Chumps & Champs:
Socializing Risk for Casino Capitalists
By Michael I. Niman, ArtVoice (etc.) 10/2/08
Let’s use a simple analogy to explain the financial meltdown: I take your money to the casino and start playing roulette. If I win, I keep the profits. I’m a champ. If I lose, you lose your money.
Of course, no sane person would lend hard-earned savings to a compulsive gambler. So I call my gambling kitty a “growth fund,” or I package it as a “tax-deferred annuity” or an “investment fund.” The chumps ante up, hoping that a bountiful harvest will grow from this fertile dung.
Nobody is suspicious so long as I keep winning. And the wheel is fixed; the Reagan administration deregulated the casino over two decades ago, allowing roulette wheels to be weighted so people like me always win. We euphemistically refer to this as “the magic of the market.”
In actuality, as in any other casino, my winnings are financed by everyone else’s losing streak. I take chips from losers. We refer to their bad wagers as “late fees,” “penalties,” and “surcharges.” We lure the chumps to the wheel with “adjustable rates” and “introductory rates.” Then we keep them there until their pockets are empty.
Now, however, the losers’ are finally broke. The only cash on the table is mine. And my cash really isn’t mine. It’s not even real. It’s credit borrowed against future winnings, the pillage of future losers.
It’s time for me to walk away and enjoy two decades worth of winnings. But the casino is on fire and everyone, including me, is trapped inside. And we laid off all the firefighters long ago.
We need to put this fire out, reopen the casino, and get the roulette wheel spinning again. That’s where the government comes in. They print up money, pay the firefighters, cover my losses, and keep the chumps confident in my juju. The government will make noise to pander to their constituents, but they’ll come around. They’re some of the biggest chumps I know. As individuals, they’ve been investing in my kitty. They have no choice but to give me everyone else’s money now, otherwise they lose their own. I knew this from the start.
In the interest of Congress
Let’s look at the current financial meltdown and the stalled bailout package. The no vote was a theatrical pandering to democracy. Rest assured, Congress will fork over our money over to Wall Street. They will hock the next generation’s potential in order to bail out the last generation. There’s a conflict of interest that guarantees they’ll do this.
Let’s look at the math. Nearly one half of the members of the US Senate are millionaires. Factor in multimillion-dollar fortunes, and you get, according to Forbes, an average net worth of nearly $9 million per senator.
Now let’s look at the bailout. The market drops in value on rumors of bank collapses, and rises precipitously on rumors of a government bailout. Let’s say no bailout translates into a 10 percent or so drop in the stock market. (Monday made investors jittery, and day traders rich, but the smart money is still counting on a bailout.) That’s a $700,000 per capita loss among senators. And it could domino into a depression. On the other hand, if there’s a strong bailout, the market could go up five percent, for a $350,000 per capita gain. Do the math. Who would you sell out for a million bucks?
What we witnessed in Congress earlier this week was posturing. Unlike Senators, who have six-year terms, members of Congress come up for re-election every two years, meaning half of the House is up for reelection next month. They wanted the bill to pass but they didn’t want to be seen voting for it.
The vote also provided embattled Republicans a chance to distance themselves publicly from the Bush administration. Voters, they wager, will forget that their reps voted with the Bush administration for years, probably supporting the very market deregulation policies that brought this mess down upon us. All they’ll remember is the glossy campaign mailing touting their anti-bailout vote. (The bailout was supposed to pass, of course: All these newly populist Republicans pledged the night before the vote to support the measure, each probably hoping the others would actually pass the bill and shoulder the political burden.)
The Republicans have a different explanation for their no votes. House GOP leader John Boehner blamed House Speaker Nancy Pelosi for queering the deal by talking on the floor of the House Monday about the history of Republican deregulation policies that got us into this mess. She suggested that if the government bailed out Wall Street, Wall Street would have to mend its cheating ways. Boehner said the speech was too partisan, an insult, and hence, at least a dozen Republican members of Congress had hissy fits and decided to take their crayons and leave.
I guess that sounds about typical.
George W. Bush and other likeminded, free-market Republicans, including John McCain, assured us as recently as a month ago that the economy was sound. Last week, however, Bush changed tunes and instead assured us that life as we know it would end if we didn’t give Wall Street a blank check for the last drops of American wealth not already squandered on the Iraq War or the savings and loan bailout of the 1990s.
This is what Canadian journalist Naomi Klein calls “disaster capitalism”: Wait for or create a disaster; then, when fear and chaos rules the day, push through radical, otherwise untenable legislation. The Patriot Act, which very few legislators actually read, passed in the wake of the 9/11 attacks, is a classic example. Then there’s the privatization of New Orleans’ public schools and the destruction of its public housing in the wake of Hurricane Katrina. Or how about the Enabling Act, passed by the German Reichstag in 1933, ceding emergency powers to Adolf Hitler in the wake of a supposed terrorist bombing of the Reichstag building.
