The Fiscal Meltdown Reveals the Democratic Deficit

I participated last Monday night in the BBC "Economist Debates" on the economic meltdown broadcast from the heart of the City, London's financial district. Nearly all of the CEOs, financial consultants and bankers on our over sized debate panel echoed the media coverage, treating the crisis as a technical problem, a puzzle economists had to solve. The market paradigm within which the crisis unfolded is taken for granted and solutions are sought within the paradigm.

But the problem is the paradigm of four decades of a Reagan/Thatcher privatization ideology that has insisted government can do no right and markets can do no wrong. We now have had forty years of old Republicans and New Democrats, Bill Clinton included, old Tories and new Labor, Tony Blair included, all conspiring to deregulate media, deregulate banks, deregulate the financial industry and get government out of the way of the market's invisible hand. In their foolish assault on 'big government' and 'welfare bureaucracy' and in their political campaigns against Washington, these representatives of the democratic process have in fact undermined democracy and made war on the very spirit of the commonweal.

Government is us: the political arrangements we forge in order to be able to do together the many public things we cannot do one by one; the deliberative processes we establish so that public policy will reflect public goods rather than private preferences. The Washington against which we rail is also us, the political home of those we choose to represent us, like Senator McCain, and yes, Senator Obama.

But a seductive market ideology has talked us out of our citizenship, talked us into believing that all that is demanded from us as citizens can be achieved by us as consumers. Hence, voting has become a form of shopping, elections a version of American Idol.

Yes, there is to be sure a technical issue in the crisis: it's called leveraging and it is a the very foundation of the banking system. Leveraging is what allows banks to put your deposits to work by reinvesting most of them and keeping only a small percent on hand for depositors wanting their money back. But for a system of leveraging to work there must be transparency, full disclosure and a reasonable limit on just how much leveraging is permitted. Normally, governments establish and enforce transparency and limits.

But not in the age of free market dogmatism, not under conditions of exuberant deregulation. At the heart of the market ideology is a demand that democratic oversight be withdrawn. The buying and selling of paper is to be left to the whims of private actors who often are as economically ignorant as those ordinary mortgage holders who get stiffed when the original variable rate mortgages get sold and then screwed again when the banks that sell this dubious paper go under and are bailed out by mortgage holders as taxpayers.

The media reports banks are being bailed out by government, but that is just another word for the taxpayers. We are consumers when it comes to buying bad credit, but citizens when it comes to paying for the costs. This is the new market form of socialism, where risk are socialized (we pay for them) but profits remain private (market pirates keep them).

What does this all mean for the crisis? It means that the way out lies not just through technical fixes or pumping public money into failing banks and insurance companies. It means reasserting our rights as citizens to regulate the market. It means insisting we will not support the new 'socialism of risk' unless we also share in the profits (that's another way to reduce taxes!)

In short, it means consumers must become citizens again, reclaiming their democratic right to fiscal transparency, political oversight and market regulation. It means the public sector must come back not just in the default mode when the private sector fails, but actively and constructively so that the public weal takes precedence over private interests in good times as well.

Such an arrangement has a name: democracy. The crisis will have been worth it if we finally learn this lesson.

Comments

[willrob456r]

Freedom requires capitalism.
Capitalism requires consequences.

It is of vital importance right now to understand this.

Freedom requires capitalism.
To have freedom is to be capitalistic. Freedom does not exist without capitalism.

Capitalism requires consequences. Without consequences, capitalism has no limitations. Capitalism must have limitations.

Our future will be unrecognizable if our government does not recognize this.

Our government can save our financial system, in fact, it is going to do so. But if our government saves our financial system without consequences, it is not saving capitalism, it is only saving our financial system. It is not saving capitalism.

Capitalism must survive this crisis, as well as our financial system.
We are right now in the worst crisis since the civil war. Then as now, the very foundation of our understanding of who we are as a nation, how our nation is a nation among nations, is at a crossroad.

Do we, as a nation, agree together that capitalism must have limitations, and that those limitations must include consequences?

Our government must not commit to action incompletely. More than our financial system is at risk.

[leftLibertarian]

No Tax Payer Bail Outs For Wall Street - PERIOD!

