Saturday, October 18, 2008

Reagan Era Asst. Treasury Sec. Paul Roberts

Ex-Asst. Treasury Sec. Paul Craig Roberts on Wall St. Bailout: “Has Deregulation Sired Fascism?”

JUAN GONZALEZ: What about this issue of the government’s bailout being aimed primarily at the financial institutions rather than the homeowners who—and the defaults that are at the root of the crisis?

PAUL CRAIG ROBERTS: Yes. Well, it suggests that the bailout is either incompetence or fraud, because the problem, according to the government, is the defaulting mortgages, so the money should be directed at refinancing the mortgages and paying off the foreclosed ones. And that would restore the value of the mortgage-backed securities that are threatening the financial institutions. If the value was restored, the crisis would be over. So there’s no connection between the government’s explanation of the crisis and its solution to the crisis.


AMY GOODMAN: Paul Craig Roberts, the piece you’ve written, one of them, asks, “Has deregulation sired fascism?” What do you mean?

PAUL CRAIG ROBERTS: Well, the original Paulson plan was to give the Secretary of the Treasury $700 billion with no accountability and give him complete control over the financial system. And that, of course, is state capitalism or fascism. If you control the financial system, you control the economy. And so, that was my way of pointing out the dramatic sort of power that was said to be necessary to stem a crisis that, in my view, could be fixed just by refinancing mortgages, like they did during the Great Depression.

AMY GOODMAN: Who is driving this? Who framed this bailout? And explain exactly who it is who benefits right now.

PAUL CRAIG ROBERTS: Well, what the bailout does is it takes troubled financial instruments off the balance sheet of the banks and puts them on the balance sheet of the taxpayer at the US Treasury. So it’s a bailout of the financial institutions whose recklessness caused the problem. And as I’ve already said, it does not address the problem. It only addresses the problem of the banks. So the foreclosures and the defaulting mortgages will continue as the economy worsens, and yet nothing is being done to stabilize that default rate or to stop these foreclosures. So the money is essentially being poured into the coffers of Washington’s financial donor base.

JUAN GONZALEZ: In some of your articles, you reject a view by some Democrats that this is the end result of a deregulatory fever that began in the Reagan administration, and you point to a more recent aspect of this. And you point specifically to decisions that were made during the Clinton administration and the current Bush administration in 1999, 2000 and 2004. Could you elaborate on what those particular key decisions that were made?

PAUL CRAIG ROBERTS: Yes. First, just let me say the Reagan administration didn’t do any financial deregulation.

In 1999, in the Clinton administration, they repealed the Glass-Steagall Act. This was the Depression-era legislation that separated commercial from investment banking. In 2000, they deregulated all derivatives. And in 2004, Hank Paulson, the current Treasury Secretary, who at the time was chairman of Goldman Sachs, he convinced the Securities and Exchange Commission to remove all capital requirements for investment banks, and thus they were able to drive up their profits by amazing leverage. For example, when Bear Stearns finally went under, it had $33 in debt for every dollar in equity. So this is an amazing leverage. And it’s amazing that all reserves against debt would have been removed by the Securities and Exchange Commission. So, the whole thing is reckless beyond imagination. Now, they claim that they had new mathematical models that assessed risk and that they didn’t need these reserves. Well, that was all a bunch of hooey, as we now see.



Wild stuff. Again and again and again I find sources that claim to know exactly how to resolve the financial crisis that we find ourselves in - and just as often I find that those sources criticize the Wall Street bailout as basically incompetence or fraud. I can find very few sources beyond those that will benefit from it in support of the Wall Street bailout.

So once again to be perfectly clear about it: almost everyone agrees that the 700 billion dollar bailout is unnecessary and does nothing to resolve the problems the nation now faces.

I said it to my SO over dinner tonight: the government can never again claim that we don't have the means to do whatever we want to do. If they can socialize this kind of thievery and saddle the taxpayer with it I hope they are finally prepared to do things like create a universal healthcare plan, subsidize renewable energy, rebuild the U.S. infrastructure, etc. I mean, we could just borrow even more money, right? What's the difference?

Man, I can't believe we aren't talking about prison terms for anybody on Wall Street. I can't believe we are actually going to reward people for making the most egregiously irresponsible financial decisions anyone has ever heard of.

How do you feel about those AIG style junkets that your personal $5K contribution is going to pay for? Sweet, huh? I mean, you didn't need it for rent or groceries or anything needful, right?