"The financial bailout is by no means a plan that fundamentally alters the relationship between government and business, as is been touted. It will not solve the underlying crisis that the US finds itself in."

The world financial crisis has given us a golden opportunity, but will we seize it?

This Wall Street bailout – yes, bailout, not “rescue” – is yet another boondoggle by the neocons, coming out of nowhere and passed in an atmosphere of panic orchestrated by the administration and spread around the world, an egregious act of terrorism worthy of 9/11 itself.

As the dust settles, it is clear that nothing much has really changed at all. But what is to be expected from President George W Bush and his neocon crew? They are beholden to Wall Street, as are their supposed opponents, the Democrats. “This ‘cure’ is another one of these rearrangements: somehow, by stripping out the bad assets from the banks and paying fair market value for them, the value of the banks will soar,” writes Joseph Stiglitz. It is just another neocon ruse based on the “trickle-down economics” made famous by United States president Ronald Reagan. Throw enough money at Wall Street and a few drops are sure to hit Joe Public.

Legislation that would show that a corner is being turned, a new leaf turned over, would require addressing issues such as the wars in Iraq and Afghanistan, the monstrous military budget, the even bigger trade deficit, the massive tax cuts to the rich over the past 28 years – none of which got the time of day as legislators prepare to end their final working session this year. But then even a Barack Obama would not be able to extricate himself from the spider’s web that is the US political system today, as his hearty support for the bill and support of President George W Bush show. Funny how Federal Reserve Chairman Ben Bernanke, accompanied by the awe-struck Secretary of the Treasury, Henry Paulson, seemed to pull the $700 billion 450-page Emergency Economic Stabilisation Act out of his hat like a magician.

Was this plan in the wings, just waiting for its chance in the spotlight? And does it make sense to let the fox work out a plan to save the chickens as they come home to roost? Isn’t it more likely that he will ensure the long life of his progeny first, always keeping in mind that enough chickens must be kept alive to reproduce and feed the foxes? To use another metaphor, does it make sense to put the pilot who hit the iceberg in charge of the lifeboats?

Adam Smith writes in The Wealth of Nations:

The proposal of any new law or regulation of commerce which comes from this order [profit takers], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

Instead, it was railroaded through Congress and the Senate in a mood of hysteria, irresponsibly orchestrated by the very foxes who created the problem. The plan is intended to infuse the financial system with cash to “thaw” frozen credit markets and prevent a deep recession. So where have the billions in tax cuts over the past eight years gone? Isn’t printing more dollars like pouring water into a sieve? And is yet another $150 billion in tax breaks over the next 10 years really the answer?

The programme will send the federal deficit through the roof, even as it approaches record levels. The Treasury will have to borrow the money, requiring a bill increasing the government’s legal debt limit by – surprise – $700 billion, to $11.3 trillion.

In the early 1990s, Sweden fought off a similar meltdown brought on by deregulation which involved giving the government good as well as bad assets, and it survived. There is also “the Buffett model”: Warren Buffett put money into Goldman Sachs, getting preferred shares and warrants, i.e., both protection when prices slide and participation when they stabilise. This would have been better for putting bank ledgers in the black and protecting taxpayers.

Two bright spots: insurance for deposit accounts was increased from $100,000 to $250,000 and pay for senior executives at firms participating in the programme was capped. CEO salaries have skyrocketed in the past two decades; for instance, Richard Fuld, who presided over the collapse of Lehman Brothers last month, received $466 million from 1993-2008 and a whopping $62 million “golden parachute” exit pay, as his firm chalked up a $6 billion loss and declared bankruptcy. This does not include hefty stock options and perks. Treasury may now ban excessive salaries and bonuses, as well as these golden parachutes for executives at firms that receive direct infusions of federal cash. Companies that sell assets in the auctions will lose tax deductions if salaries for their top executives exceed $500,000 a year, and outgoing managers who take severance packages triple their annual salaries will be required to pay a 20 per cent excise tax.

There are still those who have the courage to protest any attempts to cap these salaries. “The bailout is about saving the economy, while executive pay is a separate, and complex, issue,” says corporate governance expert at the University of Delaware Charles Elson. “It is not appropriate for government to be setting the salaries of executives,” said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, a trade lobbyist. But not even the foxes are listening to such whining anymore. Paul Hodgson of the Corporate Library cuts through this cant: “This financial crisis is a direct result of the compensation practices at these Wall Street firms.”

