Socialism for Wall Street, Capitalism for Main Street

For twenty-eight years, since the beginning of Ronald Reagan's first term, we have been subjected to a steady stream of Republican propaganda claiming that if we just got government out of the way and "off our backs," deregulate the economy, and let the market work its magic, prosperity would "trickle down" to the average American citizen. In the mid-1980s, corporate lobbyists descended on Washington, threw huge amounts of campaign cash around, and told us that deregulating the Savings and Loan industry would be a great idea. John McCain and his good friend Charles Keating from Arizona were big advocates of this scheme that turned out to be a disaster that cost taxpayers $160 billion. Phil Gramm, when he was Senator from Texas (and John McCain's choice for president in 1996), worked up another "deregulation" bill that President Bill Clinton signed into law in 1999 that repealed the Glass-Steagall Act of 1933, thereby destroying a key firewall between commercial and investment banks.

We witness the same over-confident, smug market fundamentalists and laissez-faire devotees, businessmen and women who hate "government" when it provides aid to families with dependent children, or food stamps, or health coverage for poor people -- businessmen and women who denounce as creeping "Socialism" any attempt by the government to redistribute some of the nation's wealth to the working middle class or to the poor -- now come to Washington, hat in hand, begging the federal government to fix their self-created problems brought on by their own unbridled greed and recklessness and demanding massive infusions of tax-payer dollars in the form of bail out after bail out.

It's Socialism for the rich and laissez-faire capitalism for everybody else.

What Bear Stearns, Lehman Brothers, Merrill Lynch, and now American International Group Corporation have in common is that they all hired Washington lobbyists and lavished campaign donations on politicians to push through with no public support the radical deregulation of the financial sector. Then they proceeded to create entire new categories of "financial products," derivatives and the like, that amounted to nothing but a giant Ponzi scheme. And when it all collapsed due to their Wild West, shoot 'em up, freebooting, 19th Century-style rapacious business practices, they turn to the government for a hand out to keep the whole goddamned system from descending into another Great Depression.

For historians like myself, and for people like Kevin Phillips, William Greider, and other observers, this collapse of our financial sector was like watching a slow motion train wreck. The laissez-faire proponents for the past thirty years have perpetrated the biggest lie ever told to the American people. And George W. Bush, as with everything else, took this lie to its extreme. He gave the financial industry everything it wanted, and he appointed their lackeys and puppets to run the regulatory agencies that were set up in the wake of the Great Depression to avert exactly the kind of catastrophe that we're witnessing on Wall Street today.

George W. Bush spent the first months of his second term on a 60-city tour where he answered prefabricated questions in phony "town hall" meetings claiming that privatizing Social Security -- taking $1 trillion out of the trust fund and throwing it to his backers on Wall Street -- would be a great idea. And even though the Republicans ran the House of Representatives with Denny Hastert and Tom DeLay, and the Senate with Bill Frist, and the presidency, the American people did not fall for this legalized form of grand larceny. And it's a good thing they didn't. Had Bush been able to get his way and throw a third of the Social Security trust fund at these same damaged, greedy firms we would be witnessing with the current financial meltdown the demise of Social Security.

The libertarians like Ron Paul, Bob Barr and others tell us that the government should not bail out these Wall Street hucksters and gangsters and should let them go down and pay the price for their own mismanagement and bad investments. I agree philosophically with this point of view. But I don't think it's realistic unless one is willing to see the nation enter an economic collapse that would probably look a lot like what Japan and Argentina endured in the late 1990s only worse. The fact is these giant firms, with their billionaire owners and their army of pin-striped men driving Jaguars and flying in private jets to their summer homes to visit their mistresses, have a stranglehold on the nation. They are too big to fail because it would bring on another Great Depression.

Everybody knows that what is needed is exactly the opposite from what we've had for the past three decades. Instead of a government that is asleep at the switch and filled with cronies and hacks from the industries that are supposed to be subject to oversight, we need an activist state that rebuilds the firewalls between the commercial and investment banks; we need a "re-regulation" of the economy, especially key sectors that the entire nation depends on -- finance, energy, health care, food, etc. In short, what we need is a "New" New Deal in this country. We need an IRS and a Justice Department that can strike fear in the hearts of these captains of industry.

Ronald Reagan is often looked upon as the Republicans' Franklin Roosevelt. But Reagan sold the nation a bag of goods. We can finally see clearly the failed results of this three-decade experiment in laissez faire capitalism. It has nearly destroyed the middle class in this country, greatly widened the gap between the super rich and everybody else, destabilized vital sectors of our society, and made the United States a laughing stock abroad.

