Thank You, Mr. President
by Eric Margolis by Eric Margolis
Now that there has been a respite in the financial tsunami sweeping the globe, finger-pointing is sure to begin. The chief culprit for this near-death experience must be the star-crossed Bush administration and its reckless financial policies.
The roots of the current financial crisis began before President Bush took office. During the Clinton years, finance had already become America’s primary industry, accounting for 23% of all economic activity (GDP) while manufacturing slipping at a mere 12%. Finance, let us recall, consists of paper-passing and manipulation rather than creation of anything tangible or productive.
But once Bush and the Republicans came to power, the Wall Street titans of finance and money lenders were allowed to run amok. In return, America’s financial industry became the largest contributor to the nation’s politicians. Republicans and Democrats alike were bought lock, stock, and barrel.
By 2007, America had become so addicted to running on borrowed money (known as "leverage") that the nation owed twice its net worth. Americans ceased saving, plunging instead into wild consumerism funded by loans on their homes. All of this was encouraged by the White House which was determined to keep the credit-fueled good times rolling after the dot.com crash.
In 2008, in an act of supreme idiocy, the US Security and Exchange Commission bowed to pressure from the big five Wall Street banks and, after a mere 55 minutes of discussion, according to a New York Times investigation, changed the "net capital rule" regulating the financial industry.
Hailed as a brilliant act of deregulation, the new rules allowed banks to lend out $30 for every $1 they had in reserves, almost doubling their ability to lend. Monitoring of their financial security was left to the banks themselves. In other words, the wolves were let into the sheep pen.
An orgy of reckless lending followed as banks vied to see who could make the more risky loans. No one cared as long as their profits and huge commissions kept rolling in. Sales of $40 million yachts and $50 million beach houses in the Hamptons surged.
The collapse of Lehman Brothers and ensuing world market panic marked the end of this era of financial debauchery. Wall Street’s export of fraudulent financial instruments in the form of sub-prime mortgages repackaged as AA quality bonds undermined the world banking system and brought it close to collapse.
Last week, outspoken former US President Jimmy Carter squarely blamed the Bush administration for the disaster. Carter charged the world crisis was caused by Bush’s "profligate spending" and dangerous tax cuts at a time when the US was spending nearly $1 trillion on the wars in Afghanistan and Iraq. He is absolutely right. President Carter, by the way, is the most respected American abroad, according to recent surveys.
Carter warned that Bush’s massive foreign borrowing — $1 trillion from China and at least $500 billion from Japan — had fatally undermined the US economy. When Carter was president from 1977—1981, he inherited a dangerous inflation crisis caused by President Lyndon Johnson’s refusal to raise taxes to pay for the unpopular Vietnam War. Johnson preferred to borrow to finance the war, setting off a storm of inflation that Carter had to deal with as president.
President Bush did the same thing with his failed wars. Instead of raising taxes to pay for the war, the Bush administration chose to finance them through emergency appropriation and loans from abroad while cutting taxes at home and creating massive farm subsidies. American taxpayers will repay these Bush loans in coming years either through higher taxes or through inflation — which is a form of indirect, hidden taxation.
The Bush administration inherited a $236 billion surplus from the Clinton presidency, low inflation, and a booming economy. Eight years later, the deficit stands at $407 billion and growing. That is a $643 billion swing to the negative. Under Bush, government spending rose 16% and military spending by 50%. The size of government under Bush grew more than under any president since Democrats Lyndon Johnson’s Great Society and Roosevelt’s New Deal.
While President Bush and the real power behind the throne, Vice President Dick Cheney, were obsessed waging war against Muslims, they ran the US economy onto the rocks. Under their disaster-plagued tenure, the US plunged into huge deficits and waged two wars costing $1 trillion in Afghanistan and Iraq, invaded Somalia, and got whipped by Russia in Georgia.
Just when it seemed the hapless Bush White House could not create another disaster in its final days in office, the Panic of ’08 erupted that may mark the beginning of the end of America’s decline as a superpower. This is the Bush legacy.
What else will this administration do in its final days? Well, there’s always Iran…
Eric Margolis [send him mail], contributing foreign editor for Sun National Media Canada. He is the author of War at the Top of the World and the new book, American Raj: Liberation or Domination?: Resolving the Conflict Between the West and the Muslim World. See his website.