The Bailout Fallout: Drinking their one-dollar coffees, the patrons of a DC diner refused to believe that they’re to blame for the financial crisis.
‘You gotta get into gold and silver. Gold and silver, that’s where it is.’
‘Man, if I had gold and silver, would I be sitting here talking to you?’
Huge laughter from everyone in the Skyline Diner.
Someone rushes in.
‘I just heard that all the ATMs are going to stop working this evening!’
Everyone laughs again, and returns to their coffee. But, quietly, a couple of people pay their bills, and slide out, headed to the drive-through bank…
It was Monday afternoon in Washington DC, and out of the window of the Skyline Diner, you could see the Capitol building – that impressive dome, a circle capped by a sphere, an expression in stone and plaster that the American experiment was not merely a local political arrangement but the expression of a deep and universal truth about freedom and human possibility.
Thirty minutes earlier, the House of Representatives had rather failed to live up to that vision that the collective will of a people might be pooled in these pure geometrical structures. For no single clear reason or statement of purpose, the TARP bailout bill had been defeated, the vote splitting not along party or philosophical or even regional lines, but almost exactly between those Congressmen and women facing tight re-election races in a month’s time and those whose seats are a bit safer. When the bailout – universally expected to pass – was rejected, after a 15-minute vote had been extended to 40 minutes, everyone simply stood in silence, amazed at the enormity of what had occurred. Congress had actually spoken, to no pre-arranged script. There was no Plan B. There had barely been a Plan A.
Fifteen minutes after the vote failed, members of Congress were already huddled in groups of wildly differing ideologies, trying to hammer out a re-try – or a new way to block it. Left Democrats, who had loaded the bill with extra protection for mortgage defaulters and funds channelled to poverty advocacy groups such as ACORN, were huddled with right libertarians, who were, at most, willing to support a mortgage insurance scheme and an abolition of the capital gains tax to attract money back into the market. Nothing joined them together, except a desire to wreck the bill in its current form.
Meanwhile, supporters of the bill displayed no great enthusiasm for it, either. Democrat Barney Frank, the architect of the measure in its final form, said it was a bill everyone hated, while John Boehner, the Republican minority leader, euphemistically called it a ‘mud sandwich’. Your correspondent, believing, like everyone, that it would pass, had left the visitor’s gallery of the House of Representatives and retired to the Skyline, only to watch the damned thing – actual history occurring – on a TV screen above the toaster oven.
In the diners and streets of America, the dominant mood was a more intense version of what I have found all this year as I have covered the presidential campaign: bewilderment. Not anger, not cynicism, not hate (though that would often come as a chaser); just confusion. In the blogosphere, however, you could find any number of people who blame the crisis on either the lack of regulation or too much regulation: fierce certainty tapped on a keyboard in a million American bedrooms. For the centre-left, the bailout debacle was the fault of Phil Gramm and his 1999 CFMA act, which left derivatives free from regulation – an act which Bill Clinton signed into law.
The right fixated on the ‘mark-to-market’ accounting rules, which oblige banks to value their assets at current rates, not future projections… And on it went. In the middle ground, there was a near-total lack of framework within which to interpret any given event. The power and leadership vacuum at the top was obvious – but equally telling was the absence of any clear alternative from some ‘other side’, any argument, any account of how the world worked.
‘What happens now?’, John Boehner was asked at the post-vote press conference where he spent most of the time pinning the blame on Democratic speaker Nancy Pelosi for her partisan speech, which had ‘offended’ otherwsie pliable Republicans. He had no idea. Neither really did Barney Frank, the architect of the revised bill, though he got in a great zinger: ‘If this bill failed because 12 Republicans were upset by Nancy Pelosi’s speech then give me their names and I will go round and be uncharacteristically nice to them, tell them what wonderful people they are, and maybe then they’ll put country above feeling.’ Then he, like other Congress members with large Jewish communities in their districts, left for Rosh Hashanah.
The current problems in the US finance sector may not constitute an economic crisis, but they have brought on a degree of cultural and social questioning greater than that which attended either the stock market crash and savings-and-loans collapses of the late 1980s or the hedge fund fallout in the late 1990s. In each case, dire warnings had been given of the potential consequences if the contagion spread to the wider economy, but the warnings were issued almost simultaneously with a rescue package, smoothly implemented. In those two crises, however faintly, lines could still be drawn: unions, the left, were capable of giving a clear and unrestrained view that this was ‘casino’ capitalism, that the real economy was being preyed upon by profiteers. Whatever the theory, there was at least an account.
What is remarkable about the current crisis is that leaders feel no compunction about expressing their deep confusion about what is going on, or even communicating naked panic. A great deal of this seems to be a simple repetition of the politics of fear. Jon Stewart’s Daily Show once again showed itself to be the most forensic news programme on TV by simply running Bush’s pre-Iraq war address (‘the consequences of not acting are simply too awful to contemplate’) alongside his faltering 10-minute address on the bailout bill (‘the consequences of not acting are simply too awful to contemplate’). But enough of the post-bailout confusion also appears to spring from a genuine cluelessness about what to do next.
