Setback for a swindle

THE COLOSSAL theft of $700 billion in taxpayer money to save Wall Street's super-rich was on hold as of Monday night, after a vote on a financial bailout was defeated in the House, triggering the biggest stock market plunge in 20 years.

Anyone with a sense of justice has to welcome a setback for legislation that would take money out of the pockets of millions of working people--now and for generations to come--and use it to replenish the coffers of banks run by profiteers, speculators and outright crooks.

But the proposed rescue wasn't defeated because Congress is unwilling in principle to hand over huge fortunes to the bankers. No, the Republicans and Democrats are maneuvering over which party will take the blame for this outrageous, unprecedented--and widely opposed--government giveaway to the wealthy.

The 228-205 vote against the bailout in the House of Representative set off a 780-point stock market plunge--the largest drop in history in total points, though not in percentage terms--as investors panicked that the rescue they badly want won't materialize.

The chaos in Congress and on the stock market symbolized in dramatic fashion the stark dilemma facing the leaders of American capitalism and the U.S. political system. From their point of view, the future of Wall Street depends on a massive government operation to take over the debts run up by banks and other financial firms after years of high-stakes gambling and a speculative binge.

But no one who has to face voters in the coming years wants to claim responsibility for a bailout that is ever-more obviously a giveaway to save the very people who caused the crisis--while workers suffering through foreclosures, evictions and layoffs have nowhere to turn.

MONDAY'S VOTE was only the latest unexpected turn of events, each one more astonishing than the last.

Last week, a White House summit meeting designed to win agreement for the bailout from leaders of both parties degenerated into a shouting match after House Republicans announced they wouldn't go along with the deal--even though it was engineered by Henry Paulson, the treasury secretary of their own party's administration.

Afterward, the Republicans, including presidential candidate John McCain, were roundly criticized in the establishment media for playing politics with the future of the economy. Chastened, congressional leaders, plus administration officials led by Paulson, negotiated feverishly over the weekend to come up with a new agreement.

By late Sunday, they emerged with a deal, and the bill won support, if grudgingly, from the administration, the two presidential candidates and leaders of both parties.

But in their haste to ram through the legislation before the popular backlash against it got any broader, the party chiefs failed to line up the votes.

Apparently, they were expecting Paulson's do-this-now-or-the-world-ends hype to pressure House members into line. In the end, though, nearly 100 Democratic representatives opposed the measure, unable to quite swallow the power grab.

Paulson, the former CEO of Wall Street giant Goldman Sachs, shaped the plan so he would have dictatorial powers, and his proposal got only a slight makeover when Democrats got involved.

Thus, for example, the final draft had zero relief for homeowners facing foreclosure--it excluded even the Democrats' lame proposal to give people the chance to modify their mortgages in bankruptcy court. The most the legislation does for homeowners is call for the government to develop a "plan" to "encourage" lenders to renegotiate mortgage terms--but this isn't binding.

The U.S. government now controls nearly half the mortgages in the U.S. through the effective nationalization of Freddie Mac and Fannie Mae, and it is well positioned to stop foreclosures. But nothing in this proposed law will stop the sheriffs from coming to throw people out of their homes.

By contrast, the core of Paulson's proposal--to pay his old Wall Street cronies $700 billion in exchange for their bad assets--remains intact.

This is a slap in the face to hard-pressed homeowners, and it should have been enough to spark a much larger Democratic rebellion in the House--if their populist denunciations of the bankers were sincere, that is.

But in the end, it was the House Republicans who sank the bill--133 of them opposed it, compared to 65 in favor. The party's right-wingers led the opposition, including Wisconsin's James Sensenbrenner, the notorious immigrant-basher, and Jeb Hensarling of Texas, who declared that the bill would put the U.S. on "the slippery slope to socialism."

Thus, the world was treated to the bizarre scene of the party of big business blocking a measure that Wall Street is desperate to have--an open-ended commitment by the Treasury to buy up not just bad securities related to mortgages, but any other type of toxic debt that Paulson or his successors want to help companies get off their books.

It isn't just banks that are eligible, either. The government can buy up what it euphemistically calls "troubled assets" from any "financial institution"--the definition of which is broad enough to include everything from General Electric to Ed's Barber Shop.

Meanwhile, the leaders of the Democratic Party are working hand in hand with their supposed enemies in the Bush administration--in support of legislation that anyone can see is a scheme to make the rest of us pay for the mess the bankers made for themselves.

That's why House Speaker Nancy Pelosi rushed a vote on the 110-page bill, seeking both to steamroll congressional opposition and appease investors. For the Democratic leadership, support for the Paulson plan offers an opportunity to displace the Republicans as the leading party of U.S. capitalism by acting "responsibly"--even as they continue to blame the Bush administration for the scale of the crisis.

