers
appointment for exactly the same reason the rest of us should fear it:
because traders will assume that Summers, champion of financial
deregulation under Clinton, will offer a transition from Henry Paulson
so smooth we will barely know it happened. Someone like FDIC chair
Sheila Bair, on the other hand, would spark fear on the Street--for
all the right reasons.
One thing we know for certain is that the market will react violently
to any signal that there is a new sheriff in town who will impose
serious regulation, invest in people and cut off the free money for
cor****ations. In short, the markets can be relied on to vote in
precisely the opposite way that Americans have just voted. (A recent
USA Today/Gallup poll found that 60 percent of Americans strongly
favor "stricter regulations on financial institutions," while just 21
percent sup****t aid to financial companies.)
There is no way to reconcile the public's vote for change with the
market's foot-stomping for more of the same. Any and all moves to
change course will be met with short-term market shocks. The good news
is that once it is clear that the new rules will be applied across the
board and with fairness, the market will stabilize and adjust.
Furthermore, the timing for this turbulence has never been better.
Over the past three months, we've been shocked so frequently that
market stability would come as more of a surprise. That gives Obama a
window to disregard the calls for a seamless transition and do the
hard stuff first. Few will be able to blame him for a crisis that
clearly predates him, or fault him for honoring the clearly expressed
wishes of the electorate. The longer he waits, however, the more
memories fade.
When transferring power from a functional, trustworthy regime,
everyone favors a smooth transition. When exiting an era marked by
criminality and bankrupt ideology, a little rockiness at the start
would be a very good sign.
Link: http://www.thenation.com/doc/20081201/klein
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