The planned $700bn bailout has outraged and appalled everyday Americans
It was the week that an angry Main Street finally fought back after a decade when the financial masters of Wall Street were seemingly invincible. As President George Bush looked straight into the television cameras last week and spelt out to the nation the economic peril facing America, the fury and fear were mounting in millions of homes.
‘Without immediate action by Congress, America could slip into a financial panic,’ Bush warned. He sketched out a scenario of failing banks and plunging share prices which would savage retirement plans and put millions out of work. It was a terrifying scenario. Having waged two wars that are not yet over, Bush faced the final legacy of his tumultuous two-term period in office: the possible collapse of the American economy.
But the action he was calling for stuck in the throats of the American people. The administration’s planned $700bn bail-out for the financial sector has outraged and appalled many on the country’s Main Streets. It has led to anger on the left of American politics, shocked at such aid to wealthy bankers when the millions of families losing their homes get little direct help. At the same time many on the right have expressed equal disbelief, watching in amazement as the previously free-marketeer Bush suddenly embarked on the biggest government intervention since the Great Depression.
The US media have turned on Wall Street like a pack of wolves. ‘Fraud Street,’ screamed the banner scrolling beneath the concerned features of Fox Business Network’s Liz Claman, who told viewers: ‘You know what? I think the American public deserves some answers.’ Time magazine declared that the nation’s current troubles were ‘the price of greed’. ‘Blame greed,’ echoed the Chicago Tribune
At the United Nations, an Australian reporter accosted the actor Michael Douglas during a press conference and demanded to know - with a straight face, mind you - whether he felt any responsibility for the crisis because he delivered the line ‘greed is good’ as the character Gordon Gekko in the film Wall Street. ‘Are you now saying, Gordon, that greed is not good?’ the reporter asked.
‘I’m not saying that,’ a bemused Douglas replied. ‘And my name is not Gordon. He’s a character I played 20 years ago.’
The huge bail-out plan has also fundamentally changed the battlefield of the American election, which is just five weeks away from deciding who will be the next president. The sheer scale of the economic crisis, and the enormous sums of taxpayers’ money demanded to sort it out, are the biggest game in town.
In the UK, the red mists of anger have been slower to appear but the frustration is emerging with millions of savers and shareholders in Bradford and Bingley recognising that it will become the latest high street bank to fall victim to the financial contagion that has its roots in sub-prime lending to poor American homebuyers. Gordon Brown, who had been in Washington conferring with Bush about the crisis, branded the past few years an ‘age of irresponsibility’ and demanded the banks stop behaving recklessly. Until recently, Brown and his Chancellor, Alistair Darling, had been boasting that the past decade was an era of unprecedented prosperity and stability, and the Prime Minister’s volte-face drew immediate accusations of hypocrisy from the Conservatives.
As the deadlock on Capitol Hill continued last week, it must have been painfully obvious to Brown that the consequences of failure would reverberate throughout the world financial system - and straight to the pockets of Britain’s homeowners. The cost of interbank lending on the London money markets has shot up, as shocked investors feared more banks could be at risk of going bust. Mortgage rates in the UK quickly followed, leaving thousands of homeowners struggling to find affordable finance.
Here in Britain, analysts believe the impact of the financial crisis on the real economy has only just begun to bite. But to millions of Americans, it seems as though the doomsday picture is already upon them, especially in crucial battleground states such as Ohio, Michigan and Pennsylvania, America’s former manufacturing heartland.
These are people like Ken Karasek. The 47-year-old union organiser in the city of Wilkes-Barre has lived all his life among the hardscrabble towns of eastern Pennsylvania. He has seen factory after factory close and jobs move overseas. He feels that the economic crisis of the past year has merely brought the rest of America up to speed with what has happened in his home patch for the past three decades, and he is angry that the government has been so quick to bail out Wall Street with hundreds of billions. ‘It disgusts me. I have seen huge plants close down all over this area. I have seen good union jobs go and get replaced by service jobs, like McDonalds or Wendy’s. Now we give all this money to Wall Street just like that?’ he protested.
