Click here to listen and/or watch Richard Wolff’s perspective on the recent financial meltdown (Wolff is an economics professor at UMASS and editor of of the journal Rethinking Marxism). Wolff presents a rather passionate analysis delivered with a healthy dose of back slapping and self-congratulating in the vein of “We’ve been telling you all along this would happen.” Now, Wolff’s take can certainly be reduced to the rather pat (or more accurately, obvious) statement: “American consumers have been borrowing and even more, they have been borrowing in order to consume.” Yes, of course. However, I think Wolff’s closing statement was a bit more interesting, but I wonder if it’s even remotely true. Wolff suggests that the global economic meltdown has generated a space to criticize the hegemony of free market capitalism and propose new solutions outside market driven capital. Oddly, for one example, a possible alternative space has been routinely hinted at by ex-World Bank Chief Economist Joseph Stiglitz, who seems to be harping on similar issues, e.g. debt. Here’s Stiglitz talking about the bailout bill with Democracy Now’s Amy Goodman:
Well, I think it remains a very bad bill. It is a disappointment, but not a surprise, that the administration came up with a bill that is again based on trickle-down economics. You throw enough money at Wall Street, and some of it will trickle down to the rest of the economy. It’s like a patient suffering from giving a massive blood transfusion while there’s internal bleeding; it doesn’t do anything about the basic source of the hemorrhaging, the foreclosure problem. But that having been said, it is better than doing nothing, and hopefully after the election, we can repair the very many mistakes in it. But this particular way of getting it through, I have to say, really smells.
They added—you know, the cost was already $700 billion. They added $150 billion of tax benefits. Some of these are really quite, quite amazing, the kinds of things that they put in: tax credit to American Samoan businesses—you mentioned a couple already in your talk—50 percent tax credit for some expenditures or maintaining railroad tracks, motor sports racetrack property given a seven-year recovery period. You can go down the list. What they did was basically old-fashioned, corrupt bribery. They found out—I was joking that they talked about a reverse auction for the—for buying the distressed assets; they had a reverse auction for buying congressmen, and they put in anything they needed to do to get the congressional support for a basically flawed bill.
Here’s Stiglitz talking about the different approaches in Europe to the recent financial mess:
This is designed—the Paulson plan is a nontransparent bailout for Wall Street, where we take off their hands these bad assets, leaving them with the good assets. It’s complex. We’re talking about thousands, hundreds of thousands of assets that the government is not in a good position to be doing this.
The alternative model has—is a proven model. It worked in Sweden, Norway. I don’t know why we didn’t do this better model. And there are versions that are short of nationalization. I sometimes refer to this as the Buffett model. He put in money into Goldman Sachs, got back preferred shares and warrants, so he got both protection on the downside and participation on the upside. This would have been so much better for reinvigorating our banks and for protecting American taxpayers.
I mean, the fundamental problem, I think, that Paulson still has not understood, the banks made some very bad loans. They made loans on the basis of asset prices that were inflated by a housing bubble. That bubble has broken. Some of those loans won’t be repaid or will only be repaid in part. There’s a hole in the balance sheet, and that has to be repaired. And they have—this bill does not do it, unless it does it surreptitiously by overpaying for these assets.
See another interesting article by Stiglitz here.