Do Paulson and Bernanke Doom McCain's November Chances?

If his new plan remains afloat, Treasury Secretary Hank Paulson, from the Wall Street wing of the GOP, may well have doomed the November chances of John McCain, the presidential nominee of this month's Main Street-oriented Republican national convention. By promoting the mother of all financial bail-outs, Paulson has all but mocked McCain's recent anti-bail-out rhetoric, as well as whetting the Arizona Senator's slowly growing awareness that Wall Street misbehavior and greed and the year-long Paulson-Bernanke string of botched policy and rescue missions have been a disaster for 1) the United States and 2) what's left of Bush and Republican credibility.

McCain has never been much on economics, but Paulson's indicated arrangement with the Democrats -- financial firms will get to turn in the toxic debt and financial instruments they can't peddle for reimbursement by an American taxpayer-funded entity -- is so bad that if the former Navy pilot grins and accepts it he will look like a wobbler and a Grade A sap. He's already lost the edge he had coming out of the Republican convention. Barack Obama, by contrast, can get away with being evasive because the Democrats look like they're accepting a measure principally authored and promoted by Paulson and Federal Reserve Chairman Ben Bernanke.

Now for a little bit of background. We're not just looking at a real estate mess. Over the last quarter century, the total of public and private credit market debt in the United States -- most of it, in fact, is private -- has more than quintupled from $8 to $48 trillion, the biggest such orgy in world history. Over that period, domestic financial debt - the money borrowed by the financial sector for expansion, consolidation, empire-building, leverage, exotic mortgages, gambling, you name it - swelled from just $1 trillion to some $14 trillion. Employing these economic steroids, the financial sector ballooned itself from 14-15% of what back in the mid-1980s was the Gross National Product to 20-21% in 2004 of the newer Gross Domestic Product calculation. In the meantime, the once-dominant manufacturing sector fell far behind, dropping to just 12% of GDP. In a nutshell, the economy has been hijacked in recent decades by the very groups who now purport to have remedies - Wall Street, from whence Paulson emerged, and the money-bubbling, don't regulate the dangerous practices Federal Reserve Board, from whence Bernanke comes.

The public is finally starting to understand what's been going on in this perverse milieu of Wall Street socialism where private individuals get the profits and the taxpayers underwrite the bail-outs. It has a long history; in Bad Money I have a chart that lists fifteen or so rescues over some 25 years. Finance has now grown into an octopus, with dozens of debt, speculative, credit card, mortgage, interest group and Washington lobby tentacles that will lock onto any new bail-out proposal and turn it into another food supply. Even as the new "legislation" is being drafted, you can bet all the lawyers, lobbyists and big donors are already on the phone to key people in Congress, the White House, the Treasury and the Federal Reserve. Anybody with a good nose can almost smell the fixes and corruption, and of course, political critics and the public will be told that there's just no time for debate, no time to go over the details. Don't pass it tomorrow, pass it yesterday. We can assume that George W. Bush will sign it, possibly with a fleeting smirk.

Will this bail-out solve the current mess? Of course not. For the last year, Paulson and Bernanke have been Fumble and Bumble. They won't strike at the roots of the problem - indeed, one could almost say the two men represent those roots - so their rescue gimmicks fail and the crisis extends and deepens.

Ironically, the best hope for resistance comes not from the left but from free-market elements of the Republican Party. I have not had much good to say about the GOP for years, but recent events may hint at their political and ideological renewal. Sometime back, when Congress passed the Fannie Mae and Freddie Mac bail-out program, Senator Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee, ultimately voted against it. He had worked on its early stage, but ultimately voted no because seeing a pay-off to "Wall Street and K Street (the Washington lobbyist corridor)". Then the Republican National Convention, in a rejection of Bush, Paulson and Bernanke, put an anti-bailout section in its 2008 platform. A few days ago, the ranking Republican on the Senate Banking Committee, Richard Shelby of Alabama, called on the Fed to reject bail-outs and allow the markets to work even if the consequences are "brutal." And on September 18, a hundred Republican members of the House of Representatives sent a letter to Paulson and Bernanke requesting that the two men "refrain from conducting any additional government-financed bail-outs for large financial firms."

I suppose there's a chance that McCain could decide to oppose the administration and truly fight this latest round of Wall Street socialism. Maybe instead of asking George W. Bush to fire SEC Chairman Cox, McCain could come out against Paulson and Bernanke. But the odds are much greater than an embarrassed McCain will flounder toward November defeat.