[Oldtimer]

I think citizens should do much much more than you suggest. They should demand that Congress reject the bailout and make Wall Street settle its debt in bankruptcy court. Former Labor Secretary
Robert Reich has the best solution to this problem. Wall Street must settle its debt in a chapter 11
model that teaches Wall Street a lesson. Why should tax payers be on the hook for this? Why not
disburse 700 billion dollars to the Middle Class and Poor? Or how about using 700 billion dollars
to finally initiate universal healthcare in this country? Noooooo! We have to bail out Wall Street?
What a sham American capitalism has become. Where's all the right wing talking heads now?
I don't here them screaming socialism for the rich. No Wonder Treasury Sec Snow left town fast.
Wouldn't it be great if RON PAUL could participate in the debates. The Republicans
would be divided because many conservatives are upset at this massive giveaway. Talk about
big government. Every man, woman and child in America is about to pay several thousand dollars
a piece to pay for this massive shell game. it's disgusting.

[KillTheMessenger]

Democracy only guarantees that the people can elect their leaders. Nowhere does it guarantee that the people know how to elect good, honest leaders. In the end you get the leadership that you elect. And if you happen to elect thieves, well, why in the world are you complaining about being robbed?

[joebiz]

Why is it that when the economy was roaring and both Democrats and Repubs were making money everything was great. Democrats liked the idea of the ownership society and the idea that people, the type that could not or would not be able to purchase real property, were now able to buy.

The governemt benefited from the tax increase and the coffers that were plentyful. Both parties knew of the imminent meltdown and Countrywide about 6 months ago was just an omminous prediction.

Failure is an orphan, while success has multiple fathers.

[lunchbag]

Here, let me help you out in London. There is only one word to consider for this matter. The word: 'comission'.

The only reason Bears/Lehman/Merrill abandoned common sense and got involved in high risk sercuities, selling junk mortgages to aging boomers as a secure retirement vehicle. Was the gain in each sale which turned into comissions (big profits) for junior traders, sales mangers and senior managers.

This business is driven by commission which leads to high payouts, literally going from rags to riches, and spending 'someone elses' money'....

[maddronn]

McCain blaming Obama for this economic crisis is beyond perverse. It was an act of a desperate, delusional man. McCain has spent the better part of the last 30 years in the Senate undermining, denuding and eviscerating any and all federal regulations that crossed his path. I"m sorry, he can"t go about touting, for over a year, his record of deregulation and then turn on a dime when it becomes clear that his efforts and the efforts of his party have brought about an economic melt down that has the potential of rivaling the great depression. McCain is a free market, supply side, trickle down, get government out of business, let business do what business does, kind of guy. He can"t change his spots now and the media needs to rip him a new one every time he tries.

[notajesusgigolo]

Unbiased View -

Medicare and Social Security were originally intended to supplement basic healthcare and income shortfalls for working class citizens to retire with dignity, and it is still doing that. However, there are many recipients, even among the wealthy class, who don't "need" these government benefits, yet who unabashedly have their fingers in the till. And, yes, there are lazy de'er-do-wells who are mooching off the system, too. Their funding will not run out for several years and can be extended through Congressional belt-tightening and oversight.
Unfortunately, the Greatest Generation who spawned the Baby Boomers, nor anybody else until about 20 years ago, foresaw the looming financial struggle we are now facing in regard to those two programs. Not to mention an ill-advised, unilateral military invasion that has raided the piggy bank, or corporate malfeasance allowed time and again to run amok.
There is no comparison between (1) taxpayers stepping up to the plate to help less fortunate compatriots by paying taxes to fund Medicare and S.S., and (2) being duped into covering the blatent, complicit mismanagement of this administration and the banking/financial community.
Any government worth having is one that cares more for its electorate than it obsesses with power and greed.

[Star2000dancer]

WE MUST START GETTING A RECEIPT WHEN WE VOTE FOR OUR OWN PERSONAL RECORDS. WHY WOULD WE NOT GET A RECEIPT FOR THE MOST IMPORTANT PRODUCT WE WILL EVER BUY IN OUR LIVES??

I guess because then we'd get the real results of elections.

