The US House of Representatives today voted down the White House-sponsored $700 billion rescue plan for the US financial industry. The stock market responded with fear and panic and saw its biggest one day points drop ever, down 778 at the end of trading [more].
And yet, life goes on….
While it was the biggest one day drop in total points on the stock market, it was by no means the biggest decline. At its current level, that points drop is less than 7%, far lower than the decline of more than 20% on “black monday” in October 1987 [more] or the declines seen at the beginning of the Great Depression. Even so, lots and lots of rich people are less rich this afternoon than they were this morning.
And yet, life goes on…
When WaMu (Washington Mutual) was taken over by the FDIC last week, and then immediately sold on to J.P. Morgan, it was described as the biggest bank failure ever – bigger even than the failures of the Great Depression.
And yet, life goes on…
It goes on for all the people with accounts at WaMu, who will see virtually no change in anything. A few branches may close as J.P. Morgan digests this low-hanging fruit they have gobbled up, but the money is still there, and ATMs will dispense it just as before, the flow of Starbucks “Caffè Vanilla Frappuccino® Blended Coffee” will be uninterrupted up there in Seattle… except for shareholders in WaMu, who saw those shares plummet in value. As did shareholders in another major financial institution, Wachovia, which had engaged in even more of the risky business practices that contributed to WaMu’s failure, and whose shares plunged more than 81% in value in the wake of the WaMu sale, until it was taken over by Citigroup. [more]
And yet, life goes on…
Secretary of the Treasury Henry Paulson warned, “A failure of Wachovia would have posed a systemic risk.” But one has to ask, which system?
The system of massive salaries for corporate executives – which has been heavily criticised during this financial crisis? The system of “subprime” mortgages – that is mortgages with a higher level of risk to the moneylenders- often on subprime houses in subprime suburbs? The system of neoliberal policies that has led to a massive increase in income and wealth disparities in the developed, Western nations – particularly the USA – in the last 25 years? Or the system that has given the US the worst, lowest ranked health care system among the major rich countries for quality, access and efficiency [more]? The system that requires that 5% of working Americans are unemployed at any given time, to keep profits up and wages down?
Maybe, just maybe, some of the systems at risk are part of the problem, are the problem (however you want to define the problem, and my definition might be different than yours), and we should welcome their collapse, rather than fear it and engage in under-debated and high-priced bailouts. Maybe it is just another example of the “chickens coming home to roost” [see here and here].
In particular, this can viewed as one among many of the chickens of neoliberalism coming home to roost, after laying an egg. Deregulation of the financial sector was a key component of neoliberalism as it emerged in the Reagan and Thatcher years, as a way of allowing the so-called “free market” to operate freely (in other words, without restraint or compassion or any engagement with issues like the common good or sustainability, with short term profits as the only value). So what does it say that the inheritors of neoliberalism, like Henry Paulson, now want to step in and buy the free market out the mess it has gotten itself into?
Well, it’s a strategy Bush and his cronies understand well. As children, they were never required to face the consequences of their actions – their parents’ money and influence could always get them out of whatever trouble they got into [like this] (not to mention get them into the White House). And just as was done for George W. Bush, and by him for his children, so too the Bush administration has made a practice of helping out its corporate friends – and Bush’s personal friends – whenever they have run into trouble – most often, when their money has run into trouble.
The argument of course is that the consequences will not just be felt on Wall Street, but also on “Main Street” – by which we are meant to understand “us,” “average Americans.” I for one would like to have that explained in a lot more detail. When WaMu “failed” – Failed at what exactly? Failed to keep up its stock price? – it seemed to be only shareholders that suffered – though no doubt some of these were investment funds managing retirement plans and so on. There may indeed be profound implications, and dangers, for average Americans, and average people in other countries, but what we here about is the threat to the financial sector, to stock prices, etc.
I think many people would like to know more about what is going on at the intersection of Wall Street and Main Street – whould like to know, in fact, if there is such an intersection, a place where the needs of globalized financial businesses and other coporations intersect with the needs of the majority of the people. And they might like an explanation for why business problems on Wall Street require bailouts like this, when if your business on “Main Street” runs into trouble, the free market operates freely and lets you go under. But I don’t think that this concern to better explore the implications for “Main Street” is behind the failure of the bailout plan in Congress. That was about a different intersection, the intersection of Machiavellian and ideological interests, as many Congressmen saw voting for this unpopular measure as a major vote-loser and voted for their reelection, while extremist Republicans balked at what was described in the right-wing blogosphere as “socialism” and the “thin edge of the socialist wedge.”
Stocks around the world have gone into free fall with the failure of this measure. And yet, life goes on… Perhaps we placed too much stock in the stock market.