t’s like if you had a house, and you discover that the upstairs bathroom—the floor is a little tilted, so you bring in a contractor and he beefs up the floor and re-lays the tiles and that’s better. And then you’re in your bedroom and you drop a quarter on the ground and the quarter rolls to the other side of the room, and you say, ‘My goodness, another floor that’s tilted.’ Get the contractor back in, he comes and fixes the room. You’ll fix every room in that house, if you’re America, before you say, ‘Maybe the foundation is broken.’ ”
-Eugene Jarecki
In the midst of the current global economic crisis, some Americans are beginning to question the very foundations of our financial system. On April 11, thousands of them will demonstrate in cities all over the country. What they want is “A New Way Forward,” an online initiative describing itself as a prescription for the “real structural change of Wall Street.” Its plan: to ask the government to temporarily nationalize failing banks and restructure their internal workings, break up, and sell the so-called “too big to fail” entities, and enact new anti-trust rules that would prevent future banks from growing so large in the first place. A New Way Forward is a response to the government’s apparent commitment to a Wall Street-endorsed “corrupt ideology,” one that prioritizes short-term profits for a wealthy group of elite financiers over long-term stability and more widespread economic prosperity.
The initiative’s first proposal—to temporarily nationalize insolvent banks—is also its most controversial. In this country, talk of nationalization is usually met with a visceral anti-communist, anti-European, anti-socialist response. Use of the very word seems to preclude reasoned debate on the subject, eliciting only kneejerk responses, given the negative connotations and misconceptions associated with the term nationalization. However, even some die-hard free market thinkers have suggested temporary nationalization as the first step towards a solution to this crisis. Alan Greenspan, a now-notorious champion of deregulation, recently argued, “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring.” Meanwhile, Nobel prize winning economist Paul Krugman, one of the few to predict the current economic crisis, has described the Obama administration’s current plan as “lemon socialism”: a lose-lose situation for the American people and a win-win for bankers and private financiers. Under the plan, private investors are given the opportunity to partner with the government in buying failed bank assets. Basically, massive failed banks are to be supplied with a seemingly endless flow of capital in an effort to resuscitate the economy. However, the investors are virtually unaccountable. Any losses are subsidized by the government, and the majority of gains are theirs to keep. In essence, investors get to gamble with taxpayer money, and ordinary Americans will be responsible for any losses.
If the banks end up succeeding, taxpayers will find themselves with nearly the same system that brought the country to this point of absurdity. And if banks end up failing outright, then taxpayers will have covered most of the losses incurred by private investors. As William Greider put so well in a recent AlterNet article, “It’s very much like the regular Monopoly game—only better—because this one uses real money, provided courtesy of the taxpayers.”
The banks need large amounts of capital to survive, and if the government is going to give it to them (remember: this is more capital, in most cases, than the banks are currently worth) it seems intuitive that it might take temporary ownership in return. Government-owned banks allow, in theory, for accountability, and would give taxpayers a democratic say in what happens to their money instead of simply handing over billions of dollars to the same high stakes gamblers whose greed and overconfidence helped tank the world economy. Hopefully, this would make it impossible for another bank to follow Merrill Lynch’s example, which in a stunning display of hubris, used almost one third of the bailout money it received (about $3.62 billion) to pay out non-contractual, performance-based bonuses to incompetent and inconsiderate executives.
Among A New Way Forward’s other demands is a call for “the financial elite [to] share in the cost of what they have caused.” In other words, the movement argues that it’s time for some people to get fired. When a normal person utterly, catastrophically fails at his job, he or she loses it. That person does not receive an absurdly lucrative, “performance”-based bonus as a reward for his failure. That person is no longer left in charge of the company he or she ran into the ground at great public cost, and is not trusted as the recipient of billions of public dollars. These same rules do not, however, seem to apply to the recently discredited masters of world finance. Somehow, it is possible to be a complete failure and keep your job as long as you are a well-connected, millionaire banker. A New Way Forward, along with a growing segment of the population, wants to change that double standard. Currently, the government has had little say about the inner workings of the banks it already all but owns, but temporary nationalization would allow for a transparent, government-led restructuring.
A New Way Forward demands that those banks deemed “too big to fail” be broken up and sold in pieces to the private sector, and that the government enforce new anti-trust laws such that no single corporate entity could ever get so big that our economic prosperity depends on its existence. After all, the very existence of a bank that is “too big to fail” seems antithetical to a free market economy. What would keep such a bank from pursuing short-term, risky profit opportunities if it were truly considered “too big to fail”—propped up by a government with a plethora of public funds available in case of emergency? How can an economy be “free” when certain financial institutions are allowed to grow so large, so reckless, and so important to our country’s economic vitality? A New Way Forward, laying claim to the legacy of populists like Lincoln, Roosevelt, and Truman, denies that a truly free market can co-exist with banks that are too big to fail. Populism may not be a perfect force, but it sometimes speaks such stunning truth to power.
