Tuesday, September 30, 2008

Dennis Kucinich On the Bailout

There are few people whose word I trust more in this world than Dennis Kucinich. I believe he is a rare man of honor in our political system. I don't understand economics enough to have a clearly reasoned opinion about the bailout. I know the original plan was an outrage. I know the reasons given for not passing the bill yesterday were juvenile and petty. Maybe it was a good thing that happened for the wrong reasons. I don't know. But here are some thoughts from Dennis K.

Dear Friend,

Yesterday marked a day that will go down in history, when Congressional Democrats and Republicans alike took on full responsibility to protect the interests of taxpaying Americans, and defeated the deceptive bail out bill, defying the dictates of the Administration, the House Majority Leadership, the House Minority Leadership and the special interests on Wall Street.

Obviously Congress must consider quickly another course. There are immediate issues which demand attention and responsible action by the Congress so that the taxpayers, their assets, and their futures are protected.

We MUST do something to protect millions of Americans whose homes, bank deposits, investments, and pensions are at risk in a financial system that has become seriously corrupted. We are told that we must stabilize markets in order for the people to be protected. I think we need to protect peoples' homes, bank deposits, investments, and pensions, to order to stabilize the market.

We cannot delay taking action. But the action must benefit all Americans, not just a privileged few. Otherwise, more plans will fail, and the financial security of everyone will be at risk.

The $700 billion bailout would have added to our existing unbearable load of national debt, trade deficits, and the cost of paying for the war. It would have been a disaster for the American public and the government for decades and maybe even centuries to come.

To be sure, there are many different reasons why people voted against the bailout. The legislation did not regard in any meaningful way the plight of millions of Americans who are about to lose their homes. It did nothing to strengthen existing regulatory structures or impose new ones at the Securities and Exchange Commission and the Federal Reserve in order to protect investors. There were no direct protections for bank depositors. There was nothing to stop further speculation, which is what brought us into this mess in the first place.

This was a bailout for some firms (and investors) on Wall Street, with the idea that in doing so there would be certain, unspecified, general benefits to the economy.

This is a perfect time to open a broader discussion about our financial system, especially our monetary system. Such a discussion is like searching for a needle in a haystack, and then, upon finding it, discussing its qualities at great length. Let me briefly describe the haystack instead.

Here is a very quick explanation of the $700 billion bailout within the context of the mechanics of our monetary and banking system:

The taxpayers loan money to the banks. But the taxpayers do not have the money. So we have to borrow it from the banks to give it back to the banks. But the banks do not have the money to loan to the government. So they create it into existence (through a mechanism called fractional reserve) and then loan it to us, at interest, so we can then give it back to them.


This is the system. This is the standard mechanism used to expand the money supply on a daily basis not a special one designed only for the "$700 billion" transaction. People will explain this to you in many different ways, but this is what it comes down to.

The banks needed Congress' approval. Of course in this topsy turvy world, it is the banks which set the terms of the money they are borrowing from the taxpayers. And what do we get for this transaction? Long term debt enslavement of our country. We get to pay back to the banks trillions of dollars ($700 billion with compounded interest) and the banks give us their bad debt which they cull from everywhere in the world.

Who could turn down a deal like this? I did.

The globalization of the debt puts the United States in the position that in order to repay the money that we borrow from the banks (for the banks) we could be forced to accept International Monetary Fund dictates which involve cutting health, social security benefits and all other social spending in addition to reducing wages and exploiting our natural resources. This inevitably leads to a loss of economic, social and political freedom.

Under the failed $700 billion bailout plan, Wall Street's profits are Wall Street's profits and Wall Street's losses are the taxpayers' losses. Profits are capitalized. Losses are socialized.

We are at a teachable moment on matters of money and finance. In the coming days and weeks, I will share with you thoughts about what can be done to take us not just in a new direction, but in a new direction which is just.

Thank you,

Dennis Kucinich


peppylady (Dora) said...

Three cheers for Dennis K.

Travis Cody said...

Thank you for posting that. I have a passing familiarity with economics, and I was afraid of this bail out plan. Now I really understand why.

Unknown said...

I heart D.K.!!!

Carletta said...

Let's hope somebody comes up with something everybody can agree on and soon!

Dianne said...

I love that he thought it more important to explain the haystack rather than the needle in it.