However, there were lots of the usual pork barrel treats added to sweeten the bill and ensure its passage, including a 39-cent tax break for an Oregon firm that makes children’s wooden arrows, tax breaks for Alaska fishermen and Samoan businessmen, $128 million of tax relief for the manufacturers of car racing tracks, tax breaks to small television and film producers and for the production and use of renewable energy – none of which has anything to do with the crisis itself.

Senator John McCain’s attempts to tar Obama for taking advice from Franklin Raines, former chief executive of Fannie Mae – a contention hotly denied by the Obama campaign – backfired when it was revealed that Freddie Mac was paying McCains’s campaign manager, Rick Davis, $15,000 a month until two months ago – a total of $2.5 million since 2000, betting on McCain being the Republican nominee. McCain had previous insisted that Davis had had no involvement with the mortgage company for the past several years.

The $700 billion boondoggle has been passed, with hardly any strings attached to a government gone wild with imperial hubris, and with a virtual carte blanche for the Treasury Secretary and head of the Federal Reserve, the foxes, to pay their friends whatever they demand for their mistakes. The original proposal gave the Secretary of the Treasury unlimited power to spend the $700 billion, not just on mortgages, but on any “financial instrument” he liked. This was tightened somewhat, with two boards, including an “independent” congressional panel, an “independent” inspector general (shades of Gogol) and an oversight board staffed by the treasury and housing secretaries, and the chairman of the Federal Reserve. Yes, oversight by the foxes and a Congress mired in the problem itself. This will be sure to do the trick.

Absolutely no mention was made of the more than $500 billion which the Iraq war has cost in the past five years, or the $650 billion military budget, the $850 billion trade deficit, or the $600 billion in tax cuts, most of which go to the rich, since Bush came to power. Cumulative borrowing from abroad during the six years of the Bush administration amounts to $5 trillion. The $700 billion figure begins to pale in comparison to this profligacy and mismanagement.

In these final months of his presidency, Bush has pulled another weasel out of his hat, pushing through a policy that rewards his criminal friends and avoids any need to reverse his disastrous foreign and domestic policies. Yet commentators feel sorry for him, calling it a hollow victory. He is finally being forced to eat some crow, inking the biggest government intervention in decades, largely abandoned by his fellow Republicans in the House. His CEO friends will find their wings clipped and their golden parachutes taken away. And, if the plan has lost money after five years, the president must submit a plan to Congress for recouping those losses from the financial industry, perhaps through new fees or a tax on securities transactions. Poor George.

The ultimate irony here is that the Titanic took the lives of the rich as well as the poor. At least in those days, there was a sense of honour which allowed the innocent women and children to escape. Imagine the Titanic today: as the ship sinks, all are scrambling without any sense of shame for the lifeboats, abandoning any attempt to patch the huge holes, which could easily be done, given the will, resulting in one and all descending into the black depths.

What would a real rescue plan look like?

The financial bailout is by no means a plan that fundamentally alters the relationship between government and business, as is been touted. It will not solve the underlying crisis that the US finds itself in. It will fundamentally alter the relationship between the US and the world, but more because of the accumulated effects of the other disastrous policies of the Bush era – the wars, the deficits in trade and the budget – the elephants in the room. Therein lies the golden lining. The neocon con is over. We must use this disaster to push for a real solution. What would a sober plan look like?

* For starters, it would require the government to renationalise Freddie Mac and Fannie Mae, paying the current market value for the bad assets, not a penny more, and taking all loans, both good and bad. Why should the government only take over the culprits’ bad loans? After all, the management of these once-upon-a-time government agencies intended to help the poor purchase homes has done very well for itself over the years and has left a mess. That would increase the likelihood of actually getting something back for the taxpayer.