The panic around the economy has infected the political system, upending traditional alliances, pushing Democrats closer to Bush’s plan and Republicans further away. It has created ructions in the race between Barack Obama and John McCain, seeing a dangerous game of political brinksmanship that ended with McCain suspending his campaign and rushing back to Washington.
The events which led to that astonishing twist began at 8.30am on Wednesday. Obama had placed the call to McCain, reaching out with the idea that the two rival candidates could draft a common statement on the financial crisis gripping America. Such a move was far from altruistic. A Washington Post poll that morning showed Obama opening up a nine-point lead in the race. The poll was perhaps the strongest sign that voters were beginning to decisively break for the Democrats. By reaching out to McCain across party divides, Obama could stamp his ownership on the economic issue and also appear as a unifying president-in-waiting.
McCain finally returned the call at 2.30pm that afternoon. The two men agreed in principle to a joint statement and McCain mentioned he was thinking of returning to Washington to address the crisis. He also suggested suspending Friday night’s first televised presidential debate. Obama, apparently, assumed McCain was not serious - but he misjudged his opponent. A few minutes later, McCain called a press conference, suspended his campaign and said he was heading back to the capital.
It was a high-stakes move, dictated by political needs of the moment. It showed leadership and his maverick streak that is always popular with swing voters, as McCain also struck a new populist tone, railing against the freewheeling excesses of the wealthy bankers who had caused the mess. But the plan had a huge risk, not least due to McCain’s long record of supporting deregulation and his close ties to big business. Voters are unlikely to see McCain as a convincing populist. ‘He has an uphill fight to persuade people that this is what he believes,’ said Professor Rogers Smith, a political scientist at the University of Pennsylvania.
Instead of following his lead, the Democrats slammed McCain for interfering in something about which he knew nothing. He returned to Washington, leading a train of reporters in his wake, though he had no meaningful appointments scheduled there. Bush himself rescued McCain, inviting him and Obama to a White House meeting which caused gridlock in Washington as competing motorcades darted around the White House. As predicted, it also derailed the bail-out plan, producing only partisan rancour. At one stage a frustrated Bush said: ‘If money isn’t loosened up, this sucker could go down.’ But even such frank language from the most powerful man in the world could not secure agreement.
Suddenly Republican politicians broke away from the plan, leaving only Democrats still willing to work on it. In an astonishing scene, Treasury Secretary Hank Paulson walked into a room where top Democrats were meeting. He got down on one knee before Speaker Nancy Pelosi and begged Democrats not to ‘blow up’ the deal. Pelosi and other Democrats furiously told Paulson that they blamed Republicans for the mess. ‘I know, I know,’ Paulson replied.
By Friday the meetings had begun again, seeking to rescue some of the plan or come up with a better alternative. But by that time the huge Washington Mutual bank had failed overnight, the biggest such event in US history - though even such a momentous collapse was relegated to almost an afterthought on the morning TV news shows. Bush again appeared before the TV cameras, vowing that a bail-out plan would be passed but offering nothing concrete as to what or when. The political theatre took on a rare tinge of humour when Gawker, the Manhattan media gossip website, declared Paulson a ‘hotty’ after digging up an old photo of him standing bare-chested on a beach brandishing a large fish. ‘Look at that chest,’ Gawker gushed. ‘The power of Paulson, indeed… Hank can bail us out any time.’
But in Wilkes-Barre, Ken Karasek and others at a rally for Obama’s running mate, Joe Biden, were not interested in Hank the Hunk’s manly musculature - they were just furious at being asked to pay for his extraordinary proposal.
Retired nurse Betty Daniels, wearing a baseball cap emblazoned with the words ‘Jesus is my boss’, was furious at the bail-out. ‘I feel angry. People are losing their homes. They are barely making enough money to feed their families. I would like to see that money go to those people, not banks who just wasted it,’ she said.
In an already distressed area such as Wilkes-Barre the impact of the economic crisis has been profound. Over the past year more businesses have closed and many homes have been lost as the mortgage crisis has reached out and cast people out of their houses.