As a historian I always wondered what evidence of the free market utopia people like David Brooks (with his "ownership society") and the army of ideologues and market fundamentalists marching in lockstep out of the Cato Institute and the Heritage Foundation and the American Enterprise Institute and Gover Norquist's Americans for Tax Reform, and all the other shills and hucksters who sold this tripe to a naive public like a greasy used car salesman selling a lemon -- I always wondered where is their laissez-faire utopia? Are they referring to what America looked like in 1880? A time with nearly zero federal government regulations? With no child labor laws, no limits on the hours worked, no weekend or paid overtime, no minimum wages, no workers' safety regulations, no Securities and Exchange Commission, no Federal Deposit Insurance Corporation, no worker pensions or Social Security, no right to form independent labor unions, and no vote for women. Is this their laissez faire utopia that deregulation was supposed to produce?

Today, we have the worst of both worlds. Government bailouts for the rich -- naked capitalism for everybody else. This whole mess could have been avoided if the generation that followed the New Deal had the common sense and decency to understand that you cannot turn over capitalism to the capitalists. Greedy individuals will always figure out clever new ways to make their own piles of money at the expense of their fellow citizens and at the expense of their nation's wellbeing. Whether it's the Savings and Loan scandal of the 1980s or the Dot.Com bubble of the 1990s or the Enron collapse or the mortgage meltdown -- it's always the same old story. They pass on the wreckage to the taxpayer as they always do. It's time to put to rest once and for all the Big Lie that deregulation and privatization of government institutions will bring the nation anything other than calamity after calamity.

Comments

[housemix]

Great article, sound arguments, but an erroneous conclusion.

Deregulation itself is not the problem. It's the reactionary swings into state socialism, via the influence of special interests, that interfere with the proper functioning of the market and over the long term sustain firms that are not financially sound. Free-market means there is never any expectation by firms that debts will be absorbed the state. If the current economic system was indeed based on that principle of "laissez-faire", the derivatives market would not need regulation nor would sub-prime loans or other structured investments because banks, in fear of insolvency, would be prudent enough not dabble in such risky practices, and no such markets would exist!

[Nebris]

Seize the assets of these corporations. Arrest management and ship them all off to Gitmo. Then let them be waterboarded on a PPV cable show to help pay off the national debt.

[vontrapp]

Great post. Excellent, and an exact summation of what's been knocking around in my head for weeks now.

Once again, as in the Savings and Loan debacle (which shockingly involved both a Bush [Neal] and John McCain), America has been date-raped by conservatism. Deregulation is an absolute failure. It has led to an unmitigated disaster. Thank you Bushes, John McCain, Phil Gramm, and every coddled, sheltered, well-fed, naval-gazing conservative "think-tank".

p.s. The phrase is "bill of goods", not "bag of goods". A bag of goods would actually be worth something. A bill of goods is just that, a bill and nothing else.

[flameworker]

Remember when Bush vetoed SCHIP because it was "too expensive?"

[dannyS]

you say this cost the taxpayers $85B but wasn't the bailout funded by the Fed, and taxes go to the Treasury?

[PATina]

This is an article for the archives. I remember when I started college in 1985... we had a discussion in an economics class regarding Reagan's 'supply side' economics. Quite a few of us saw the potential danger... but the prof told us that the so called 'experts' had factored in our concerns. Well, seems as if the 'experts' were wrong.

[DuPageDem]

Superb post. Your list of crimes under our fradulent "free market" system should include Blackwater and other monopolistic pinstripe patronage firms which feed exclusively at the governement trough.

[johnsopinion]

I think that the term "laissez faire capitalism" is taking a rap for something it has nothing to do with.

According to one dictionary definition, laissez faire is described as:
1. An economic doctrine that opposes governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws.
2. Noninterference in the affairs of others.

The ideal is that capitalism, without interference from government, either FOR or AGAINST, will regulate itself.

Current views of "laissez faire capitalism" are blaming the current views of 'laissez faire capitalism' for
the systemic problems of a government intent on getting its share by means other than taxation. Good 'ol Washington, a city within a city within a country, where everyone of power has their hand out to the actual makers of money, IF they will arrange for special governmental privileges.

This is NOT laissez faire capitalism. THIS IS UNREGULATED GOVERNMENT!
This is government "playing" at governing.

When the FIRST 'special consideration' was granted by the Federal government (whatever year that was), the door was opened to expanded ideas and possibilities--on GRAFT; not on supply, not on demand, not on creativity, not on filling a need, not on a desire to start a business or be the captain of one's own ship. Just Graft. Plain and simple.

The problem will not go away until the "hand outs of special privileges " in Washington are gone.

[tmo7734]

The Palermo article nailed it. Deregulation is the bane of this country. Give big business and inch and they'll take a country mile. Big business needs a big daddy (regulators) to keep them from their obsession with greed; a hammer to clobber them hard when they step out of line. For the short term, America, it's too late. As a people, Americans have to start paying attention to the details and vote with their mind, not with their heart.

