The proximate cause of the latest crisis is the collapse of the housing mortgage system and, as a consequence, many of the banks that leaped into this speculative cesspool with dollar signs in their eyes and little good sense. Greed – and this was serious greed – led to short term, bottom line fanaticism. Quick profits, high share prices, extraordinarily excessive executive compensation and no brains. They built a house of cards and, over the last few months, the chickens have come home to roost. More and more American homeowners could no longer pay their high interest mortgages. The cards at the bottom were pulled out. Prices fell. Trying to protect their declining assets, the banks foreclosed, the housing market collapsed, and the banks were left with huge losses, a credit crunch, and a liquidity crisis.
Last week, President Bush, the current Pope of the Church of Free Market Capitalism, decided that bankrupt financial institutions and their billionaire owners needed to have their assets protected by working people — the American taxpayer. So, along came the so-called bipartisan bailout plan that would have the government spend up to $700 billion buying bad debt and defaulting loans from banks that should never have loaned out the money in the first place.
In a stunning defeat for the leadership class of both American political parties, the US House of Representatives rejected the massive taxpayer subsidy to capitalist excess and irresponsibility. The conservative Republicans who opposed the bailout did so on the grounds that this was a step on the road to socialism. These people are the ultra-fundamentalists in the Church of Free Market Capitalism. Actually, it’s just another step in the road to state-subsidized capitalism. This is a system in which the state guarantees profits to the rich that are paid for by working people.
The Democrats who voted against the bill did so because they were feeling heat from their constituents who were complaining about having to save profligate capitalists. The opposition has been mainly posturing. I predict that new legislation will be written with purely cosmetic changes and that both the recalcitrant Republicans and Democrats will get on board in support.
I am reminded that I write this week’s column on the last day of September, 2008. In October 1929 the stock market in New York collapsed, ushering in the Great Depression. Hang on to your hats, boys and girls, we might be in for one helluva ride.