When Biden took to the stage in front of the small crowd, he dished out lashings of angry politics which struck a chord with many of those present. Biden attacked Wall Street executives and a culture in Washington that had been too friendly to big business. ‘The wealthy and the powerful have a seat at the table and everybody else is on the menu,’ he said.
There were echoes of that populist mood in the UK, where the Archbishops of Canterbury and York intervened in the debate, describing City speculators as asset strippers and bank robbers. Only a few months ago the churchmen would have been ridiculed for their outbursts, but now there were even some in the Square Mile prepared to admit they have a point. Investment banker John Reynolds, chairman of the Ethical Investment Advisory Group (see right) said: ‘It is easy to see how abusive market practices have developed, harder to see why they have been allowed to grow unchecked by regulators. To avoid repeating the mistakes we need regulators to be more interested in understanding markets and politicians to be less in awe of money and less influenced by the seemingly munificent gestures of large companies seeking to show that they aren’t just greedy bastards - when in fact they are.’
The financial crisis has called into question a whole philosophy on both sides of the Atlantic: the so-called ‘Anglo-Saxon model’ of liberal capitalism which has dominated the US and the UK economies for 30 years, now with disastrous results.
Even Irwin Stelzer, Rupert Murdoch’s economic adviser, and arch-defender of free markets, admitted: ‘The day when that engine of capitalism, the financial market, will be allowed to operate more or less unimpeded by government, has passed.’ Veteran investor George Soros has argued that we are suffering the after-effects of a ’super bubble’ fuelled by decades of deregulation and hands-off economic management - and it is time for the political tide to turn.
The financial markets’ extraordinary ascendancy can be traced back to the Ronald Reagan-Margaret Thatcher era of the 1980s. They slashed controls on markets and set finance free. In 1986, a whole series of rules and restraints were abolished in one fell swoop, the ‘Big Bang’. For consumers up and down Britain, the liberation of the financial markets made it much easier to borrow. The days of queuing anxiously to see the bank manager, to persuade him to give the nod to a mortgage, or agree to an overdraft, were over. Owning shares was no longer the preserve of the wealthy few, sauntering to their brokers after lunch in a London club.
When the Berlin Wall fell in 1989, exposing the shattered state of the centrally planned Soviet economy, defenders of market freedom felt vindicated. It was, said one darling of the free-marketeers, Francis Fukuyama, ‘the end of history’ because the Cold War was over and the power of the market had triumphed.
During his decade as Chancellor, from 1997, Gordon Brown worked hard to keep the City on side, boasting of its competitiveness, and nurturing it with ‘light-touch’ regulation. But with the crisis-hit banks now forced into pleading for charity from the state, many observers are arguing that the financial firms have surrendered their right to demand an easy ride. One stunned City veteran trying to absorb the magnitude of Paulson’s plan said: ‘We’ve just turned the clock back on 25 years of Neanderthal capitalism.’
Already, the Treasury and the Federal Reserve are busily drawing up plans to tighten the rules on the level of assets banks must hold to secure their loans; and to ensure that financial regulators from different countries keep in closer contact. French President Nicolas Sarkozy has called for a global summit in November to rebuild the whole world financial and monetary system from scratch, saying: ‘The idea that markets are always right was a mad idea.’
Even if the Paulson plan is clinched without further delay, there is no hope of an imminent recovery either in the US or the UK. The pain for ordinary homeowners on Main Street USA is already being felt, and in Britain unemployment is rising quickly, and consumers are tightening their belts. Rosebys, the home furnishing chain, became the latest casualty in the retail sector on Friday, when it collapsed into administration, leaving its 2,000 staff uncertain about their future.
‘Folks, it’s not just finance,’ Citigroup economist Steven Wieting warned the world. ‘The recession bus left the station earlier this year.’
Additional reporting by James Doran, Elana Schor and Lisa Bachelor
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SOURCES : guardian.co.uk » © weihongoei.com 2008 All rights reserved
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