THE PROPOSED legislation--cynically named the "Emergency Economic Stabilization Act of 2008"--is nothing but a reward for the same people who made astronomical profits during the housing boom, and who ran the economy into the abyss.

The Democrats' "victories" in the bill are a joke.

For example, under the provisions aimed at "limiting" executive pay, the Treasury Department can set compensation standards for the five highest-paid executives at a company that participates in the bailout program--but only if the government directly purchases stock in that company, which is up to Paulson and future treasury secretaries. The ban on "golden parachutes" for departing executives is a limit on tax deductions for already wealthy corporate honchos, rather than an outright ban.

The Democrats also prevailed in their demand that the $700 billion shouldn't be handed over to Paulson all at once, but tapping the total amount will be a mere formality.

What about oversight of the Treasury Department's actions, another demand of congressional Democrats? Paulson will sit on the main board that is supposed to supervise his actions--and that board has the "power" to issue only reports.

Plus, judicial review of Paulson's actions will be practically nil, as the law prohibits any judge from issuing an injunction that would challenge his decisions, except on constitutional grounds. "Rarely if ever has one man had such broad authority to spend government money as he sees fit, with no rules requiring him to seek out the lowest possible price for assets being purchased," wrote New York Times financial columnist Floyd Norris.

Beyond all this, there's the question of whether Paulson's scheme will work, even on its own terms.

Certainly the stock market will get a boost if the plan goes through, as every company that can masquerade as a "financial institution" lines up to dump its bad debts on the U.S. Treasury. But this doesn't mean that the banks will turn around and start lending the money they get from the government to businesses--still less to consumers and would-be homebuyers.

In the meantime, the credit crisis continues unabated, with huge banks staggering along at best. At the same time as the bailout bill drama was unfolding, the financial world was digesting the news that Wachovia, the fourth-largest bank in the U.S., had been swallowed up by Citigroup through the intervention of federal regulators--and that the Belgian-Dutch company Fortis and British mortgage lender Bradford & Bingley had been nationalized outright.

In such circumstances, it's little surprise that banks remain reluctant to lend to one another, for fear of where the next bankruptcies may come. Only huge interventions by central banks around the world, like the U.S. Federal Reserve Bank, are keeping the money flowing.

PAULSON AND his newfound allies among the Democratic leadership are, of course, using this grim picture to scare the rest of Congress into giving the treasury secretary dictatorial power over the U.S. financial system--and transferring $700 billion from the U.S. working class to the wealthy, in a society that is already at its most unequal since the 1920s.

Nevertheless, the mainstream media breathlessly repeat Paulson's hype that there is no alternative to his bailout for the rich.

In fact, there are vastly more progressive measures the government could implement. For example, in an article in the liberal New Labor Forum, John Atlas, Peter Dreier and Gregory Squires propose a brief list of the most basic actions the U.S. government could take today and provide help to working people, rather than the rich:

These include raising the federal minimum wage to the poverty threshold (about $9.50 an hour) and indexing it to inflation; expanding the Earned Income Tax Credit by adding a housing component to it in order to account for the significant difference in housing costs in different parts of the country; enacting the Employee Free Choice Act, which would strengthen workers' rights to unionize...Congress should also reverse the almost three decade decline in federal housing assistance to low- and moderate-income families.

We can think of plenty of other ideas, too. What good reason can be given for Paulson's plan to allow Wall Street firms--again, the same ones who caused the disaster because they put their own greed before all else--to administer the operation to identify, buy up and sell off, in some form, the banks' bad debts? If taxpayers are paying for these bad debts, shouldn't people who are supposed to represent them be in charge, rather than the Wall Street "advisers" Paulson plans to hire?

For that matter, why leave the banks in private hands at all? This crisis has proven that the U.S. government is ultimately on the hook for the banks' mistakes. Why shouldn't these institutions be nationalized outright and reorganized around a rational system?

With a national election only weeks away, there's no chance of these bigger questions even being raised in the political mainstream. But no matter who moves into the White House in January, this economic crisis will be the defining political issue for years to come.

The scope of the disaster--and the measures needed to cope with it--will shatter all the dogmas of the go-go, free-market era of the last quarter century. Increasingly, political figures will feel pressure to associate themselves with a far more radical break from free-market orthodoxy.

Whether or not the Paulson bailout goes through--and odds are that it will at some point, in some form--the economic crisis has opened a new era in U.S. politics. The time to put forward an alternative solution is now.