[DKLA]

The dinosaur GOP is unable to win fair elections, SEE FL2000 & Bush v. Gore.
In todays America the criminal class has control of our politicians through illegal wiretapping & intimidation, threats & accusations.
OUR ONLY CHOICE IS TO BRING THE GOP & RNC UP ON RICO CHARGES and prosecute them for the criminal element they have become.
THEN WE GO AFTER THE WAR-PROFITEERS, sending the top 2 to the hague for all the world to see.
AMERICA MUST RECLAIM IT'S GLORY BY PROSECUTING THE ENTIRE GROUP,
from "W" that puffy Rove-thing, the (newer)DickChny on down.......
VOTE OBAMA, SAVE AMERICA, possibly the world.
LOCK-UP THE OIL & WAR-PROFITEERS!!

[eddieknoll]

philopatris:

"I don't really agree, FOR NOW, because $250 k is plenty for Mom and Pop, FOR NOW, and the taxes aren't going to go up that much. But next year $250k won't buy what $200k does now."

Okay I Over Simplified... My Bad. I used to Date a Girl who's Brother ran a 2M/YR Plumbing business. After he paid everyone and his suppliers he probably made 250K/take home. Now he can pay 50K more a year under BO or fire one Plumber or two assistants...

What would you do???

[jbatch]

First, I'd get my facts straight -- Obama's tax plan does not impose any new burdens on small businesses, so the choice you offer is a false one.

Now, if he makes more than $250 K profit a year AFTER all his business expenses (including paying that plumber) then he would pay a small increase in personal taxes (not his business taxes).

If he fires that plumber in a greedy attempt to keep his personal income up, he will presumably lose more than he gains, since he was obviously making some profit off the plumber's labor, and thus fewer plumbers means fewer profits.

So, as I said, you've got your facts all screwed up. What your former girlfriend's brother is griping about is that he is being asked to contribute a slightly larger share of his earnings to support the system which helped garner his wealth.

That's Dr. Barber's point -- the basic fabric of our economy -- the roads and bridges the plumber rides upon; the banking and financing he uses to support his business, the education and training that enables him to run his business and hire plumbers who can learn to be plumbers, the telecommunication systems that help him record his transactions, the energy he uses to run his trucks and tools -- all of that is produced from a common investment by us in our collective wealth -- it is the infrastructure, R&D, and regulatory stuff we do together to make the system work for all

[eddieknoll]

I Value Your Opinion... Honestly. The US has the 2nd Highest Corporate Tax in the World, Second to Japan. DOS Hint (You might not be old enough to know the reference). Corporations do not pay taxes; they pass that cost along to you and me. The problem isn't money flowing into DC, it's how much they steal from us (and spend studying the mating habits of animals etc... Maybe they should study the mating habits of John Edwards). I don't make 250K, actually less than 100K but the repeal of the Bush Cuts will Increase my Taxes...

We can't afford BO...

[antirepublocrat]

And those who make over $250K/year benefit from the infrastructure investments, police and fire protection in far greater proportion than do the master plumber's journeymen and assistants. After all, whose property is it that the policemen and firemen protect? Who benefits more from police and fire protection, the journeyman with his $150,000 home or the master with his $1,000,000 home?

Unfortunately, the present tax system is not progressive but regressive. The FICA taxes of the lower classes are lent to the Treasury to pay current expenditures. Those expenditures, largely military, benefit elite corporate stockholders and executives far more than the working poor, who pay the lion's share of FICA revenues. Of course, now that it will soon be time to start paying back the loans to the SS Administration, we hear all this talk of how it's too much of a burden on the "taxpayer". The elites borrowed the money from the lower classes. Now, they don't want to pay it back.

[DKLA]

"i used to date a girl ......." You make under $250k/year & ONCE YOU BARELY knew a "rich" person, And you are against Obama? for lowering your taxes? HELLO!?
You're worried about an ex-girl friends rich brother? THIS COUNTRY HAS 2 TAX SYSTEMS.....
THE RICH PAY zero% to 15% whle us worker-bees start at 7.65% up to 45%.
WHY DO YOU CARE SO MUCH FOR THE RICH? are you rich or just stoopid?

[ItHasToGetBetter]

Well said. Honest people and innocent people need to be protected from these types of financial dealings. This notion of the government as a bad guy for wanting to watch and penalize the dishonest is ridiculous. I'm sick to death of paying for the greed of others. They're more than happy to take the profits and socialize the debt. And we don't have the right of refusal?
Our democracy is in danger. We've become so divided down the wealth/influence line that we are living in our own form of feudalism. As long as people are stupid enough to buy the line that we've been fed that no taxes and less regulation is better, this will never end. If all people were honest, regulation would not be necessary. We all know that you can't count on everyone to do the right thing. That's why we have laws and penalties. If these people were violent instead of white collar criminals, they'd be called the sociopaths that they are. There's a complete lack of conscience. And thanks to a system that refuses to do anything about the problem, there are no consequences. That's money well spent. The best democracy money can buy.

