The eventual size of the US taxpayers’ bailout to the troubled financial sector is unknown, but it is bound to be gargantuan. This morning, the ranking Republican on the Senate Banking Committee said it could go as high as a trillion dollars. Actually, it could go considerably higher than that.
You thought the Iraq war was expensive? The latest cost estimate I heard for that was $859 billion. But that was a week ago.
If there is a silver lining in the still unfolding financial crisis, it is that it gives all of us who are US citizens the chance to re-imagine at a fairly deep level what our country might become in the years ahead. This, for two reasons:
- 1. The market-fundamentalist approach that has dominated economic policy in the country since at least the Reagan era has proven itself destabilizing, anti-humane, and structurally broken. We have a great opportunity to imagine– and to work to bring into being– something fundamentally different.
2. The fact that the US’s citizenry will all become co-equal “owners” of a huge chunk of the country’s financial infrastructure means that we are all stakeholders in how its should be rebuilt. We should take this responsibility quite seriously and ensure that no groups of citizens are marginalized from having their voice heard and or from having their numbers-proportionate say in what should be done. This is certainly not a matter only for the (previous or current) owners of corporate and financial wealth, or the technocrats and economic “whizz-kids” who have largely dominated public discussions of these matters until now. It is all of our responsibility.
On a related note, I think it’s very important that we all become a lot more aware of the one-sided way that most of the MSM in this country has been approaching the stories about the current crisis. It is incredibly investor-centric, in that it simply assumes that everyone in the community that it addresses is (a) him- or herself a non-trivial investor in the financial markets, and (b) concerned overwhelmingly with the effect of the crisis on his or her own investments and/or on the previously much-admired titans of the investment industry, and only very secondarily (if at all) with its effects on society as a whole, or on the country’s most economically and socially citizens.
This is self-referential and anti-humane media “coverage” of the most disturbing kind. We know that most of these bankers and stock traders we see pictures of on the nightly news will end up being okay. (And none of the industry “leaders” or failed regulators who got us into this crisis yet seem to be exhibiting any shame or remorse, at all.)
But where are the media stories about the crisis in the nation’s food banks, or about those made homeless because of the sub-prime scandals? These are the stories and the voices that need to be included.
For years now, the “big” MSM in this country has been presided over by media “stars” like Tim Russert (RIP), Katie Couric, Charlie Gibson, etc… And whenever they got new contracts the salary levels they would lock in would be breathlessly reported all over the place… $1 million, $2 million, $5 million and more. So there is a complete air of unreality when these people solemnly pretend that when they “discuss the impact of” the crisis, they are doing so purely as disinterested observers. At the very least, they owe the rest of us substantial disclosure–as we demand from politicians– regarding which sectors they hold their personal wealth in. Or, they should hold it in a blind trust until their retirement.
But this investor-centric nature of the news coverage is only one symptom of a deeper distortion in the country’s political culture: namely, the robustness until now of the myth that “everyone” in the US has a substantial ownership stake in the country’s means of production and wealth creation. That is, after all, the myth that allows people in the MSM to imagine that when they give us their very investor-centric take on breaking events, they are speaking for and to “everyone.”
But this myth of universal “ownership of wealth” is palpably untrue. I’ve been trying to look for a measure of the degree of inequality of wealth among citizens in the US, which I know has been growing apace over recent decades. This is the best source I’ve found in a quick search– plus it gives a pretty nice explanation of how the Gini coefficient of inequality is calculated.
If you scroll down beneath the color-coded world map there, it gives the following data for the nationwide Gini coefficent for personal wealth, sourced to the US Census Bureau. Remember that for the Gini, “1” is perfect inequality– one person owns everything, everyone else owns nothing; and “0” is perfect equality:
- 1967: 0.397 (first year reported)
1968: 0.386 (lowest coefficient reported)
1970: 0.394
1980: 0.403
1990: 0.428
2000: 0.462
2005: 0.469 (most recent year reported; highest coefficient reported)
That is a significant rise from 1968 through 2005, and doubtless the trend continued after that until… well, maybe last week.
Here, for an international comparison, are some figures on the Gini coefficients of various nations regarding distribution of income, not wealth. (Though over a few years of income differences, that usually gells out into a significant difference in wealth; and the “income” measured is quite often a return on investments, rather than earned salary, so it is related to wealth in that way, too.)
- 1 Iceland n.a.