I say again - I wish the US was evolved and progressive and intelligent enough to elect someone like DK

San said...

Like you, Raven, I'm not knowledgeable of economics to understand all of this. I appreciate your running Kucinich's letter. Michael Moore had some words about this on his website. You might want to read that too.

It's becoming crystal clear that the "trickle down" wealth doesn't trickle, not even a drop. It's all highly protected on its mountain with the drop-dead view. The message to those below--drop dead, unless you have something to give ME.

gabrielle said...

Thanks for printing Dennis’ letter. I am a long time supporter and a former delegate (his first run for President). He is an unwavering advocate for justice, a meticulous communicator (just read his letters of impeachment) and most of all, a mensch, a compassionate human being whose politics and service spring from a deep rooted passion for justice and peace. I recall we had long conversations about the value of a cabinet level Department of Peace. He was skeptical at first, but ultimately wound up incorporating it into his platform. He’s a great listener.

I am certainly not an authority on economics but this bailout smells bad. It seems to be a recycled version of what Herbert Hoover was peddling in 1931 – just rescue the banks and nobody will be hurt. We all know how that turned out.

There seems to be a conspicuous pattern of severe economic downturns that follow an 80 year cycle. Just long enough for a generation’s palpable memory of the degradation of abject poverty to fade away.

I heard Congressman Robert Scott (D-VA) on the Lehrer report last night. He opposes the bailout. In his position paper, he says, “As Congress moves forward on the Bush Administrations’s $700 billion proposal to bail out Wall Street, I feel a key point is being neglected in the debate. Whatever form the bailout plan takes, there should be a provision in the legislation of the intrinsic value of the security, including its predicted yield to maturity.”

Any prudent investor would do no less.

For those who say some of us were gullible in signing contracts we did not understand, we have learned our lesson. For those of us who played by the rules, we expect the same of others.

We do not give consent to purchase paper that has no value. We recognize that we are being blackmailed. We are strafed daily with accounts that the economy is in dire straits and that if we do not immediately ante up to pay off the bad debt of Wall Street banks, we will all go down.

Incidentally, the US treasury admits that the $700 billiion figure is “not based on any particular data point”, that they came up with it because they “wanted to choose a really big number”. This doesn’t impress me as a valid valuation technique.

Ironically, the cost of the Iraq war so far is about $700 billion by government estimates.
The expansion of SCHIP to ensure that 9 million American children receive basic health care, at a cost of $6 billion per year, was vetoed by Mr. Bush as being too expensive.

The Washington Post reported that 200 academic economists have signed a petition objecting to the plan. The original proposal tendered by Mr. Bush recommended giving $700 billion to Henry Paulson with no strings attached. It was all of 3 pages long, which meant that most lawmakers had time to read it. The Bush-Paulson bailout proposal includes the following language: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” Henry Paulson, the former chair of Goldman Sachs who pocketed millions abusing the system. This from Business Week , when he got the appointment as Treasury Secretary in 2006. “Think of Paulson as Mr. Risk. He’s one of the key architects of a more daring Wall Street, where securities firms are taking greater and greater chances in pursuit of profits.” With Paulson seeking virtually unfettered authority to administer the largest bailout in US history, doesn’t this pose an extraordinary conflict of interest?

There are clearly better and safer alternatives and there have been numerous thoughtful proposals, many advocating for a bottom up approach and adequate regulations.

I would like to see:
A reduction in military spending which is morally and fiscally bankrupting us.

A reversal of tax cuts to the top 1% which would yield an estimated 1 trillion dollars in revenue during the next decade.

A progressive tax system which would help to redistribute wealth and reconstitute the disappearing middle class.

An investment in health, education, infrastructure, green economy, public works initiatives that would provide a stimulus to the economy.

A restoration and enforcement of regulation of the financial sector that would extend oversight to hedge funds, “swap” derivatives and other exotic financial instruments.

Any other ideas that would lead us down a sensible path to a sustainable and equitable economic recovery.

We have an advocate in Marcy Kaptur. Please watch:

Linda Murphy said...

Dennis was on the Rachel Maddow show last night and clearly outlined his opposition to the bill and how it should instead focus on helping from the bottom up.

I am totally confused by it all too. Finance is not my strong point and thankfully my brother-in-law can put things in layman's terms for me.