We Need a ‘People’s Bailout’

The economic free-fall is finally slowing down, although nobody expects the recovery to be very pleasant. Job losses and foreclosures are expected to increase well into next year. But even if our economic system gets back to normal, it’s important to remember that gross inequalities are embedded in the global order. At home, minorities face significant barriers to economic security, while abroad, children in poor countries are denied access to basic nutrition. This is especially disheartening in the wake of the G-20 meeting in Pittsburgh, which demonstrated that the world’s economic leaders are more focused on bailing out banks than eradicating global poverty.

Robert Reich sums up the domestic economic scenario succinctly for Salon. The stock market is humming along, even as most Americans are tightening their belts. It’s a counterintuitive situation: Wall Street is celebrating an economic recovery, but the consumers that drive our economy are still cutting back. Reich explains that the government has stepped in to fill the hole caused by consumer spending. Business executives may scream “Socialism!” when the tax man comes around, but without massive government help, those same CEOs would be watching their earnings and companies collapse.

Without the jobs and tax cuts created by President Barack Obama’s economic stimulus package, we’d see more red ink from just about every industry. The entire U.S. mortgage market is currently supported by the federal government via Fannie Mae and Freddie Mac, while other special initiatives like the Cash for Clunkers program brought the auto industry out of its recession-induced coma this summer.

The trouble is, while a few programs have been good for ordinary citizens, most of the government’s economic salvage operations are aimed at giant corporations. Of all the paradoxes in today’s economy, the most significant can be found in the financial sector. Bank stocks are up, even though banks are in serious trouble. Their customers are broke, foreclosures are soaring, and analysts are predicting a fresh round of multi-billion-dollar losses on commercial real estate loans soon. So what makes an investor want to buy a bank stock right now? Nothing but the government’s limitless willingness to bail out banks.

How much bailout money did the government actually spend? We’ve all heard about the $700 billion Troubled Asset Relief Program (TARP), but the real haul for bankers is much, much bigger, as Nomi Prins and Christopher Hayes detail in a piece for The Nation. A whopping $17.5 trillion has been dedicated to subsidies, guarantees, below-market-rate loans, and other special perks for the financial industry. That’s roughly one-fourth of the entire global economic output for a full year, and more than the entire annual productivity of the U.S.

Prins and Hayes make use of a clever thought experiment: What if, instead of spending the money on big institutions, the money had gone to a small-time gambler? It’s an apt comparison. Taxpayer money went to financial speculators who used our homes and neighborhoods as poker chips in a global casino. The dozen or so bailouts the government has enacted seem absurd when we think of them as cheap financing for bets on the craps table. The number of programs is staggering. Bank executives love to proclaim that their banks didn’t really need TARP money, they just accepted it because the government wanted them to. Next time you hear that boast (sometimes it sounds more like a whine), remember that every big bank in the country issued debt guaranteed by the government, then scored ridiculously cheap loans from the Federal Reserve while others got federal help through AIG, Fannie and Freddie.

“A fraction of the $17.5 trillion bailout could have been used to cut the principal of homeowners’ mortgages (using homes, even devalued ones, as collateral) and cover student loans at zero percent interest,” Prins and Hayes write. “Rather than pouring it into the top layers—the banks—a people’s bailout would have cost less and been more humane. And it likely would have prevented the ongoing increase in defaults, foreclosures and general economic anxiety.”

There are very good reasons to maintain a healthy financial sector, but only if banks actually do something useful. Banks are supposed to lend money to enable socially productive economic activity. This bailout money has not been spent on anything socially productive. Instead, it’s covered losses from predatory lending and boneheaded speculation.

The dominant cause of the recession was the collapse of an $8 trillion housing bubble, which banks helped inflate with all outrageous loans. For decades, the value of a family’s house was the foundation of most American middle-class wealth. When home prices took a nosedive, so did the spending power of every homeowner. Even borrowers who had affordable mortgage payments were hit hard. For borrowers stuck with expensive, predatory mortgages, the result was a wave of foreclosures. Writing for Mother Jones, Andy Kroll highlights a hard reality: Recovery in the housing market will not lead to middle-class financial security. It will be at least a decade before home prices reach pre-crash levels.