2 Norway 25.8
3 Australia 35.2
4 Canada 32.6
5 Ireland 34.3
6 Sweden 25.0
7 Switzerland 33.7
8 Japan 24.9
9 Netherlands 30.9
10 France 32.7
11 Finland 26.9
12 United States 40.8
13 Spain 34.7
14 Denmark 24.7
By the way, the listing numbers down the left column are the rankings the UN Development Program gave in 2007 to each nation for what it defines as its “Human development.” We are not Number One, and I don’t think we have been, ever since they started measuring this. We are Number 12.
All the other countries there have significantly lower Gini coeffficients of income than we do.
Norway is notable because it is a country that has considerable, nationalized oil production and revenues therefrom. But it has established ways of managing those revenues in ways that have stimulated the whole economy and have not substantially increased inequalities. Given that we US taxpayers are about to become co-owners of huge chunks of nationalized wealth, I think we could look to Norway to find out good ways to do so in a responsible, socially equalizing, and politically accountable fashion.
How about a well managed and accountable Sovereign Wealth Fund to take over all these financial and other entities we suddenly find that we’ve “bought”.
Here are a few other guidelines I’d like to put into the discussion:
- 1. Since we’re essentially buying either a huge amount of somewhat marginal housing stock or the mortgages thereon, we need to figure out what to do with it for the benefit of all of society. I would say that a bunch of the unsustainable big McMansions that have been built out in distant exurbs should be ploughed under, after all the removable parts of their properties and fixtures have been auctioned off to the highest bidder. Sad to think of all those dreams and all that workmanship getting ploughed under. But imagine all the exurban subdivisions that we can return to productive agricultural purposes!
2. As large-scale property-owners in many closer-in districts where ploughing under makes no sense, the Sovereign Wealth Fund (Housing Division), should certainly use its clout in the housing market to become an innovative developer of sustainably car-free communities. That would mean building up a lot of these areas into much denser mixed-use communities, whose density allows the installation of economically sustainable mass transit systems that can link them to each other and to nearby city centers.
3. The economic crisis can reliably be expected to get quite a lot worse than at present, before it gets any better. We need to use the assets of the Sovereign Wealth Fund to invest in our national infrastructure at all levels. Yes, Keynesianism– as with FDR’s New Deal. But this time, Keynesianism with a strongly pro-Green purpose. Wind far,ms and all other forms of renewable energy. Innovative forms of cradle-to-cradle housing and manufacturing. The whole shebang. And perhaps as a capstone project: A completely new, Ultra-High-Speed Rail System that knits the whole country back together in a way that we haven’t seen since Eisenhower’s Interstate highway system.
4. As another part of the rebuilding of the nation’s social and economic infrastructure, we should have a commitment to an excellent, universal and single-payer healthcare system, and other essential parts of a caring and accountable human welfare system.
It might seem crazy to think that, amidst the present crisis, our country could even start to think of financing projects like those mentioned.
But here’s the thing: Suddenly, we taxpayers find we have “bought” this huge bundle of assets. (Okay, yes, and liabilities, too)… And suddenly the numbers everyone is talking about in regard to these assets are absolutely enormous: right up there in the area of– or in many cases, well above– the costs that have always been mentioned as necessary in order to “fix” (or tinker with) this or that other aspect of the national system.
So now we, our legislators, and our next president will all have to suddenly think very “large” about what to do with these big new commitments Hank Paulson and Ben Bernanke have bequeathed us with. So let’s think just a little larger still. Let’s think about what the point of all this “wealth” and all this stuff is. Is it to enable a few superstars of the stage, screen, ballpark, or news-anchor’s desk to become even more unimaginably wealthy that before? Or is it to start over at trying to build a national community that values everyone, and that supports everyone to live up to her or his maximum human potential?
Time to think big here. (And yes, please add your own ideas below on how we might use the present opportunity to re-imagine America.)
Alternatively, we could just return to an increasingly plutocratic, mean-spirited, and unaccountable business as usual…
How do we get people like you to run for office?
Helena
Just to put the full horror of what has happened in context contrast the sums of money in the above with this.
http://news.bbc.co.uk/1/hi/world/africa/7626562.stm
Doubtless finding the small change for this will prove difficult.
We all need to keep an eye on the restructuring of the water arrangements in the Nile Basin.
Ethiopia and Kenya export cut flowers to Europe.