That would mean that the anti-bail-out forces in Congress and at the grassroots will take over the national party helm in 2009, and it's not too late to start right now. If they strike a tough stance in the next few days, they could expose, delay, amend and even block -- by any available means -- what amounts to a massive mutation and even perversion of the U.S. economy. The leader of the hundred House Republican conservatives, Congressman Jeb Hensarling of Texas, summed it up quite neatly: "Enough is enough. It's time to bail out the American taxpayers from bail-out mania." Hopefully, we're looking at a September battle cry.

Kevin Phillips is the author, most recently, of Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism, published by Viking in April.

Comments

[NicoleAnon]

This actually might be good for McCain because He is defending Bernanke and Paulson for bailing out banks with taxpayer money. At least McCain had the itegrity to say it was wrong from the beginning.

[TomBrentwood]

The GOP has been subverting regulations on Wall Street for years just like they have with the environment. Greenspan's pass at stopping the absurd growth of sub prime loans was a good
cover for MBA's of the world and now after writing off over $500 billion in the value of these instruments reality comes down to the balance sheets of these firms and guess what, not enough capital on hand to operate.
The GOP isn't going to save anybody from Wall Street. But letting it all go down the drain is just more
of the Libertarian drivel that leads to pillage. We need to enforce the rules and regulations that govern
the markets. What has gone on is a free ride until the building burns down.
Just like the Bush action plan with Bin Laden. Crises management and a crises of leadership.

[CaptainStormfield]

So I suppose this is the last "Bail Out" for the Empire. Doomed to go the way of all the other Empires

[newbridge]

Bernanke and Paulson work for the Globalists. This was all preordained. Devastate the economy and take it over. They have left us holding the bag and until we, as Americans, finally look through the curtain and demand total transparency, our country is doomed.

We have had our head in the sand and we need to act like adults and demand that the crooks be handcuffed and sent to jail where they belong.

These crooks are laughing up their sleeve and they know they "did it again" to the stupid, naive, accommodating American public. ENOUGH IS ENOUGH!!!

[Clairvaux]

"Bernanke and Paulson work for the Globalists­."

A strong American Republic is a bump in road on the way to a global fascist state. Either we defend our country with everything we've got or we are going to lose it.

[kennyinvirginia]

wasap1, the date is Dec. 12, 2000--my birthday: I had a terrible one that day. :o(

[NicoleAnon]

I think if McCain says that he will insist both Bernanke and Paulson resign immediately when he is elected, it won't be much of a problem because JC has been very outspoken that he disagrees with Paulson bailing out companies with taxpayer money.

[Mason]

Resign? You've got to be kidding me. Phil Gramm, McCain's financial advisor, engineered this catastrophe by repealing the Glass-Steagle Act that was passed in the 30s to prevent what caused the Great Depression and this week's Wall Street collapse. Firing Bernanke and Paulson achieves nothing more than changing the lipstick on a pig.

Nothing short of radical surgery can cure this mess and the cure is going to be about as much fun as surgery without anesthesia followed by a lifetime of chemotherapy and radiology.

[Brokenduck]

Responsibility for this mess flows across party lines, and belongs to everyone: Republicans as well as the many Democrats who stood by and enabled this era of deregulation and thievery to happen. I frankly don't completely care if McCain wins. Sadly enough, I don't think the Democratic Party is ready to lead this country in a new direction. And be that the case, the Republicans will trounce the Democrats in four years....I guarantee it.

I would rather see this country blown to the ground sooner rather than later, and that the parties responsibi­le....both from the financial industry as well as from government­....be pointed out, shamed, and put out of our sight. Friedmanism must be stopped, and I don't mean for just one election cycle, but forever.

[Mason]

With all due respect, I don't believe you realize the danger we're in. We're facing a major catastrophe that's likely to make the Great Depression of the 1930s look like a picnic. If you don't believe me, take a look at the body language of Bush, Bernanke, and Paulson at the press conference.

That's what well-dressed terror without a solution likes like.

[wardropper]

Doom his chances?
No they do not.

They will personally see to it that the economy recovers miraculously, and that we have no one to thank but McCain, Bush and the GOP.

