This posting is from D&S collective member and frequent blogger Larry Peterson. To see more of his posts, click here.
I’m scared. After the stunning rejection by the House of Representatives of the revised bailout bill, financial markets throughout the world are tanking. As I write, Tokyo is down four percent, and Latin American stocks dropped a jaw-dropping thirteen percent in Monday’s trading. The Dow lost 777 points, its largest one-day decline ever, and oil is trading at levels unseen since nearly last year. Meanwhile, US bond yields are dropping fast, but the dollar is trading at four-month lows versus the Japanese Yen, and gold is back over $900 an ounce. Meanwhile, tottering banks worldwide are being bailed out by governments or are scrambling to save their skins. And despite huge central bank infusions into global money markets, banks refuse to lend to each other, and the only debt anyone will by is that issued by the US government, which is finding itself increasingly indebted by orders of magnitude every week. If banks don’t start lending to each other soon, the economic effects of the crisis are going to start cascading, as investment (especially that involving debt, which, after all, has been the predominant form of investment for some time by far) and consumption plummet, and what savings are available are drawn down. Tuesday will be quite a day in Europe and here in the US, and, due to a religious holiday, Congress won’t reconvene to possibly consider another bill until Wednesday and Thursday.
I was opposed to the bailout bill, and, for what it’s worth, duly sent emails to Congress encouraging its defeat. But I always assumed the revised bill would pass. Now that it hasn’t, I feel a kind of disorientation the likes of which I haven’t felt since September 11th, 2001: no kidding. Our economy requires restructuring of the most fundamental sort, and if we on the left were seriously in the game, I would be almost enthusiastic about the crisis: it could present an historic opportunity to do what needs to be done, though that would require serious, perhaps even heroic, sacrifice. But this is clearly not even close to being the case, and all I see from the defeat of the bill is, in the worst case, a whole lot of pain, most of which will fall on working and middle class people, if the economic crisis cascades in the manner I suggested above. In the best case, a new bill will be renegotiated, but House Republicans will now have to sign on, which means it’s certain the new bill will be worse than its predecessor. Then there’s another pretty awful alternative, that of a bill cobbled together after things have got so bad, so fast, that some Republican voters will overcome their fears of creeping socialism just to keep their bank deposits intact and pensions being paid. And that may involve either the kind of power transfer to the Treasury Department the first revised bill did at least something to address, and that would be after a certain amount of irreversible pain will be made virtually inevitable, involving job losses on a scale not seen for decades, considerable asset writedowns, or even a redoubling of subprime-type mischief through large scale credit-card defaults.
It’s a terrible shame that the world financial system is structured so that an attempted–and not necessarily successful, not by a long shot–bailout of it is the price we have to pay to save our own skins. I would be thrilled, as I said before, to trash the whole, rotten thing. But we don’t have the political power to do this yet. And given that void, if the crisis escalates, others, who are at present more powerful, and more dangerous, will certainly step in.
Americans are both largely apolitical and, increasingly, resistant to suffering any degree of pain that is visible on a large scale. This means that it’s hard to say what might happen politically if this crisis really turns into something of historic significance; it’s possible that the second impulse will trump the first, and that a far more humane society could arise from the crucible of crisis. But, at the moment, it appears as if the first impulse is still the dominant one.
I hope I’m wrong about all this, but I don’t think I am. And I’m very, very afraid.