And perhaps as a capstone project: A completely new, Ultra-High-Speed Rail System that knits the whole country back together in a way that we haven’t seen since Eisenhower’s Interstate highway system.
There may be competition for the funds.
http://www.csbaonline.org/2006-1/1.StrategicStudies/Navy.shtml
Ask Admiral McCain’s son which one he would fund.
http://www.thedailyshow.com/video/index.jhtml?videoId=185186&title=tony-blair-pt.-2
Helena,
Did you see this clip of Tony Blair on The Daily Show with Jon Stewart?
How is Blair allowed to serve as ANY kind of representative? He is an anti-human.
HI Helena:
It is nice as always to read your stuff…yes, THE AMERICA! How do we bring healing to ourselves and to the globe?
Note the effect of budget cuts on this program.
http://tinyurl.com/3o34js
Of course squandering 1200 Billion on dodgy loans means that there isn’t any cash to fund restructuring and rebuilding in Iraq.
Pity about that
Somehow despite its inferior HDI and higher Gini coefficient, the US receives two immigrants from Canada for every one northbound emigrant. I wonder why!
But imagine all the exurban subdivisions that we can return to productive agricultural purposes!
Bulldozing housing developments only makes sense if you’re long housing shares. The US has a deficit of affordable housing. Whereas it also has a massive surplus of grain – in fact it’s the world’s largest exporter by a wide margin.
The USA needs fewer home equity loans, cheaper and more plentiful housing. It doesn’t need agriculture.
“Alternatively, we could just return to an increasingly plutocratic, mean-spirited, and unaccountable business as usual…”
Which is, quite undoubtedly, what will happen.
There are already hordes of accountants, speculators, brokers, and other vermin crawling all over the corpses of these ‘nationalised’ entities picking up the useful scraps (ie what was real amongst all the smoke and morrors).
Helena,
If we are indeed the new owners, let’s act like a smart business–we buy the housing assets cheap and when the dust (fear) settles, we sell for a huge profit. For the most part, this is not a housing supply and demand problem. It is a fear problem compounded by financial secrecy. As a Govt. Corp. with unlimited resources, we can take advantage of that. Profits will go to an improved health care system and lessons learned to an improved and less vulnerable financial system. Everyone eventually benefits.
RichardR
(1) Why can’t the Baroness Schadenfreude crew come clean?
Still, there is the occasional honourable exception who says out loud what they are all thinking:
“Between the dread of a world in the midst of collapsing and the shiver of pleasure that finally something serious is happening to the kingdom of liberalism , how to orient oneself?” Eric Aeschimann wrote Thursday in the newspaper Liberation, a voice of French intellectuals whose disdain for capitalism persists in the 21st century. Expressing nostalgia for “the good old days when bankers jumped out of windows,” Aeschimann condemned as “extortion” the rescue of U.S. corporate giants by the very state that free-marketeers resent.
(2) Looking for M. von Aeschimann in the original Lotharingian, I kept running into “les responsables du Congrès,” which cannot possibly mean what it looks like meaning. Does anybody know the true identity of this false friend?
Happy days.
Speaking of Schadenfreude
The Soviet general at Bagram now has his amanuensis in General David McKiernan, the senior US officer in Afghanistan, who proudly announced last month that US forces had killed “between 30 and 35 Taliban” in a raid on Azizabad near Herat. “In the light of emerging evidence pertaining (sic) to civilian casualties in the … counter-insurgency operation,” the luckless general now says, he feels it “prudent” – another big sic here – to review his original investigation. The evidence “pertaining”, of course, is that the Americans probably killed 90 people in Azizabad, most of them women and children. We – let us be frank and own up to our role in the hapless Nato alliance in Afghanistan – have now slaughtered more than 500 Afghan civilians this year alone. These include a Nato missile attack on a wedding party in July when we splattered 47 of the guests all over the village of Deh Bala.
And Obama and McCain really think they’re going to win in Afghanistan – before, I suppose, rushing their soldiers back to Iraq when the Baghdad government collapses. What the British couldn’t do in the 19th century and what the Russians couldn’t do at the end of the 20th century, we’re going to achieve at the start of the 21 century, taking our terrible war into nuclear-armed Pakistan just for good measure. Fantasy again.
Joseph Conrad, who understood the powerlessness of powerful nations, would surely have made something of this. Yes, we have lost after we won in Afghanistan and now we will lose as we try to win again. Stuff happens.
