Capital Strike?

After the huge infusions of tax dollars into the private banking industry one would think there would be money available for banks to start lending and begin the process of economic recovery. With real estate prices plummeting there are thousands of safe and profitable projects in the pipeline that banks are choosing to choke off. I know people who invest in commercial real estate in the Sacramento area and they tell me banks are not even lending for risk-free projects. The whole thing is beginning to smell like a "capital strike," a process whereby financial interests conspire to make an economy "scream" when they don't like which way the political winds are blowing.

President Barack Obama is today confronted with the same problem Franklin D. Roosevelt faced in the 1930s: There are huge numbers of people in need of work and a huge amount of work that needs to be done, yet capital is failing in to bring the two together. When capital goes on strike the only institution that is capable of bringing together workers and work is the federal government. FDR stopped short of seizing the banking industry when it froze up, but he tamed it by creating dozens of powerful new agencies to regulate it. FDR trussed the AIGs of his era with tough new rules backed up by the full force of the U.S. Department of Justice and the Internal Revenue Service. Capital capitulated faster than you can say the word "nationalization." The Republicans griped and accused Roosevelt of being a "communist," but with the economy in shambles and their economic prescriptions proven failures they had no choice but to go along.

President John F. Kennedy faced a similar situation, though in a period of prosperity. He had to tame the Steel Barons after they refused to stop using their monopoly power to arbitrarily raise prices and attack the unions, which hurt other industries (as well as Kennedy's base among organized labor). He unleashed his younger brother, Attorney General Robert Kennedy, who began twisting the steel executives' arms, threatening them with legal action, and even using the FBI to harass them. The Kennedy administration reminded Big Steel that the interests of the country superseded those of private capital no matter how large it had become and no matter how accustomed it had grown to buying off the political system. Republican newspapers compared Kennedy to Mussolini and called his actions "quasi-fascist." Republican Senator Barry Goldwater described Kennedy as trying to "socialize the business of the country." Soon there were even bumper stickers: "Help Kennedy Stamp Out Free Enterprise." Despite the loud Republican response the steel industry capitulated to federal power in short order.

President Obama, like Roosevelt and Kennedy before him, will never receive the blessing of the U.S. Chamber of Commerce or the National Manufacturing Association. These organizations have detected a lurking "Socialism" behind every sensible economic reform ever enacted, from the minimum wage and the forty-hour workweek, to ending child labor and Social Security.

The political discourse has changed profoundly over the last two years. But turn on a television or radio and you'll hear plenty of sound bites from the GOP's bottom-of-the-barrel personalities like John Boehner and Eric Cantor, decrying the "pork" in the stimulus bill and calling for more tax cuts for the rich and corporations as our only salvation. With all the talk of tax cuts and free market "solutions" to the economic calamity we face one would think the Republicans were still in power and the last two elections never happened.

Capital doesn't like Barack Obama and it probably never will. We get it.

Since Ronald Reagan's first term the Right has dominated our political discourse, especially on matters relating to economics. For twenty-six out of the past twenty-eight years the Republicans have controlled either the presidency or one of the chambers of Congress (or both). Today, the Republicans are out of power so they can no longer game the system from Washington. Without the House or the Senate or the presidency they must fall back on their national political networks of talk radio, Fox News, and the Drudge Report. That is the reason why Rush Limbaugh's power has swelled within GOP ranks lately and will continue to do so during the Obama years. Now is the time to challenge the Right's ideological hegemony over the political discourse with a counter message that supports progressive change. There is an opportunity to shift the debate but it will require some tough action from the Obama administration. The only way to bring about change is take actions that are sure to piss off the Republican Party, the Chamber of Commerce, the National Association of Manufacturers, the Club for Growth, the Heritage Foundation, the Cato Institute, Americans for Tax Reform, the American Enterprise Institute, and all the rest. The current fight over Labor Secretary Hilda Solis and the employee free choice legislation is a good indication of what's to follow.

At some point the vested plutocratic interests that have ruled us for decades will have to be tamed.