[notajesusgigolo]

Since learning this evening that the financial bailout will be "owned" by every American man, woman, and child to the tune of about $7,000 each, I want to know exactly where on the 2008-2012 tax forms that my family will be claiming our new long-term debt to be amortized as our rightful deduction. Methinks the IRS needs to add a new line item just for this - in big, bold type - so we lowly workers don't conveniently forget. Even better, it should be only for families and/or individuals whose gross income is under $250,000.

[UnbiasView]

$7,000 is nothing . . . did you know the USA has $53 trillion in unfunded liabilities for Medicare and Social security over the next 50 years? That translates the unfunded debt of "an IOU of around $455,000 per American household"

[eddieknoll]

Here's why 250K isn't Rich enough to tax more:

"An S Corporation, for United States federal income tax purposes, is a corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code.

In general, S Corporations do not pay any income taxes. Instead, the corporation's income or losses are divided among and passed through to its shareholders. The shareholders must then report the income or loss on their own individual income tax returns."

To summarize Mom a Pop Business making +250K pay on their Personal Returns in most cases. So Flagging the Business as Rich and Grabbing their Wallets just cuts jobs from those folks working for them. The Dems Message just plays to Class Envy, and many of the Really Wealthy and Charles Rangle find a way to get out of paying. That being said the top 5%; People like many on this site pay the Lions Share of the Taxes... The Dems want to give people who don't pay taxes "Refunds" to Buy Votes.

Period...

[philopatris]

I don't really agree, FOR NOW, because $250 k is plenty for Mom and Pop, FOR NOW, and the taxes aren't going to go up that much. But next year $250k won't buy what $200k does now.
And if you think either McCain or Obama is going to stop that from happening, as Johnny Carson once said, you think that Nancy Reagan's favorite meal is white wine and Chicken McNuggets.

[Star2000dancer]

That's $250,000.00 clear. We want to knock out the loopholes the very wealthy get. It's only fair. Plus, do'nt forget the 10% I'm sure you give to charity like the bible says, that;s tax deductable.

[DKLA]

EDDIE, again your fax are wrong. WHY ARE YOU SO CONCERNED FOR THE RICH?
SIMPLY LOOK-UP LONGTERM CAPITAL GAIN RATES(only the rich have these)TO OUR REGULAR INCOME TAX RATES/income brackets & YOU'LL SEE.
US WORKERS ARE GETTING HOSED WHILE THE BUSH/CHnEY-CLASS GET RICHER & RICHER, and now 2 of us have to work to provide what 1 worker did since this reign of republican rulers. THEY ARE THE CORPORATE MASTERS & YOU ARE A DOG!

[Louisfreeze]

It's amazing how there are still "government" haters out here. It doesn't matter if it is Republicans, Democrats, or Independants. If you don't like American government created by our founders and put into enactment through a well known document, then perhaps we should have another name for your party. Capitalistic safety net is what is going on right now. Why? Some people believe that if I am layed off because of your failure, that I should not have to be homesless for your mistake. Some people believe that we should let people suffer whatever consequences come to them. Perhaps we should let millions lose their 401k or more mortgages even though they had nothing to do with trading bad paper? That is the crux of the debate. Believe what you want, but it looks like when pain comes to wall streets house as well as your house everyone wants help to stay afloat. There is alot of tough talk until it's your kids future, your house on the line, your retirement, or your business.

[UnbiasView]

"It's amazing how there are still "government" haters out here"

Why would that change? Government spends more than they take in and have $53 trillion in unfunded liabilities for Medicare and SS . . .

[eddieknoll]

I'll keep pointing out that the Dems have Bloody Hands in this Mess. McCain wanted to Reign in Fannie in 2005, but Chris Dodd and other Corrupt Senators didn't want the Money Train to stop...

[CherylJosie]

McCain is an original actor from the S&L bailout, one of the Keating 5. He has no moral right to accuse anyone of anything and no claim to fame for protesting what by 2005 was already a nearly unsalvageable situation thanks to bipartisan deregulation the 'conservatives' talked us into.