—
Happy days.
Annual “defense” spending: $0.5-1.0 Trillion.
Yes!
War of choice in the Middle East: $1-2 Trillion.
Go for it!
Bailout of Wall Street gamblers: $1-2 Trillion.
Gotta do it!
Another war in the Middle East. $1-2 Trillion.
Unfortunate but necessary!
Cost of redeeming assets saved by American workers and lent from the Social Security Trust Fund to fight wars of choice: $2.3 Trillion.
Priceless!!!
[But don’t be ridiculous. We can’t afford to pay for that…] Code Word: ” Operation Cut Entitlements.”
Shirin
Just thought you would like the official video of the anouncement of a Palin-Mcain government.!!
http://voices.washingtonpost.com/postpartisan/?hpid=opinionsbox1
vadim; it’s the weather. What did you think? That Canadians are stupid? Or they were voting against healthcare with their feet? Or they wanted to show personal solidarity with the Empire? Or they were looking for real men’s work in Iraq?
It’s the weather; believe me. I hope this doesn’t disappoint you but it’s the weinters up here. It has been for a long time now. It’s not just the USA either: I have friends and relations going to Mexico and South America too.They aren’t making political statements. It’s the weather.
OK vadim? The weather.
You thought the Iraq war was expensive? The latest cost estimate I heard for that was $859 billion. But that was a week ago.
$859 billion spent where gone?
It’s for US made weaponry – then the money back in the pockets of US citizenry.
It’s for salaries for those US solders- the money back in the pockets of US citizenry
Its for those “SMART”advisor for the Coalition Provisional Authority in Baghdad (I don’t know call some one advisor just graduate form college!! looks made in USA then very smart “she is not more than secretary as looks from her words but field secretary job”)
Its for those Specialist who and spy who went under Journalist missions inside Iraq like Nir Rosen who are as same as other guys from high school, don’t know where Afghanistan on the World map, know nothing what Iraq is, or what Iraq history is, 5000 years first ever civilization, first ever the writing started, first ever The Code of Law introduced to the world we liven today. jumped from his school to “put a bullet” in heads of hundreds of thousands of civilians in Iraq ruining the life’s of millions innocent who have nothing to do with what he saw in his country- the money back in the pockets of US citizenry
The money to those private contractors the Hire to kill machines inside Iraq US companies like Black Water- the money back in the pockets of US citizenry
OK now where the Iraqi Oil that produced for six years till now? Remember the oil fields and ministry of oil the only yes the only places that secured prior or during the war in 2003.
Where is the other resources that we don’t know or not taken about it just one recently heard that Natural Uranium some 5oo Ton sold to Canadian, who got the money of course US as Iraqi government denied ant knowledge of this sort of tread, more over the shipment went secretly for cover no one knows- the money back in the pockets of US citizenry, the losers Iraqi they lost their natural resource in fact the thugs stolen it.
The last one is the thuggish tyrant Sheikh Jerry Bremer III run with $10 Billions just in one year rolling oil country he run with that amount without nay question where and how that money vanished just like the these ECO of banks or insurance companies now no one asked them where are those billions of money went, that they came to US government to help them?.
Looks the thieves knew each other here?
After years of the gard lies and here again coming in 2008 with new lunatic good looking wiled hunter, Sarah Palin entered politics in her hometown in 1992, running for City Council in Wasilla, population around 9,000. There was no police department and a dusty airstrip ran through the middle of town. She’s an opponent of government financing of sex-education programs that her 17-year-old unwed daughter, Bristol, was five months pregnant.
Started her Statement of Iraq shipped her Son to cover his indication on drudges all of that, and more importantly she don’t know where Iraq as she start with laying she visited Iraq then some picked her lies she corrected oh she was in Kuwait near the borders of Iraq!!! Did she really know what the borders looks like? I hope some asked her what she saw there.
You know what bevin? If the US was really such a mess in comparison to Canada, the weather alone wouldn’t be enough to make Canadian citizens *20 times* more likely to trade passports. Nor would a little extra warmth be enough for me to abandon my US citizenship for balmy Trinidad. Even though the ‘Gini coefficient’ there is lower, somehow I feel the economic opportunities aren’t quite the same.
By the way bevin, I’d take a winter in Vancouver over one in any Northern US plains state, and so would you. Surely its easier to pick one’s city than one’s citizenship. So no, I’m not buying.
