The Big Bailout: America as a Full-Spectrum Kleptocracy

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Its name somewhat anachronistically means “assembly of old men.” George Washington famously — and, it must now be admitted, with excessive optimism — characterized it as an institutional saucer intended to cool legislation passed in the intemperate heat of the moment. Its members demand, with entirely unwarranted self-approval, to be called, collectively, the World’s Greatest Deliberative Body.

Sober observers understand it to be the most corrupt legislative assembly in human history. To those characterizations of the United States Senate we must now add another, perhaps the final one: Gravedigger of the republic.

With the Senate’s passage of the Fannie Mae/Freddie Mac bailout last Saturday (July 26), the United States of America has now become the world’s first full-service kleptocracy, a form of government described earlier in this space as a government of, by, and for the robbers.

We are supposed to pretend to believe that the Senate, so great was its anxiety over the nation’s economically distressed homeowners, met in a rare Saturday session for the sole purpose of administering the balm of Gilead on hardworking families who confront the bleak prospect of foreclosure.

There may be people who believe such a thing, or at least profess to do so. They are pretty much the kind of people who believe that peace, prosperity, and progress will magically ensue after next January 20, when the Holy One, Barack Obama (peace be upon him) ascends to the presidency, not astride a White Horse, but rather mounted upon a flying unicorn that emits healing rainbows from its butt.

No, it’s not the travails of the productive that would earn such attention from the Senate. When the Senate sacrifices so much as a minute of its down time, it does so not to relieve our burdens, but to add to them in the interest of their fellow parasites.

When Congress created the Federal Reserve in 1913, it did so in a lame-duck session. The Fed’s proponents described its handiwork as an independent entity that would prevent “panics” and maintain the integrity of our currency and financial system.

The Fed was presented to the public in pseudo-populist drag: It was supposedly the bane of the big banking interests. This was, in every particular, a conscious inversion of the truth. The Fed was, is, and every shall be a product and protector of those interests. It has practically destroyed the value of US currency, and engineered numerous financial crises, including the one currently unfolding.

The measure passed last Saturday is being described to the public as a “homeowner” bailout. It is nothing of the sort. It supposedly creates an independent oversight mechanism to rein in the excesses of Fannie and Freddie. This, too, is an unalloyed falsehood.

Let us disambiguate the key issue right now. This is a measure to nationalize Fannie and Freddie, plundering the population at large — through direct taxation, the more insidious tax called inflation, or both — to bail out two fascist entities that have been used to enrich the politically connected super-rich through the most corrupt means imaginable.

Furthermore, this measure prefigures the eventual nationalization of the entire financial system under the supervision of an executive branch official with practically unlimited power to appropriate and allocate funds without congressional action. OK, sure, he has to file a report with Congress regarding his expenditures. But this takes place after the fact, and Congress will be able to do nothing but complain, if it can bestir itself even to that extent.

Congress has yielded its war powers to the executive branch. It has now effectively surrendered the power of the purse, as well. What, then, remains by way of the legislative branch’s ability to check the executive?

Nobody responsible for this is willing to admit that truth; they’re too busy taking refuge in contrived ambiguities.

The figure sent out to pollute headlines and palliate a nervous public last week was that fixing Fannie and Freddie will cost “at least” $25 billion. That’s a bit like saying there are “at least” 25 gallons of water in Lake Michigan.

The Congressional Budget Office, in an artful display of tactical equivocation, said that the bailout could cost anything from $100 billion down to “nothing.” That latter estimate would be dismissed as magic thinking were it not a transparent and cynical effort to propagate such delusion among that part of the public paying attention to the ongoing economic collapse.

As the Wall Street Journal summarized, the $25 billion figure was arrived by following a time-honored government accounting algorithm: Some accountant at the CBO threw a dart at the wall.

In fact, the bailout measure places in the hands of Treasury Secretary Henry Paulson the discretionary authority to pour as much money into Fannie and Freddie as he deems necessary. He can extend an unlimited credit line to either or both of those government-chartered companies; he can use federal funds to buy shares in either, or both.