The giant "financial services" oligopolies that have shut down the nation's lending and borrowing system while receiving hundreds of billions of American tax dollars must be shown that they do not own this country. At some point, the sooner the better, President Obama will face the moment of truth. He is going to have to flex the power of the federal government over these giant corporations. The day will come when he will have no choice but to remind them via tough government action that the United States is not just another one of their wholly owned subsidiaries.

Comments

[jerrypl]

I have been saying this for a year---Bada Bing Bernanke, and Hank "the Paulie" Paulson are gangstas working for the Bush Crime Family as financial hitmen, doing the bidding for the economic vampire predators on Wall Street. It has been their goal to milk the Treasury dry over the last 30 years beginning with Reagan and ending with little boy Bush, who threw gasoline on the recession bonfire possibly forcing it into a depression. These two fraudsters need a grand jury investigation and told they could get life in prison for being economic traitors bringing on a recession of such magnitude unless they squeal.
Google--world's biggest Ponzi Scheme.

The way we take America back is to tell Obama and Congress that we will STOP all buying of stuff except for our daily needs and will NOT borrow a penny unless it is completely necessary, and then, only from a local bank. A consumer reform movement is needed.

http://eye-on-washington.blogspot.com

[Joseph A. Palermo - Huffpost Blogger]

The other parallel with the Great Depression is that we already tried the Republican free-market, no-regulations, beat up on labor unions, twist the government to serve capital instead of people, giving Wall Street freedom to gamble with other people's money -- if capitalism worked the way Stephen Moore and Larry Kudlow say it does, then there wouldn't have been a New Deal necessary, right? The only reason why the government -- yeah, the big, bad government, as opposed to the perfect, nice corporations -- got involved is because the whole damn house of cards came crashing down, my friends, and reform was need TO SAVE CAPITALISM FROM THE CAPITALISTS! Someone needs to tell the GOP that -- I for one wish we would have had a more radical New Deal with nationalization of the banks and a national health care system and guaranteed annual wage -- but hey, I'll take half a loaf, Social Security and child labor laws and a minimum wage and an eight hour day -- some of you Republicans commenting are wrong about your history.

[nikto]

ssmack ,

No, the problem is your phony, wacko, Anti-American,
Pro-Corporate philosophy.

Why do you love money so much more than America?

Why do you HATE this country so much?

Tell the truth--
Is Jesus making you do it?

[karela]

I never knew that the right screamed socialism over the child labor laws, minimum wage and the forty hour work week. For me that takes a whole lot more steam out of their dying screams now. Obama has said repeatedly over the past two years that power will not give in without a fight. A whole lot more of us need to make sure that every representative and senator is getting a full dose of emails, phone calls and letters from our side. Apparently the right has organized a contact your congressional leader drive that is so far insuring that our elected officials are receiving far more contact about going against the President's plan than contacts from people who support it. We'd better do something about that right now!

[SueInCA]

Everyone keeps saying we need to do something tohelp Pres Obama. If you really want that then go to http://my.barackobama.com/recovery and let your voice be heard. We are always receiving emails to organize in our neighborhoods that are a part of a national push. You can do something, take the ownership and host one of these gatherings. It is easier than you think. Put yourself on President Obama's email list and you will see there are things you can do. MoveOn.org is also backing Obama nationally. I am involved in both and I am letting my voice be heard.

[karela]

And very especially contact your representatives and senators because the other side is burying them in emails, letters and phone calls. That's where the bad guys are getting their courage and even the good guys are getting nervous. Contact!

[Joseph A. Palermo - Huffpost Blogger]

Right on! You are so correct -- the New Deal came up from below with millions of organized people and that's the only way Obama will succeed too!

[miltonista]

Excellent! A capital strike by the Taxpayers Union Local 69

We demand our rights not to have our money used for political purposes, payoffs, voter dependency or pet projects!

Taxpayers of the World Unite!

We shall bring down our oppressors!