The blank check the Bush administration demanded would go to Treasury Secretary Henry Paulson, who, in his previous incarnation as CEO of Goldman Sachs, helped set this economic train wreck in motion. Highlights of Paulson’s career include a stint in the disgraced Nixon administration as assistant to convicted Watergate felon John Ehrlichman from 1972 to 1973, in the period when Ehrlichman was carrying out his crimes against the United States and the American people. This is sort of like putting Osama bin Laden in charge of national defense in the wake of the 9/11 attacks.
Bailout deja vu
This bailout proposal comes a decade and a half after the Reagan/Bush Senior era savings and loan crisis, which saw over 700 banks collapse, and a taxpayer-funded bailout totaling $125 billion. That sum sent us into the 1990s saddled with massive federal deficits, paid for by debilitating cuts to health, education, and social programs. But we’ve learned no lessons.
One billion dollars of that bailout went to pay for losses incurred by Silverado Savings and Loan. The collapse occurred, in part, because of bad loans paid out to business associates of Neil Bush, who wore two hats as a director of Silverado and as son of then Vice President and later President George H. W. Bush. Neil Bush eventually paid a penalty of $50,000. His father and brother both went on to become presidents with hardly any discussion of their family’s involvement in the savings and loan crisis.
The bailout of Lincoln Savings and Loan cost taxpayers more than $2.5 billion. When the bank’s directors realized that they were going under due to roulette-wheel-style investments funded by FDIC-insured savings accounts, they attempted to bail themselves out by urging account-holders to move their money from guaranteed savings accounts to wild-card money market accounts—which failed, ultimately causing 17,000 chump investors to lose their savings.
Charles Keating, the maniac in charge of Lincoln, bought influence in Congress by, among other things, donating the equivalent of $200,000 in today’s money to John McCain, and another $100,000 to four less expensive Democrats. The five met with federal regulators, who later stalled action against Lincoln for two years while it was robbing its own investors. Keating’s money also appears to have encouraged McCain’s support for preventing regulation of the banking industry. McCain regularly traveled on Keating’s private jet and vacationed in his Bahamas home. His wife Cindy and her father became business partners with Keating at the time, investing in a lucrative strip mall development.
Fast forward. Last month saw the taxpayer-funded bailout of mortgage giants Freddie Mac and Fannie Mae—with our money underwriting the $13.4 million salary of the CEO who drove Fannie Mae into the junkyard. Freddie Mac’s CEO received a total of about $34 million last year. This story comes complete with a ghost from the Lincoln Savings and Loan bailout: It turns out that Freddie Mac was footing the bill to pay the salary of John McCain’s campaign manager, Rick Davis. Davis was initially paid $20,000 per month by the McCain campaign, and another $15,000 per month as a no-show consultant to Freddie Mac. When the McCain campaign hit financial trouble, it stopped paying its share completely, leaving campaign manager Rick Davis pulling his salary from Freddie Mac while the Republicans engineered a bailout for the recklessly managed firm.
Perhaps this is why no one took John McCain seriously when he said he had to postpone (oddly to a date that would bump the comically anticipated Palin-Biden interview) the first presidential debate so that he could go to Washington to work on a solution to an eerily familiar problem. In the end, McCain pretended to suspend his campaign, went to Washington, tried to take credit for the bailout bill, and then saw it voted down by his own party—making McCain a lame duck without ever having spent a night in the White House.
This is disaster capitalism. The cuts to education, social, health, and arts programs proposed by President Reagan were unpopular and politically untenable—but they were the end result of an economic crisis brought on by the Reagan/Bush deficits. Likewise, who do you think will ultimately pay the bill for today’s Wall Street bailout or collapse? The people who got rich during this generation of pillage will hold on to their wealth while the people who got ripped off over the last generation will pay off their debts one way or another. Government will exist only to wage war and to tax, police, and jail its citizens while our physical and social infrastructure collapses. John McCain spelled this out pretty clearly in the first presidential debate: freeze everything except military spending. And keep the Reagan and Bush tax cuts for the rich in place while letting them keep the money they looted from the financial system during the past 25 years.
No matter who is in the White House next year, the script has already been written. Bailout or fallout—any outcome will cost us big. The money has to come from somewhere. If it is passed in any form that resembles what both parties are proposing, it will be the largest single forced upward transfer of wealth in American history. That is, unless we respond to the radical policies of the last administration with a whole new set of radical policies designed to recover the wealth that was stolen from Americans from the Reagan era to the present day. That’s the real challenge should the Republicans be dislodged from the White House.
Dr. Michael I. Niman is a professor of journalism and media studies at Buffalo State College. His previous Artvoice columns are available at artvoice.com, archived at www.mediastudy.com and available globally through syndication.
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