Hullabaloo

Wednesday, October 01, 2008

 
Tales Of Bailouts

by dday

So the Senate will vote on the bailout today. And they'll probably pass it with big margins.

Majority Leader Harry Reid, D-Nev., and GOP Leader Mitch McConnell of Kentucky unveiled the plan Tuesday. The Senate plan would also raise federal deposit insurance limits to $250,000 from $100,000, as called for by the two presidential nominees only hours earlier.

The move to add a tax legislation — including a set of popular business tax breaks — risked a backlash from House Democrats insisting they be paid for with tax increases elsewhere.

But by also adding legislation to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax, the step could build momentum for the Wall Street bailout from House Republicans. The presidential candidates Sens. John McCain, R-Ariz., and Barack Obama, D-Ill., intend to fly to Washington for the votes, as does Sen. Joe Biden of Delaware, the Democratic vice presidential candidate.

This tax plan was stalled out in the House last week. Helping relieve the middle class from getting hit with the AMT is fine, and much of the generically stated "business tax breaks" would include the renewable energy tax credits, which are absolutely vital to the wind and solar industry, and are the closest thing to an infrastructure package that's been offered:

The tax plan passed the Senate last week, on a 93-2 vote. It included AMT relief, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana, and some $78 billion in renewable energy incentives and extensions of expiring tax breaks. In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions but does have revenue offsets for part of the energy and extension measures.

This has now become an inter-chamber slap fight. And really, where else could this have gone? Those renewable credits are crucial, but if they concurrently shrunk the plan to only get us through January, and then ran on the contrast, I would be fine with it. But that's not happening.

As for the "progressive alternative" from Rep. DeFazio, it doesn't read to me as much of an alternative at all. The good part of it, raising the FDIC insurance limit, is in the Senate plan now, and the rest of it seems to just be a new way to give away money. The change away from mark-to-market accounting, which has the potential to be hideous as companies make up numbers and the entire financial services industry becomes Enronized, is a fait accompli thanks to the SEC. David Sirota seems to like it, but I fail to see how it would do anything to stop foreclosures or alleviate the housing crisis. It may, I repeat may, save money on the initial layout, as there's no price tag attached. If it's administered the way that they fixed the S&L's, it could be cheap. But it doesn't even begin to try and solve the problem.

The problem, folks, is that the largest sector of the private economy is financial services, in other words people pushing paper to other people, while manufacturing is at its lowest level in decades. That is historically unsustainable and impossible, and invites crises like this, and no amount of figuring out a creative accounting fix and some kind of bailout on the cheap is going to change that. Only by creating a new energy economy, allowing for 5 million new green-collar jobs, and building a manufacturing base again to match the knowledge economy will we ever have an economic system in any kind of balance. Yet only the Senate bribery bill even brooches that subject.

Meanwhile, it's clear to me why the Senate is going ahead; there are incentives on all sides. For the Democrats, Obama comes off looking like someone who made this happen once he engaged. What's more, this crisis is playing well for Dems politically, not just for Obama but throughout US Senate races, and forcing Saxby Chambliss or Mitch McConnell, who are suddenly in close re-election races, into tough votes, is advisable. That filibuster-proof majority is within sight (John Kerry threw down a million bucks for the DSCC today) and they obviously feel that "looking strong" in a crisis will help. For the Republicans, they are really in a spot, having to run against Bush but also being held responsible for the Wall Street meltdown, so they might want to show leadership and relieve themselves of some of the blame. But ultimately, this is about the Senate sticking it to the House and getting out of town. That's what they really want to do.

Plus, in the end, politicians like throwing ridiculous sums of money around. Everyone furrowing their brows over $700 billion dollars to the rich and greedy should be advised that the Congress did that last week.

WASHINGTON - Automakers gained $25 billion in taxpayer-subsidized loans and oil companies won elimination of a long-standing ban on drilling off the Atlantic and Pacific coasts as the Senate passed a sprawling spending bill Saturday.

The 78-12 vote sent the $634 billion measure to President Bush, who was expected to sign it even though it spends more money and contains more pet projects than he would have liked [...]

The Pentagon is in line for a record budget. In addition to $70 billion approved this summer for operations in Iraq and Afghanistan, the Defense Department would receive $488 billion, a 6 percent increase. The spending bill also offers aid to victims of flooding in the Midwest and recent hurricanes across the Gulf Coast.

Such a huge bill usually would dominate the end-of-session agenda on Capitol Hill. But it went below the radar screen because attention focused on the congressional bailout of Wall Street.

$700 billion on the investor class and to keep banks lending, non! $560 dollars on the most wasteful and bloated weapons systems in the world and the continued slaughter in Iraq and Afghanistan, si! And actually, it's more than that, as Robert Borosage notes.

Most Americans have no sense of the cost and scope of America’s role as globocop. We sustain what Chalmers Johnson calls an “empire of bases” across the globe – over 700 active bases in more than 30 countries. Our navy polices the world’s oceans. We task our military to maintain “dominance” not only in our own hemisphere, but in Europe, the Persian Gulf and Asia. Our intelligence “plumbing in place” engages in covert activities throughout the globe. We are the only nation with the capacity to airlift expeditionary forces rapidly and in large numbers across the globe. We are now devoting some $12 billion a month to wars in Afghanistan and Iraq. President Bush has declared a “Global War on Terror,” a so-called “long war,” without limits or exits. Our Defense Secretary complains that the military is displacing the desiccated State Department as America’s representatives across the world.

The cost of sustaining this commitment is staggering. The Pentagon’s budget itself represents more than half of all discretionary spending—everything the government does, outside of entitlements like Social Security and Medicare, and interest on the national debt. At $700 billion, it is about equal to that spent by the rest of the world combined on the military. But the actual cost of our military is strewn throughout the budget. Add in the cost of our veterans, the arms aid in the State Department budget, Homeland Security, and more—and actual spending climbs over $1 trillion a year.

Puts that bailout in a little perspective, eh? Especially when 21st-century challenges in protecting America from extremism has no military solution whatsoever.

I've always been in favor of a patch to get us to January, and then an election to provide a mandate for a real solution. But at least there's a glimmer of recognition of the value of the green economy in there now. There are smarter ways to intervene, like a Swedish-style nationalization, but it doesn't seem like Democrats or even the Progressive Caucus is interested in it - I almost can't believe how weak their bill is. This is our new New Deal?

Looks like a big rondelet of failure from where I'm standing.


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dday 10/01/2008 06:00:00 AM |