It’s critical to remember how the recession is deepening existing inequalities, particularly along racial lines. In a post for In These Times, Michelle Chen explains how African Americans and Latinos are consistently paid less than whites during boom times, and are pushed even further down the ladder when things go bust. Communities of color are more likely to be targeted by predatory lending, which can devastate entire neighborhoods for generations. That means people of color are more likely to be foreclosed on, more likely to be laid off, and less likely to have access to basic necessities like health insurance.

The statistics are stark. In a story for New America Media, Christina Fernandez-Pereda, notes that while the overall unemployment stands at 9.7%, for minorities, the actual number is much higher. A full 15.1% of Blacks are unemployed, while unemployment among Asian Americans has doubled since early 2007. A full third of Latinos between the ages of 16 and 29 are unemployed.

The bank bailout has done nothing to improve the status of the global poor. The G-20 made grand promises to help those who need it most in developing countries this year, but so far, the talk has resulted in very little action. As Hayley Hathaway explains at Sojourners, only $50 billion has been dedicated to the 78 countries where humanitarian risk is greatest. As Hathaway notes, that’s less than 25% of the TARP money received by the 20 largest U.S. banks.

Without major action, between 1.4 million and 2.8 million children will die of malnutrition in the next five years. Instead of pushing major humanitarian aid, the G-20 has promised $750 billion to the International Monetary Fund. The IMF was supposed to act as an international lender of last resort—if a nation’s financial woes got really bad, they could get a loan from the IMF while they restructured. But IMF money ends up flowing to private-sector banks, and governments in need are forced to cut spending on programs that help the poor. When the G-20 met in Pittsburgh last week, a major topic of discussion involved giving developing nations a greater voice in IMF policies. But despite this talk, wealthy nations remain committed to the status quo, protecting the interests of their bankers eyeing future international bailouts.

For most people, it will be a long time before our economic recovery is a reality. But as the economy crawls out of the ditch, it’s critical to build our future on a stronger foundation, one where we don’t allow millions children to starve and where skin color does not determine economic security.

This post features links to the best independent, progressive reporting about the economy and is free to reprint.This is a project of The Media Consortium, a network of 50 leading independent media outlets.

federico stevanin via FreeDigitalPhotos.net
By Zach Carter, Media Consortium


Lionel Mann
Lionel Mann9 years ago

Thank you, Jim.

Actually it matters little whether or not anyone agrees as long as the controversy makes them think, stimulates serious consideration. So many bother not at all about what is going on around them and need to be shaken out of their torpor.

As regards international financial supervision, I am sure that there are plenty of independent economists around the world who would be only too willing to serve upon a
supervisory institution, possibly under the auspices of the U.N.

Jim Steve
Jim Steve9 years ago

I have some differences with Lionel Mann on another issue. But he pretty much has this one nailed on the length and cause of the problem. It HAS been going on since 1914. That's the date of the Federal Reserve Act. The idea that "independent international control" is the answer is naive. The same people would control it, It's hard enough to get rid of it here. Centralized international control would make it near impossible to shed. In fact, that's the final end game. Still, he's right about the Politicians (both Democrats and Republicans) being bought and paid for. An good example would be the fact that the voters in this country put Democrats in power in 2006 to end the Wars. Now, three years later, we are expanding our overall military presence in the Middle East (reductions in Iraq offset by Afghanistan). And more troops will be committed to Afghanistan next month. USA is expanding our military/defense/security budget to over 60% of the Worlds entire budgets (combined) for military/defense/security . Proposed military/defense/security budget growth for next year are set to be about 9-10% ABOVE this years. I have been fighting a losing battle on these policies for decades. Including the fraudulent (WMD) Iraq conflict.

Pamela M.
pam M9 years ago

I so agree that the bailout should have been given to the taxpayer, what better way to stimulate the economy. Once consumer obligations are met one tends to spend more freely. If our so call representatives had spread the wealth by taxpayer class (married/single), and specify the amount for mortgage, auto and paying off or down debt (as suggested by a petition that appeared on this site) we would be free from this mess by now. I am one of President Obama's biggest supporters, but I am really angry at the disbursement of bailout money that once again fills the coffers of the already rich, pedigree, degreed theives. While we, the taxpayer, once again take it up the tailpipe. I don't want to own a percentage of GMC or Chrysler..I want my obligations met. And where the hell is my company car!!!!