[ssmack]

For starters, this isn't even close to the 1930's. The unemployment rate is 7%. Forecasts for next year have it peaking at around 8.5% The unemployment rate in the 30's topped out at around 25% Come on man - an Associate Professor of History should know that. This recession isn't even as bad as the 1982 recession. Let's stop with the dramatics.

What I don't expect from a History Prof is a knowledge of economics. There was a major shock to the system caused by the Freddie / Fannie fiasco, created, in part, by the LEFT. Simple economics - if you encourage banks give loans to people who can't pay for them under the guise of "compassion", and secure those bad loans by having Freddie and Fannie gobble them up, over time it creates an unsustainable financial situation - in other words the financial mess we are in right now. Of course the banks are going to be a little resistant to diving into lending right away; and are going to tighten up lending standards. Their longevity is at stake.

Government isn't the solution to the problem, it IS the problem. Anything government gets it's hand on, it screws up. Government is inherently inefficient and creates massive messes - Social Security, the ultimate Ponzi scheme that is imploding before our eyes; the U.S. Postal Service, virtually insolvent; the IRS. Many of these put in place by the god of the LEFT, FDR.

[miltonista]

They say "history is written by the winners"

Palermo is a 'winner' of the waning Progressive Era... therefore his writings on history should be viewed from that perspective.

Nothing wrong with that.

[sabredance]

Reasons you are wrong:

1) Reagan doctored unemployment metrics by ignoring 'discouraged' and part-time workers. Superior to the post-Reagan U3 (See BLS stats page), even the U6 is incomplete. The U6 unemployment rate is ~14%.

2) By far, independent mortgage lenders (like Countrywide) made most of the bad loans, which were then securitized and sold to banks and investment houses. The CRA encouraged banks and S&Ls to loan, NOT MORTGAGE LENDERS.

3) The downturn accelerates faster than 1982's, as measured by housing starts (40 yr low), industrial production, GDP (greatest drop in 27 yrs), and the most rapid job loss since WWII. Gobal numbers are bad (see IMF report) and the 2nd financial crisis abroad has yet to hit. To quote the Federal Reserve Bank of Saint Louis, "Main recession indicators tend to support the claim that this recession could be the most severe in the past 40 years." Unemployment will worsen, significantly.

4) In 1932 13 million people were out of a job; in December 2008, 11.1 million. Palermo's "There are huge numbers of people in need of work" is accurate.

5) John McCain's economic advisor (Zandi) agrees government spending is more effective than tax cuts. The most effective program is food stamps (1.73x)! Per Krugman, for every $1 government spends $3 of economic activity are generated.

6) If you really thought government can't do anything right, you'd have a howitzer on your front yard instead of a national military.
.

[ssmack]

sabredance,
Let's start in reverse order.

6. Yes, I agree that there are legitimate purposes of government - one of the them being national defense (not health care, retirement programs, bailouts, ...).

5. John McCain isn't a Conservative. His adviser's opinion is flawed from the get-go. Where does that money come from? - those that PAY taxes. Who gets food stamps? - those that DON'T pay taxes. This program is Socialist-based wealth redistribution. You may get a temporary bump, but it's not sustainable. Socialism DOESN'T work.

4. Typical. Making broad, sweeping, inflammatory statements ("huge"). "Don't waste a crisis" - Rahm Emanuel. Come on, keep things in context. The percentage shows the impact.

3. Key snippet, "could be". Indicators also show we "could be" at or near the bottom of the housing market's (needed) correction. (Home sales unexpectedly rose 6.3% in December) Once the market finds its bottom, we WILL recover, regardless of any government intervention. A greater deceleration means the market will find its bottom sooner. Government intervention, just like the 1930's, will only extend the downturn. Recent studies have concluded that FDR extended the Great Depression by 7 years by his interference. A quote, "The economy was poised for a beautiful recovery, but that recovery was stalled by (FDR's) misguided policies." The markets eventually found their bottom anyway, it just took 15 years to get there. I fear the same in this case.

