News Release

The Financial Crisis: Now What?


Kotz is professor of economics at the University of Massachusetts at Amherst. He said today: “The $700 billion Paulson bailout bill passed Congress, but as its critics warned, it has not stemmed — or even slowed — the financial crisis. It is great for the bankers, but it does nothing to solve the underlying set of problems behind the financial crisis. Huge and growing income inequality forced millions of families to take out inadvisable loans to keep afloat. Deregulation allowed financial institutions and their executives to get rich by creating new securities based on loans to low-income families that magically appeared safe to hold. It worked as long as the housing bubble kept inflating. Once it burst, the inevitable result was both a financial crisis, due to all those bad securities, and a severe recession from the end of families’ ability to keep paying their bills by borrowing.

“Immediate government intervention is needed, but it should address the real problems: 1) stop the foreclosures by rewriting the unfair mortgage terms for millions of struggling families, so that they can either afford the payments or remain in their home as renters; 2) take over problem banks and restructure them as needed, so that the taxpayers will gain when the economy and financial system recover. For the longer run, major steps should be taken to reduce income inequality and regulate the entire financial system to prevent any more rounds of dangerous speculative investments.”

Henwood is author of the book Wall Street and editor of Left Business Observer. He said today: “Paulson has assembled around himself a gang of old Goldman Sachs cronies to run the bailout. We have to be careful that all the Goldman alums — who are very clever people — don’t direct several scores of billions into the coffers of their former employer. And the solution to that is not to put another Goldman alum, like supposed wise man Robert Rubin, in charge instead.”

Reacting to last night’s debate, Henwood said: “It was encouraging to hear Obama talk about shaping the $700 billion bailout plan in a more constructive direction. The broad wording of the law gives the Treasury Secretary enormous flexibility to do pretty much whatever he (and maybe someday she) wants. And Obama did say some good things about using that discretion to help troubled homeowners avoid foreclosure, and make sure that Wall Street titans don’t use public funds to refill their troughs. But given the generosity of many big Wall Streeters in funding his campaign, I’ll believe it if and when I see it.

“McCain was on autopilot, reciting tired old right-wing talking points that might have sounded fresh, even if dumb and cruel, 25 or 30 years ago. Now they just sound like they emerged from a time capsule. The only exception was his proposal to spend $300 billion to buy up distressed mortgages — not a bad idea, but something that he seemed to come up with on the spot. Even Mitt Romney was surprised to learn about it. It would have been nice if he’d promoted that during the suspension of his campaign, when he was supposed to be shaping the bailout. Now it just looks like rank opportunism, and at odds with everything else he stands for.

“There is a germ of truth to the Republican argument that Democrats encouraged Fannie and Freddie to support reckless lending — it was a market-based solution to the problem of inadequate housing that was a bad substitute for public housing and other forms of support to the poor. But you’re not likely to hear a New Democrat say anything like that.

“I was massively disappointed, however, that Obama didn’t challenge the premise [put forward by moderator Tom Brokaw and McCain] that Social Security was in trouble and needed radical surgery of some unspecified sort. It’s not in trouble, and needs no major overhaul. Apparently ‘change’ doesn’t extend to challenging conventional nonsense like that.”

Currently visiting the U.S., Bond is author of the recent paper “The U.S. financial meltdown: What really happened? Roots of the economic crisis in overaccumulation, financialization and ‘global apartheid.'” Bond is a political economist and research professor at the University of KwaZulu-Natal School of Development Studies in South Africa, where he directs the Center for Civil Society. Bond’s recently authored and edited books include Looting Africa: The Economics of Exploitation, Talk Left, Walk Right and Against Global Apartheid: South Africa meets the World Bank, IMF and International Finance. Patrick was the drafter of 15 policy papers for the South African government from 1994-2001.
More Information

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.”

For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167