News Release

Bailout: “No Lasting Positive Effect”

[NOTE: Correction* appended below.]

The group Jobs with Justice is organizing protests around the country today. Thindwa is executive director of Chicago Jobs with Justice; Tobin is the group’s Midwest regional organizer. The protest in Chicago begins at noon Chicago time in front of the Federal Reserve Bank of Chicago.

Professor and chair of the government department at Suffolk University in Boston, Berg is author of Unequal Struggle: Class, Gender, Race and Power in the U.S. Congress. He said today: “The bailout seems to be very deficient but looks as though it might get through because it’s take-it-or-leave-it. Plans to save people’s homes don’t seem to be getting traction in Congress. The government is beholden to the big banks. Our system is pretty undemocratic and on finances it’s particularly undemocratic.”
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Hahnel is professor emeritus of economics at American University and currently visiting at Portland State University. Hahnel’s most recent books are Panic Rules!: Everything You Need to Know About the Global Economy, The ABCs of Political Economy: A Modern Approach, and Economic Justice and Democracy: From Competition to Cooperation.

He said today: “An unregulated financial industry is an accident waiting to happen. Eighty years ago that lesson was learned and New Deal legislation ushered in an unprecedented era of financial stability. But over the past 30 years the U.S. financial industry, Republican free market ideologues, and ‘New Democrats’ have conspired to eliminate necessary safeguards. The result is a financial system now dominated by three megabanks where those engaged in unregulated, risky investment banking once again have full access to the savings of ordinary people in commercial banks that are experiencing a category four financial meltdown.

“A week ago Secretary of the Treasury Paulson came to Congress with a terrible three-page proposal designed to bail out Wall Street but not Main Street with no oversight or judicial review. A week of negotiations with congressional leadership added 99 pages of window-dressing to the Paulson plan, devoid of any enforceable protections for taxpayers or homeowners, that was voted down by the House of Representatives, leaving us with no effective government response to a financial crisis that worsens by the hour.”

Canova is professor of international economic law at the Chapman University School of Law in Orange, California. His articles related to the current crisis include the piece “The Legacy of the Clinton Bubble.”

He said today: “I am unconvinced that this $700 billion bailout for Wall Street will have any lasting positive effect. If the goal is to help the credit markets, the Federal Reserve already has the authority to purchase commercial paper and support the money markets. The Bush administration is once again using fear to scare people into supporting a dangerous course. There are almost 10,000 foreclosures a day* now, and between one and two million adjustable rate mortgages are due to adjust upward in the next year. Without help for the bottom of the pyramid, Wall Street will be back next year asking for another trillion dollars. This was Japan’s quagmire in the 1990s. The decline in housing prices must be stopped in its tracks and the sooner the better.

“Obama is saying many of the right things — that we should be helping Main Street as well as Wall Street, and that we need to re-regulate Wall Street. But like many in Congress, he’s also saying that these things can wait until next year, that such measures should not be in the bailout package. However, now is the time when Wall Street is desperate for taxpayer help for Congress to demand real help for Main Street.”

Canova addressed what’s missing from this rescue package: “First, there should be a moratorium on foreclosures and the Bankruptcy Code should be amended to allow people to modify their mortgage loans and stay in their homes. Congress should also extend the ban on short-selling in financial stocks. This could all be accomplished immediately. Any exceptions to a moratorium on foreclosures or to a ban on short-selling can wait some weeks or even months. Likewise, Congress should pass at least $50 billion in revenue sharing for state and local governments which have been hit hard by the decline in tax revenues stemming from falling property values.”

Canova highlights the need to scrutinize the Federal Reserve: “It was the Fed that helped gut the Glass-Steagall Act that had kept banks separate from securities speculation, and it was the Fed that lobbied against margin requirements and reserve requirements, and against the regulation of derivatives and hedge funds. All of this was the inevitable result of making the Federal Reserve ‘autonomous,’ a euphemism for the capture of the Fed by the same financial interests it should have been regulating. It’s like the fox running the henhouse.

“The Fed clearly violates both the Constitution’s Appointments Clause and its private non-delegation doctrine. But the federal courts have dismissed these challenges on very narrow procedural grounds, namely that plaintiffs lack standing because the courts say they cannot show they were directly injured by the Fed. It’s ludicrous, and Congress has the power to change the Fed’s structure and make it more accountable to a wider range of interests and perspectives.”
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For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167


Emailed on Oct.8:

* Correction: An Oct. 1 IPA news release quoted Timothy Canova stating “There are almost 10,000 foreclosures a day now.” It should have read “almost 10,000 foreclosures a week.”