The legislation allows the government to pay any amount it likes for the “bad debts”. Though 25 cents on the dollar is touted as the market value, the government will pay more, a price negotiated with the foxes, on the understanding that their bad debts are really worth much, much more than the market price. But many of these bad debts are no doubt made up of such fraudulent “investments” as CDOs, and are now so convoluted, no one can say what they are worth, i.e. they could well be worth less than that 25 cents. The foxes insist that when the market rebounds, the government will magically be able to sell the bad loans at a profit. This sounds suspiciously like the soft approach that was made in the early 1990s during the Savings & Loan scandal, which rewarded the culprits and cost the taxpayer $350 billion. Caveat emptor.

* The failed and failing banks should also be put under direct government control, their records opened to independent investigators. Culprits would lose their ill-gotten gains (in as much as they are accessible, considering the ubiquitous offshore banking system) and be prosecuted for their crimes. Salaries of CEOs and management would be adjusted in line with government salaries.

* There should be a moratorium on housing foreclosures, mortgage rates should be capped, and lenders should take part of the beating by allowing mortgage values to be renegotiated in light of the falling values.

* Taxes should be increased – returned to their pre-Reagan progressive rates – rather than decreased. The negative savings rate in the US is behind the crisis, with few people producing real goods, and with virtually everyone living on credit. US citizens must own up to their flight from reality.

* The deindustrialisation of America must be stopped. If the country produces only arms and dubious pieces of paper (called dollars and financial services), there is no way it will be able to pull itself out of the hole it has dug.

* The poison that is euphemistically called the international financial system must be radically reformed. The G8 should be mobilised to enact legislation ending offshore banking and other dubious ways to launder money and keep it out of the hands of governments investigating white-collar criminals. British Prime Minister Gordon Brown has called for a new global financial regulatory system and in this case he should be given an immediate “yes”.

* This would address the many suspect “products” which have been spawned in the past few decades with the aim of bilking the public. For instance the “plain vanilla” products like interest rate swaps (speculative bits of paper) or “collateral debt obligations” (CDOs) and “insurance” dubbed “credit default swaps” for financial institutions holding these suspect CDOs. This bogus scheme was dreamed up by Joseph Cassano, head of AIG’s London Financial Production office from 1987-2007, though there was never any intention of paying out any claims – it was simply an old fashioned pyramid scheme which netted Cassano hundreds of millions (he will never tell) in two decades. He resigned last year as AIG went into the red and refuses to speak to the media now. His machinations led directly to AIG’s collapse.

* It would address speculation on “floating” currencies, which rakes in billions every day for speculators. For 30 years, even mainstream economists such as James Tobin have been encouraging the policy of taxing earnings made from speculation on currencies, the Tobin tax, with the goal of reducing them and the instability they cause, pure robbery from the broad citizenry of all countries into the pockets of gamblers like George Soros. The proceeds would go into third world development. Better yet, exchange rates could be fixed and adjusted in an orderly fashion to prevent such speculation and the consequent undermining of economies. This crisis is the perfect opportunity to enact something along these lines.

* But most importantly, the government must be forced to abandon its reckless policy of war and militarism, and reign in its profligate spending.

To those that howl this is socialism, so be it. Remember Northern Rock, the British building society that suffered a run on it last year and was nationalised? With two other British banks needing rescues recently, public confidence has become so fragile that Northern Rock is now seen as the safest home for savings because its deposits are fully guaranteed by the government. Socialism works. There Is No Alternative – TINA – as former Prime Minister Margaret Thatcher loved to spout about capitalism. Oh, remember the slick talk about privatising Social Security? The upside of this debacle is it put paid to that nonsense. As private pension funds fold, Social Security plods on.

Some of this sense has trickled down into the plan. Congressman Henry Waxman, chairman of the Committee on Oversight and Government Reform, will open hearings next week into the federal bailout of AIG and Lehman Brothers’ bankruptcy filing. The FBI has opened 26 investigations into fraud by the failing giants; though as with the investigation of the Enron collapse in 2003 there is little likelihood that any culprits will suffer more than a hand slap. And finally, when Congress convenes in January, Finance Services Committee Chairman Barney Frank said he plans to rewrite housing finance laws, broaden executive pay limits to more corporations and pursue new regulations to rein in excessive risk-taking on Wall Street. This would at least be a start.

Eric Walberg writes for Al-Ahram Weekly. You can reach him at www.geocities.com/walberg2002/ .