[UnbiasView]

In 2003, the Bush Administration recommended what the NY Times called "the most significant regulatory overhaul in the housing finance industry since the savings and loan crisis a decade ago."

This change was to move governmental supervision of two of the primary agents guaranteeing subprime loans, Fannie Mae and Freddie Mac under a new agency created within the Department of the Treasury. However, it did not alter the implicit guarantee that Washington will bail the companies out if they run into financial difficulty; that perception enabled them to issue debt at significantly lower rates than their competitors.

The changes were generally opposed along Party lines and eventually failed to happen. Representative Barney Frank(D-MA) claimed of the thrifts "These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis, the more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." Representative Mel Watt (D-NC) added "I don't see much other than a shell game going on here, moving something from one agency to another and in the process weakening the bargaining power of poorer families and their ability to get affordable housing."

[swift goat pet for truth]

Who had control of Congress in 2003?
Which party had an even bigger majority in Congress in 2004?

You just admitted the party in control at that time was just ineffectual.
And I agree.

[philopatris]

SOMEBODY needs to say it is "rein in." reign in, reign in, reign in on these blogs.
Horses have reins and you pull them. That's reining in.
If McCain had Reigned In Fannie as its king it would have been broke
a long time ago. He would have gotten into one of his tempers and fired
everybody who could add and subtract.

[antirepublocrat]

Republicans keep screaming about Chris Dodd and Barney Frank, but who controlled both houses of Congress and the Presidency until 2007? Hint: It wasn't Dodd and Frank. If the Republicans had really wanted to pass genuine regulatory reform in 2005 they could have pushed it through on their votes alone. As I recall, they were more interested in agitating to privatize Social Security.

By Jan, 2007, it was too late. I read articles talking about the real estate bubble, the resetting of ARMs and predicting huge increases in foreclosures in the fall of 2006. So it was too late even before this Congress was elected.

Quit trying to shift the blame to Democrats when it was the basic "conservative" Republican ideology of total deregulation and privatization that was driving politics. What with the Republican noise machine and corporate controlled MSM droning on endlessly on the subject, with no real diversity of views after the Soviet collapse, is it any wonder a few yellow dog Democrats like Clinton played along to survive politically? But the DLC types do not represent the core beliefs of the Democratic Party. Deregulation and privatization are definitely the core beliefs of the GOP. It makes them easy marks for the greediest of corporate CEOs and fund managers.

[lepere]

In the 80's we were told never mind that it's your country it's YOUR MONEY! So withe institutionalization of selfishness, we got to where we now are.
The current business with Fanny May, Freddy Mac and now AIG we have , de facto. nationalized the financial and Insurance industry and will continue to do so for the forseeable future. As long as these criminal enterprises are now under government control, it would follow that they should also be under Federal Payscale restrictions. I think that the President is knpcking down some $250K or so. It will be a comedown for some of these $14Mil. a year boys, but if they don't like it, they should be dismissed with the shirts on their backs. No Golden Parachute on their ride home on the company Jet.
Anything short of that is just a bailout.

[JAYFRTTT]

Consumers must be intelligent and alert. They must know what they are buying and if the deal on what they are buying is a good one. It is not the Government's job to set prices or make deals.
That is what we do not need - more government involvement.
Just because Joe buys a house does not mean that Bob can afford the same one, even though, they both make the same money each year. Joe is careful with his expenses and pays all his bills. Bob never has any money and is always late with his payments. Well, in this Country, a lot Bobs got their houses and now the Joes are being asked to cover for them(the Bobs). This is not Sherwood Forest and we do not need any Robin Hoods on these shores.

[Freedomscap]

Don't agree at all with your analysis of the financial crisis.

[swift goat pet for truth]

"Consumers must be intelligent and alert."

Well, there is a lost cause.

[antirepublocrat]

It's not the foreclosures or the housing bubble that caused the current crisis. We could have had just as many foreclosures and weathered that particular storm. The real problem is with the packaging and re-selling of those mortages, the so-called collateralized debt obligations (CDOs) and even further the fraudulent insurance policies (credit default swaps?) written on those CDOs and other instruments. Leveraging upon leveraging to the point where nobody knows how much any given contract is worth. That's not the fault of Joe or Bob, but of the banks and brokerages that piled up all that leverage. It is precisely what happened in 1929, except with debt investments rather than equities.