[R-G] Goldman Sachs Socialism

[Anthony Fenton]

Goldman Sachs Socialism

September 25, 2008 By William Greider
Source: The Nation

http://www.zmag.org/znet/viewArticle/18916

Wall Street put a gun to the head of the politicians and said, Give us  
the money--right now--or take the blame for whatever follows. The  
audacity of Treasury Secretary Henry Paulson's bailout proposal is  
reflected in what it refuses to say: no explanations of how the  
bailout will work, no demands on the bankers in exchange for the  
public's money. The Treasury's opaque, three-page summary of plan  
includes this chilling statement:



"Section 8. Review. 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." In other words, no lawsuits allowed by  
aggrieved investors or American taxpayers. No complaints later from  
ignorant pols who didn't know what they voted for. Take it or leave  
it, suckers.



Both political parties may submit to this extortion because they don't  
have a clue what else to do and bending over for Wall Street  
instruction, their usual posture, seems less risky than taking  
responsibility. Paulson and Bernanke evoked intimidating pressure for  
two reasons. The previous efforts to restore investor confidence had  
all failed as their slapdash interventions worsened the global panic.  
Besides, the Federal Reserve was running out of money. Nearly three-  
fifths of the Fed's $800 billion portfolio is now loaded down with  
junk--the mortgage securities and other rotten assets it took off Wall  
Street balance sheets. The imperious central bank is fast approaching  
its own historic disgrace--potentially as discredited as it was after  
the 1929 crash.



Despite its size, the gargantuan bailout is still designed for the  
narrow purpose of relieving the major banks and investment houses of  
their grief, then hoping this restores regular order to economic life.  
There are lots of reasons to think it may fail. The big boys are  
acting, as usual, in self-interested ways since the government allows  
them to do so. Washington's money might pull firms back from the  
brink--at least the leaders of the Wall Street Club--but that does not  
guarantee the banks will resume normal lending, much less capital  
investing. The financial guys may well hunker down, scavenge the  
wreckage for cheap profits and wait for the real economy to get well.  
Likewise, global investors--China, Japan and other major creditors-- 
have been burned and may step back from pumping more capital in the  
wobbly house of US finance.



Secrecy and opacity are crucial to achieve Wall Street's purposes. It  
could allow Paulson to overpay his old pals for near-worthless assets  
and slyly recapitalize the damaged banks while telling public and  
politicians the money is to save the system. To achieve this, Wall  
Street needs to keep control of the process whoever is elected  
president (the Wall Street Journal recommends John Thain, ex-chief of  
the New York Stock Exchange to succeed Paulson). Not everyone will be  
saved, of course, but high on the list of endangered nameplates is  
Goldman Sachs, Paulson's old firm. The high-flying investment house  
looks doomed by these events. The Fed quickly agreed to convert  
Goldman and Morgan Stanley into banks. Think of Paulson's solution as  
Goldman Sachs socialism.



The most hopeful comment I heard from an astute economist was by  
Nouriel Roubini of NYU, who has been darkly prescient during this  
crisis. The bailout should help, he told the Times. "The recession  
train has left the station, but it's going to be 18 months, instead of  
five years," he said. Hope he's right, but voters are unlikely to  
regard this as fair return on their $700 billion. The bandits will be  
back in business and partying, while the victims are still gasping for  
air.



If Paulson's gamble fails--just as possible--then maybe government  
will finally undertake forceful intervention rather than friendly  
solicitude for Wall Street. Washington should literally take control  
of the banking and finance sector and employ its emergency powers to  
oversee and direct these private, profit-making enterprises. If any  
bankers do not wish to play, cut them off from any public assistance  
(and wish them good luck). Then government can exercise temporary  
supervisory powers that force banking to cooperate with economic  
recovery by sustaining lending and investment to the real economy.  
Washington can put profit on hold.



Order full stop to the many financial gimmicks and accounting  
illusions that led to inflated lending and falsified asset valuations.  
Unwind the complicated time bombs known as credit derivatives and shut  
down this lucrative line of business. Meanwhile, instead of throwing  
millions of homeowners and debtors out of their homes and into  
bankruptcy, hold them harmless temporarily so people can work out  
reasonable terms for recovery. Finally, force-feed new life into the  
real economy with government spending on public projects and capital  
formation. How much spending? Rescuing America from irresponsible Wall  
Street is worth whatever it costs to save the bloodied bankers.



=====



[William Greider, a prominent political journalist and author, has  
been a reporter for more than 35 years for newspapers, magazines and  
television. Over the past two decades, he has persistently challenged  
mainstream thinking on economics.



For 17 years Greider was the National Affairs Editor at Rolling Stone  
magazine, where his investigation of the defense establishment began.  
He is a former assistant managing editor at the Washington Post, where  
he worked for fifteen years as a national correspondent, editor and  
columnist. While at the Post, he broke the story of how David  
Stockman, Ronald Reagan's budget director, grew disillusioned with  
supply-side economics and the budget deficits that policy caused,  
which still burden the American economy.



He is the author of the national bestsellers One World, Ready or Not,  
Secrets of the Temple and Who Will Tell The People. In the award- 
winning Secrets of the Temple, he offered a critique of the Federal  
Reserve system. Greider has also served as a correspondent for six  
Frontline documentaries on PBS, including "Return to Beirut," which  
won an Emmy in 1985.



Greider's next book (due in September) will be The Soul of Capitalism:  
Opening Paths to A Moral Economy. In it, he untangles the systemic  
mysteries of American capitalism, details its destructive collisions  
with society and demonstrates how people can achieve decisive  
influence to reform the system's structure and operating values.



Raised in Wyoming, Ohio, a suburb of Cincinnati, he graduated from  
Princeton University in 1958. He currently lives in Washington, DC.]