There is no limit to what can be spent on the bailout, or the extent of government involvement it will entail. In his efforts to lobby congressional Republicans on behalf of the bailout, Paulson reportedly assured them that he has “no intention” of using those extraordinary powers. This means, of course, that they will be used immediately. It also means, inevitably, that Fannie and Freddie will be nationalized, and that taxpayers will pay the full burden of the bailout.

Senate Republicans — clap-torn whores, every one of them — put up a show of reluctance, perhaps because the White House likes a little role-playing action of that sort. This meant that Treasury Secretary Paulson had to convene several meetings with Republicans in order to pretend to overcome their reluctance to support a measure that will impecuniate their constituents in order to pay off the imponderably huge bad debts assumed by politically protected thieves.

The Fannie/Freddie bailout is another example of the familiar equation behind corporatism (or, to use the more loaded synonym, fascism): The risks are subsidized, the losses are socialized, and the profits are privatized.

There are former corporate executives who spend their days looking at striped sunlight and showing with their backs to the wall for crimes identical to those of former Fannie CEO Franklin D. Raines and his comrades. But because Raines and his posse used a Government-Sponsored Entity to commit their crimes, they’re free to enjoy nearly all the fruits of their fraud.

I find it remarkable that next to nothing has been said by way of condemning Raines and his fellow corporatist thieves.

Doing so is nearly as unthinkable as permitting those two government-sponsored companies to fail, as they should.

According to former Treasury Secretary Lawrence Summers, the bailout wouldn’t be necessary if people were willing to do their part by throwing their money away without the government forcing them to do so: “Emergency legislation was necessary because market participants were unwilling to buy Fannie and Freddie’s debt; investors doubted that the government-sponsored enterprises were healthy enough to repay it and did not draw sufficient reassurance from the implicit guarantee of federal support.” This is why, according to Summers, “Anyone who cares about the health of the US economy should welcome the … rescue plan for Fannie Mae and Freddie Mac….”

Imagine an armed robber lecturing his victim that it wouldn’t have been “necessary” to threaten the victim’s life, and the lives of his family, if they had simply handed over their money on demand, and you’ll have a suitable moral parallel to the statement above. Eventually — and for that, read “pretty damn soon” — the entire daisy-chain of fraud we call our financial system will devolve into a scene of violent chaos akin to the denouement of Reservoir Dogs, only immeasurably bigger and unimaginably bloodier.

Already, the robber’s pact holding the system together is starting to fray, as fractional reserve banks start gagging on each other’s IOUs. Witness the fact that cashier’s checks being issued by California’s newly federalized IndyMac bank aren’t being honored by other banks: Customers who cash out of IndyMac are finding that they won’t be able to access their funds for up to two months. It’s not difficult to imagine the impact this will have on households who expected to use those funds to make mortgage or tax payments, or have other irrepressible financial needs.

It took roughly a tithe of FDIC’s deposit insurance fund to bail out IndyMac. Last week’s bank failures — First National Bank of Nevada and Arizona’s First Heritage Bank — involved combined assets of about $3.6 billion.

With Wachovia, Washington Mutual, and many other major banks primed to blow, the day will soon come when — in the words of James Kunstler — the FDIC will simply “choke and croak on this wad of losses…. When American depositors get screwed out of their deposits” — as they already are; vide the observation above regarding IndyMac’s dodgy cashier’s checks — “the full force of the fiasco will drag the dollar underwater like the legendary Kraken of old preying on a babe thrown overboard. Then the forces of darkness will really be loosed.”

Last week, Congress went on record regarding its priorities: With a handful of noble exceptions (conspicuous among them the stalwart Rep. Ron Paul of Texas), they demonstrated a willingness to ruin what remains of the dollar and destroy the Middle Class in order to rescue — temporarily — the ber-rich Robber Class.

The people responsible for this betrayal will be campaigning in their districts during the coming weeks. It would be instructive to them, and may be heartening to their victims, to see at least a few of them on the receiving end of timely and forceful rebukes, delivered in language — and other expressive conduct — appropriate to the occasion, and prevailing security environment.

William Norman Grigg [send him mail] writes the Pro Libertate blog.

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