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx

[sabredance]

And even more reasons you are wrong:

1) The Fed cannot lower rates any further; monetary policy will have no further impact on this downturn. Can't use that tool.

2) Banks are hoarding cash; they are not loaning EACH OTHER money (look at LIBOR). Hoarding has nothing to do with lending standards to consumers and everything to do with counter party risk. The banks are so loaded down with toxic off sheet CMOs/CDSs, THEY DON'T TRUST EACH OTHER to pay back a loan. In short, private capital isn't working to stimulate the economy and won't.

3) Already in debt, consumers know the economy and employment prospects are going down. The only thing keeping the middle class afloat was rising home values, which aren't done diving. Consumers are now savers.

4) Because of 2 above, businesses can't get loans either.

5) The corollary to all the points above: THE US GOV'T IS THE ONLY ECONOMIC ACTOR LEFT.

Reality just doesn't conform to right wing, free market fundamentalist, faux fiscal conservatism.

[From the Raft]

Lobbyist and corrupt politicians?? They have to be dealt a blow too.

[homesteader]

No matter what, the government as " one of their wholly owned subsidiaries" is such a wonderful phrase,

[priorato]

I do not see Obama as having the strength or conviction to hold the banks feet to the fire.

Second, I do not see any evidence of reining in Wall Street in Obama's choices for key Admin positions.

Further, I see an ineffectual, incompetent and hopelessly partisan Congress without the where-with-all to enact the type of regulations necessary to whip Wall Street into shape.

And that is the reality facing America. We have a 'stimulus' bill worth almost $1 TRILLION that will only marginally improve our economic situation. For normal middle class taxpayers like myself, there is nothing in the current legislation that will help me [and others similarly situated].

[Pharos]

If we move from recession to depression you and every other middle class tax payer will feel the difference. The statement that the bill will only marginally improve the situation is simply wrong.

[arthur2008]

"The day will come when he will have no choice but to remind them via tough government action that the United States is not just another one of their wholly owned subsidiaries."

Functionally, however, this nation and others HAVE become wholly owned subsidiaries of multi-national corporations. The next few years may provide the last chnce to change that situation--and that change (as Barack Obama is fond of saying) can ONLY come from the bottom up. Unless citizens recognize and aggressively oppose this economic terrorism, little will change under any administration.

[Rogan]

Very well said. So well said, this little essay will bear re-reading, many years from now... no matter what happens.

[Chavez08]

The corporate Oligarchy has declared war on the U.S. and have made the first strike. At what point do we engage?

Since they are holding the nation hostage and have stolen trillions through their Republican and Blue Dog henchmen, why do we even let them continue to operate and why aren't their henchmen going to trial immediately?

At what point do we Americans take over and get justice on our own?

[Joseph A. Palermo - Huffpost Blogger]

Yep, and Christopher Cox at the SEC was really kind of a bad joke on all of us -- a puppet of the financial services industry serving as "top cop" on the beat! Sheez. It's like putting an arsonist in charge of the fire department (to use a worn out cliche).

[sabredance]

That voluntary self-regulation worked real well...

[Pharos]

It would have, if only Clinton had not (fill in the blank from the talking points memo).

[torque dwf]

Large corroporations are inneficient and Evil to boot, break them all up! nothing should be too big to fail. NO MORE NATIONAL BANKS split them all up into regional, split GM back into its brands as independent co's. Break up Exxon Mobil fire up the anti trust laws and take the pirates to task.

And dont get me started on the media.. they REALLY need to be broken up.

[pfrogger]

well said
but importantly as you said "nothing should be too big to fail"
when that does happen, the country is put into the precarious position of bailing them out and encouraging bad business practices and greed or letting them fail and the dire economic consequences
the only lesson that corporations and wall street has learned is if they are too big to fail, then maintain their size and get bigger, and the American public will HAVE to bail them out
This is NOT capitalism
It IS corporate socialism

[JPHR]

Has nothing to do with socialism only with corporatism...