Web Only / Views » March 21, 2008
New Housing Crisis, Old Isms
The Federal Reserve Bank’s decision last week to address the housing crisis by extending $200 billion of taxpayer-financed credit to Wall Street banks was met with a stunned reaction typical of surprising events. But really, the move was the expression of longstanding isms that routinely package corruption as sound public policy.
Some background: During the housing boom, banks doled out home loans to financially strapped borrowers, often on predatory terms. On the creditor side, these same banks packaged many of the loans as complex securities and sold them off to unwitting investors, generating a handsome profit on the paper transactions. At the same time, Wall Street used campaign contributions to coerce Congress into blocking anti-predatory-lending bills and repealing a landmark law regulating how banks could buy and sell securities.
Predictably, many borrowers are now defaulting on their loans, meaning losses for financial institutions that hold mortgages and mortgage-backed securities. The Fed responded with what author Naomi Klein calls disaster capitalism – the age-old practice of using a crisis to enrich corporate interests. In this case, the Fed is using the housing emergency to justify giving taxpayer cash to Wall Street in exchange for its worthless mortgages.
“What the Fed really did was lend money to banks and accept the counterfeit currency as collateral, treating it just as though it were real money,” says Dean Baker, the co-director of the Center for Economic and Policy Research.
But this is not only disaster capitalism, it is also Big Boy Bailout-ism – the kind we’ve become accustomed to since the savings and loan scandal of the 1980s. It is an ideology that rewards wealthy political donors for irresponsible behavior and ignores the real victims.
If you are a banking executive whose risky loans go bad, your industry’s campaign donations get you Big Boy Bailout-ism that makes taxpayers “take the bad loans off the banks’ books,” as one financial analyst gushed this week. If you are a regular Joe who can’t pay your home loan, you get foreclosed on.
The Fed’s scheme also embraces Feed-the-Beast-ism – an ideology that prescribes pumping taxpayer money into a crisis, rather than demanding reforms.
Confronting an energy and climate emergency, Republicans’ answer was not massive alternative energy investments, but a 2005 energy bill giving tax breaks to the carbon-belching fossil fuel companies that finance the GOP. In the face of a health care catastrophe, the Bush administration’s 2003 Medicare bill didn’t crack down on pharmaceutical industry profiteering, but instead created a system that effectively subsidizes drug industry campaign donors. The list of examples goes on, and now includes the housing crisis.
The Fed’s action says the solution to the credit crunch is not to re-regulate the banking industry or force it to clean house, but to loan Wall Street your hard-earned taxpayer money, allowing the same destructive system to remain and permitting the same vultures to stay in their jobs – and, of course, to keep writing big campaign checks.
But worst of all is the Trickle Down-ism. For three decades, our government has said economic challenges can be solved with tax cuts for the wealthy – the same people who, not coincidentally, underwrite political campaigns. Trickle Down-ism claims that the wealthy will spend the tax cuts and the benefits will “trickle down” to us commoners.
It’s the same nonsense with housing today. The root of the financial crisis is mortgage defaults – brought on, in part, by Trickle Down-ism’s original failure to raise wages. Yet, rather than help borrowers pay or restructure their mortgages, the government is covering the banks’ losses, claiming that aid will eventually “trickle down” and benefit the rest of us.
During the Great Depression, Eleanor Roosevelt said, “We need not fear any isms if our democracy is achieving the ends for which it was established.” It’s the “if” part that has become the problem.
Never has independent journalism mattered more. Help hold power to account: Subscribe to In These Times magazine, or make a tax-deductible donation to fund this reporting.
David Sirota, an In These Times senior editor and syndicated columnist, is a staff writer at PandoDaily and a bestselling author whose book Back to Our Future: How the 1980s Explain the World We Live In Now—Our Culture, Our Politics, Our Everything was released in 2011. Sirota, whose previous books include The Uprising and Hostile Takeover, co-hosts "The Rundown" on AM630 KHOW in Colorado. E-mail him at [email protected], follow him on Twitter @davidsirota or visit his website at www.davidsirota.com.