Now that we’ve touched on immigration flows, here’s a simple question for those who think the sky is falling and the US is on the brink of financial ruin.
Do you suppose the dollar has strengthened or weakened since this ‘crisis’ emerged? How about sovereign yields — does it cost the US government more or less to borrow money than it did one month ago?
The answer is: the dollar has strengthened (from 1.60 plus to the low 1.40s) , and yield spreads versus the eurozone have widened. ie it remains cheaper for the US government to borrow than European nations, cheaper even than one month ago.
But I though the US was going down the tubes! what am I missing?
As they sell those toxic assets bought up from the financial institutions that owned them, they will create a big fat slush fund from the money coming in. The President and Congress will have a big windfall to play with and give lots of goodies to various people and groups instead of paying down the $700 trillion debt with this incoming money. Thus we, the little people, will have the full $700 trillion debt to pay back in tax money. It is sweet found money for the politicians. More earmark money, too!
Vadim
Investors fretted about the pace of negotiations over the plan for a $700bn government fund to buy toxic assets from banks, while also worrying that even if the fund is set up, it may not succeed in turning around the credit crisis.
Until Monday, the US dollar had held up surprisingly well in the face of the past week’s turmoil on Wall Street. But it finally fell back in the face of concern over the cost of the bail-out and the fragile state of the US banking system, sending the price of commodities priced in the US currency soaring.
The dollar lost 2 per cent against a basket of major currencies, with the euro rising 2.6 per cent to above $1.48. Near-term crude oil futures prices jumped more than $25 a barrel during the day – the largest one-day rise in dollars terms ever – as investors were forced to cover positions before the expiry of benchmark contracts
Frank that big jump in oil was only in the front month (expiring) contract — not a good indicator of anything because the traded volumes are very low. the rest of the curve moved around 6 dollars, a larger than normal move but nothing that unusual lately. Oil is still 30% off its highs 3 months ago. 1.48 is a 12% stronger dollar than 3 months ago. In contrast, the ruble lost 2/3 of its value in one week in 1998. So did the Argentine peso in 2001. Those were economies in crisis.
I don’t own banking shares so I still don’t uderstand how their credit problems should become my problems. So like many here I oppose any form of federal handout. I’m also personally glad that the MBS market has dried up because US consumers shouldn’t be encouraged to borrow beyond their means, or to gamble on the value of homes.
re: oil, if the US economy grinds to a halt, oil prices won’t go up, they’ll go down as consumers and businesses will have less money to spend (cf the great depression, when the price of all commodities plummeted.)
Vadim
I don’t own banking shares so I still don’t uderstand how their credit problems should become my problems.
If you have a job you will be affected. You need to understand the concept of Working Capital which keeps business working while they produce goods and services to sell. Without working capital things rapidly grind to a halt. Any debt financed working capital can be called in by banks so they remain liquid, thus putting fims out of business.
The linkages between different banking markets are illustrated here:
http://tinyurl.com/4l58bo
Once the Creditanstalt run wiped out Austrian Gold and Forex reserves an avalanche of collapse of international trade set in.
As a lot of US prosperity is based on exporting their prodcuts and services a credit crisis in the US banking sector will hit US exports and balance of trade.
This morning’s (Wednesday) New York Times Op Ed The Buck Stops Here talks about the possibility of a flight from the Dollar.
You will see mention of the Detroit Car Industry doing the rounds looking for a handout to prevent General Motors and Ford from going broke. Pity, Wall Street got there first.
Mr Friedman is in fine form this morning
http://tinyurl.com/434h58
We are discussing a $1 trillion bailout for our troubled banking system. This is a financial 9/11. As Americans lose their homes and sink into debt, they no longer understand why we are spending $1 billion a day to make Iraqis feel more secure in their homes.
For the past two years, there has been a debate in this country over whether to set a deadline for a U.S. withdrawal from Iraq. It seemed as if the resolution of that debate depended on who won the coming election. That is no longer the case. A deadline is coming. American taxpayers who would not let their money be used to subsidize their own companies — Lehman Brothers, Bear Stearns and Merrill Lynch — will not have their tax dollars used to subsidize your endless dithering over which Iraqi community dominates Kirkuk.
And on the pedestal these words appear:
“My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!”
Nothing beside remains: round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away.
Percy Bysshe Shelley