[Mattjoe]

Nice Joe.

‘Greedy individuals will always figure out clever new ways to make their own piles of money at the expense of their fellow citizens and at the expense of their nation's well being’

Someone on CNN’s anchor team should have the guts to explain this to Lynn Forester de Rothschild who just this morning was dispatched by the ‘haves’ to revive the ‘Obama is elitist’ theme off of life support.

[newpantaloons]

Excellent, excellent post! This is so 'right on', and it needs to be pointed out, again and again: Republicans have brought the nation to it's knees, all for 'greed'! The Bush administration is responsible for the biggest transfer of wealth from the U. S. Treasury, than any other single entity, ever! It is time for the 'people' to take this country back. I fear we will be starting over, with, basically, nothing. We are just about where the people who started the French Revolution were. We really do need a "New Deal". And, just as an afterthought, all these thieves and liars should be sent to prison, where they belong.

[TRex86]

We are witnessing a seminal psychodrama in the current economic meltdown, a graphic illustration of the consequences of money madness. This is a textbook example of the unique social psychology of America. People (in all societies) have basically two attitudes towards money: (1) contented with whatever they have; (2) insatiable, no matter how much they have.
The Contented Democrats have tried to redistribute wealth so that everyone can be comfortable and able to "pursue happiness" through other means. The laissez-faire Republicans have served the Insatiables, leading to unending excesses as their pursuit of happiness requires putting more money in the hands of those for whom it is never enough. In servicing the plutocracy they have exacerbated class divisions, moved more people into poverty, shrunk the middle class--and doubled the wealth of the ruling class.
In so doing they have earned unlimited access to the money needed to fund political activity. Thus our particular form of madness has created an orobourus, a cyclical polity dominated by false messages that frighten and manipulate average voters so that they support their own pauperization. Their economic suffering can then be manipulated against those that would undo their problems in the first place. Remember Clinton's budget surplus? Where was the lamentation when that was handed out to the plutocracy? Now we pay the consequences.

[Pdubya]

too big to let fail because it would bring on another Great Depression? i'm glad you agree philosophically with Ron Paul and Bob Barr. Because true free trade IS letting these folks fail. What is happening is that Fannie and Freddie are at Joe Sixpack's doorstep asking the mortgagor to also be the mortgagee. we're being forced to borrow money from eachother to pay off crooks and this results in our dollar devaluing even more.

how morally bankcrupt have we become to allow our children to burden their futures with a GreatER Depression if we do not address it now?

what do you think will then happen to our middle class? our republic? our sovereignty? our currency?

"Allow me to control and issue a nation's money and I care not who writes its laws!" Amshell Rothschild

neither obama or mccain will fix this. they're just fighting over which arm to put the needle into. remember, they are both first in line at the trough.

[Pdubya]

a little known fact is that reagan was to audit the gold reserves, restructure the federal reserve and have oversight of their secretive decisions. herbert walker rallied the neo-cons and squelched that effort. exit, free trade. enter, corporatism. both parties on the hill have since enjoyed the benefits of being first at the trough. we get the crumbs.

we've had managed trade - corporatism - fascism. when a nation has a fiat currency, no amount of psuedo differences in foreign "policy" or healthcare "policy" will make a difference if the money comes to those avenues illegally.

sure, we need more oversight of the SEC. sure, we need to eliminate lobby-whoring. sure, we need to repeal sarbane-oxley. but, until we eradicate our fiat money, no "change" will ever come.

free trade - just like the terms "liberal", "republican", and "democracy" have been propagandized. what those terms have turned into, because of our monetary policy, are "representatives" that are really socialists, neocons and globalists.

....meanwhile, at the trough of the federal reserve......

cont..

[mouselion]

What's the sound of one economic hand clapping? What we've got going on right now -- the right hand crying out to the left.

It takes both sides of human nature to make an economy work. "One hand washes the other."

Socialism and Capitalism as ideologies and buzzwords should be eschewed by politicians and economists alike. No matter how humanity tries to force things, people will always capitalize on situations for their own self-interests and people will always rush to aid of those in need. Pragmatism should guide the economy -- not the libertine invisible hand nor the despotic iron fist. Regulations work when they are designed to brake the train from running away. Markets work when the tension between self-interest and the greater good is in balance.

Just say no to ideologies in connection to the economy. The economy is nuts and bolts, numbers and letters, individuals and families -- reality not idealism.

[vippy]

I long ago figured out that NO SYSTEM works for their is GREED, which has to be controlled.
Work for the government and see if not all safeguards are in place already - how the politicians
get away with it I have no clue. They must cover for each other.

[PATina]

I actually see it a bit different. Capitalism and socialism work best together. A solid socialist base (free education, living wages, nationalized healthcare and natural resources) would allow for more and better entrepreneurs to flourish in the marketplace.