[Nomccain]

Yea, the great leader Reagan really reduced government didn't he? He also ran up a huge deficit and put millions of workers out of a job. The only thing Reagan had going for him was his command of the media. He could tell dumb voters white was black and they'd believe him. I wasn't one of them and saw him for what he was. Just another rich republican that lied. If he hadn't gotten the Russians to tear down the wall, he wouldn't be remembered as special for anything.

[krocklin]

Except he didn't "get the Russians to tear down the wall".
The real hero was Gorbachev. Reagan and the disastrous Republicans cabal that followed up to the present were the beneficiaries.

[woodnthrifty]

Yeh, Regan was so good he got our hostages back a few days after the inauguration. At least he took the credit for it. Carter gets no credit for keeping them alive. The republican't way as you say is the say white is black and black is white. Take credit for all good things and blame someone (Cox) (Obama) when things go bad.

Can you believe McCain blames Obama for this economic crisis!

[ld]

Good points - for myself, I loathe the way they are trying to solve the by (1) shifting debt from financial institutions to the taxpayers and (2) electronically printing more money and giving it to these same instutions to defray their debt. And I agree that any real solutions have to come from the non-corrupt free market wing of the GOP. Not that I like them, it's just that they're the only ones that could possibly get it done.

But none of this will affect McCain's election. They will simply lie and spin about McCain's history and the lies and spin will become reality for most people.

[Joseph A. Palermo - Huffpost Blogger]

Kevin, I'm delighted to see you on the Huffington Post -- I think it is fair to say that you were among the most prescient observers who saw this catastrophe coming all along. I've eagerly devoured all of your recent books and it's just very sad that those in power did not heed your warnings.

[PioneerKing]

Mr. Phillips:

Sir, would your "trickle down economic policy" republican friends to explain how a 10 trillion dollar (yes 10 trillion dollarsthe initial government estimates are always incorrect) corporate welfare bailout , of the legalized ponzi schemes that Wall Street CEO's are running will help Americans?

This bailout is doing more for foreign markets and foreign government investors than for Americans. Talk about a national security failure - the republicans fals "free market economy," theory is a sham.
Whenever huge corporations and Wall Street get into trouble they get corporate welfare.

This bail out policy is near treason. Some of the investors with the highest profile exposure are China and the Saudis.

What a fairy tale the American taxpayers are going to gurantee China and other foreign nations debt.

Talk about theater of the absurd - the republicans and the democrats who went along for the ride have really played a number on American taxpayers.

[Mason]

Amen, PioneerKing. You are absolutely right..

[preachergirl]

THE HYPOCRISY OF A NATION!!!!
While many americans are losing their homes, jobs, healthcare, savings, pensions, fighting 2 wars, 4000 and counting dead, the powers that be step in to rescue their buddies, while the american taxpayer is expected to pay. If this was my business or your's and we engaged in the madness that these companies have engaged in, our only option would be bankruptcy. Why are we rewarding bad behavior. Now those same people will turn around and form other companies to take advantage of us again and the american worker still gets the shaft. WOW!!!

The hypocrisy of it all is absolutely astounding on so many levels. God help us all if the people of this country do not rise up and say with one collective voice (Democrats, Republicans, Independents, Gay, Straight, Married, Single, Black, White, Hispanic, Asian,Jew, Gentile, Greek,)whatever class, group you belong to ENOUGH IS ENOUGH!!! we will only have ourselves to blame when the next generation has nothing to fall back on!

[Mason]

Right-On, sister!

[woodnthrifty]

Enough is Enough!

[GoletaZeke]

Easy for Kevin to say now. Though more critical of Republicans lately, where has he been during the years since Reagan declared war on government? Missing from this analysis is a picture of the consequences of not bailing out these thieves, particularly to the international community, including China. To say these Republicans have seen the light, confessed, found redemption and now work for 'truth' and the welfare of the people, is more than a stretch

[fnygy]

Clearly, you've missed all his books since 1990.

[Gdebs]

OK, Kevin. We are going socialist. So I want a single payer health care system. Now!!!!
I also want day care for all kids and preschool.
I want 5 weeks vacation for everyone, Paid. Also 1 year paid maternity leave.
I also want free education as far as a student can sucessfully go.
Cost? Get the cash from the same place as the cash to bail out the crooks on Wall Street.

[Paul]

While you're at it, how about a 35 hour work week and a decent mass transit system. It will cut down on the need to buy imported oil.

They got all this stuff in Europe and without any structural deficit or trade balance problms.

Too bad the Conservatives are selling Capitalist snake oil.

Worse for us, Americans keep buying it.