Lionel Mann
Lionel Mann9 years ago

What everybody seems so far to have failed to spot is that if the bail-out money had been given to those caught in the mortgage trap it would only have been wasted by encouraging greater prodigality. Those many idiots who live beyond their means, exist on credit, are inviting disaster; they are the easy prey of unscrupulous financial institutions. Consider the plethora of television advertisements that offer "deals" to ensnare the brainless public in debt. An education system that trains in logical reasoning is long overdue but will never become a reality; the controlling politicians and financiers could never succeed in their wiles were there an intelligent populace.

Ross L.
Ross L9 years ago

I agreefor the most part with the comments about Raygun. Could he be relelected today? Oh yes. He is the poster child of the Repubs/conservatives. Werent they going to (or did) put his puss on a coin? Stamps? Statues? I really do find it hard to believe how so many "conservatives" are fooled into thiniking the repugs are interested in what you want. Are you rich? They dont know you even exist. Go be a puppet at a town hall. Get real. Who do you think you are hurting by beating down anything FOR the middle class? Very sickening.

Marilyn L.
Marilyn L9 years ago

In our newspaper this morning there was a question, once again, regarding Jesus. What would have Jesus done who he have given a bail out. My answer would be yes but to the people not the corporations that lied, cheated and continue their corrupt ways.

James D.
James D9 years ago

In the last 100 years, many individual, working Americans were ruined financially, locked up, or killed in the battle to firmly establish the Middle Class and give the Working Poor and Poor a break in the this country. Then the rich and their lead man, Reagan, began dismantling it all in the 1980's. With sinking heart, I fear that Reagan might be re-elected even today. What a statement on American irrationality that would be.

Hannah L.
Hannah L9 years ago

I've been trying for 20 minutes to post this link to my FB profile, and it absolutely refuses to post.
Has anyone else had that problem with trying to post this to FB?

Junior W.
Junior Walker9 years ago

I must say how much I agree with Kim C. that this selfish and greed mentality started wit Reagan, I cringe when I used to hear the previous administration laud his accomplishments, when Bill Clinton won the election by making everyone aware of the "trickle down economics" policy they were applying and unfortunately we are right back there with a bang, today we hear of the massive obcene bonuses while lip service is paid to ideas like "Make Poverty History", so suddenly world leaders decide to come clean and take action against the bonuses but hold on a minute the problem goes deeper than that because in my field of business we sometimes make a nominal profit, break even or have a loss, so where exactly do these institutions do business that create these massive bonuses outside of their working capital, I think I found out, a scheme called "interest rates", no matter how much the ordinary man leaves in a financial institution his interest amounts to a mere pittance per month, yet when the role is reversed and funds are acquired from these financial institutions no matter how small, their monthly interest charges are able the swallow most of the ordinary man's earnings e.g. a credit card company solicits you to open an account with a credit limit of £1,600, in about four years making regular deposits a customer could eventually pay close to £5,000 based on interest rates and charges and still owe close to £1,600, as bonuses part is paid as political contributi

Justyn V.
Justyn V9 years ago

I believe what is being overlooked in all of this is that technology is gradually and surely taking over the human labor on which the money system is based. This will accelerate until there is none or very little work to be done by humans, thus making labor and the money system conpletly obsolete.
The politicians and corporations cannot address this issue because their goal is to maintain the status quo as long as possible.
I invite people to visit the website of the 93 year old genius, Jacque Fresco, who has devised a global society, based on technology where there is no pollution, money, war, crime, corruption.
This planet would and should belong to everyone of us, not the greedy, power crazy, manipulators and controllers of the masses.
Jacque Fresco's website is www.thevenusproject.com Search, too, on the net "The Zeitgeist Movement" which is the publicity end of the venus project. This is an international movement that is sweeping the entire world.