Into this vacuum, a morality tale has been inevitably inserted. The blame game has shifted from the regulatory mechanisms of the Commodity Futures Modernisation Act of 1999 to the repeal of Glass-Steagall (don’t ask), before finally coming to settle on the outrageous behaviour of the American consumer who always wants… more. Andrew Sullivan put it most neatly on another comedy-current affairs show, Real Time With Bill Maher. He said, ‘Look, it’s very simple – everyone thought they had a right to own a house and to go out to restaurants and to live beyond their means’ blah blah blah. In one form or another, this line is being spun by numerous observers. So the crash was neither an economic nor a political failure, but the outer expression of an inner moral failure.
Puritanism – that deep strain in American life, issuing as much in identity politics and PC as in fundamentalist Christianity, that movement with its founding question ‘am I Good?’, ‘am I one of the elect?’, ‘does the light shine from within me?’ – has been marshalled to the cause of saving the appearances of the American economy. According to this crackpot theory, as no-deposit mortgages came on the market in the early 2000s, people were supposed to hold up their hands and say: ‘I shall not.’ Seven years earlier, people had been urged by President George W Bush to go out and shop, as a way of defeating the impact of 9/11. Now it is precisely this attitude that is treated as the problem. When the anti-consumer argument popped up on our TV, the crowd in the Skyline diner – with their four-dollar sandwiches and dollar coffees – erupted in laughter. We just couldn’t see how this crisis was our fault.
That maybe illustrates why the bailout and its attendant economic morass have had a greater impact than earlier crises – because they stand as a challenge to the current arrangements. Not in the old sense of socialism vs capitalism, but as a challenge to capitalism’s failure to deliver, given what it demands of people.
For the truth is that, though the current era of deregulation has a lot to do with cosy relations between the financial sector and Congress in an era of high-cost perpetual election campaigns, the promptings for it were real enough: a desperate need to keep money moving around the West, at a time when its growth had slowed relative to the East, and when real sources of investment were drying up. The current mortgage crisis began at the same time as the dotcom boom began to tank, and in many ways was a substitute for it. After the dotcom nightmare of investing in the ‘weightless’ economy, what could be better than solid bricks and mortar? But the mortgage securities created around them were as abstract and notional as Epets.com, predicated on value except the return that would be forthcoming if they succeeded: a sort of financial bootstrapping.
To float no-deposit mortgages and then blame people for taking them up in numbers sufficient to make them successful is effectively a measure of the philosophical crisis afflicting capitalism today. Having tied itself to wide vistas of consumption since the 1960s, capitalist society now yearns for the days of protestant high capitalism where people lived frugal lives and saved a quarter of their income. The idea that a protestant culture of thrift and abstemiousness might be the solution to the problems that Western economies currently face is, of course, mad. For the past 30 or so years, capitalism has been a great trade-off, between the goodies you are allowed to have, and the boring work which allows you to get them. Earlier, protestant generations could be persuaded to work by theological notions of ‘good works’ or suburban notions of ‘being a good provider’. There’s no way that would work now. With its decayed health and education systems, America barely seems like a reward at all.
To work 50 hours a week for nothing more than food, warm clothes and shelter will simply not fly. America’s financial elites know that an economic crisis pretty quickly becomes a social and political one, as people’s beliefs fall away. Thus, Bush’s appeal to the nation has fallen on deaf ears.
‘You gotta get into gold and silver. Gold and silver, that’s where it is.’
‘Gold and silver – man you’re behind. Guns and canned goods! Guns and canned goods!’
The neo-mercantilist in a good suit seemed out of place in the Skyline diner. Effectively, there is no room for manoeuvre in the US right now; the current crisis is a result of a lack of places to invest money which will actually build or create things, and their replacement by derivatives devised on a napkin over lunch. Genuinely stimulating the economy would mean offering opportunities to invest in more useful production, possibly part provided by the state. But that, for many Americans, would be socialism, an acknowledgement that the financial sector is a social product which simply happens to be in private hands. The enormous leap forward the American people made this week was to begin to understand this. Whether that will bear fruit in the long run remains to be seen. As a great American philosopher once said, ‘Fool me once, shame on you – fool me, uhhhh… Look, you can’t fool me twice, that’s what it means.’ And on the TV in the diner, there is an ad for Campbell’s soup, whose stock went up as everyone else’s fell.
Guy Rundle is an Arena (Australia) Publications Editor and is covering the US election campaign for the independent online media service Crikey.
There Is (still) No Alternative, by Mick Hume
Congress bales out, by Brendan O’Neill
Scapegoating the spivs, by Tim Black
It’s the politics, stupid, by Phil Mullan
Lehman Brothers: when confidence runs out, by Rob Lyons
Five myths about the Wall Street crisis, by Daniel Ben-Ami
From the politics to the economics of fear, by Mick Hume
Fannie, Freddie and the ‘economics of fear’, by Sean Collins
The truth about the ‘credit crunch’, by Phil Mullan
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