Phill Gramm got it right, says William Greider, or rather half-right. We don’t have an entire nation of whiners, but we do have a very vocal group of them. And they get what they want. To wit, our money.
It is Wall Street — the financial titans and big-money bankers, the most important investors and worldwide creditors who are scared witless by events. These folks are in full-flight panic and screaming for mercy from Washington. Their cries were answered by the massive federal bailout of Fannie Mae and Freddy Mac, the endangered mortgage companies.
When the monied interests whined, they made themselves heard by dumping the stocks of these two quasi-public private corporations, threatening to collapse the two financial firms like the investor “run” that wiped out Bear Stearns in March. The real distress of the banks and brokerages and major investors is that they cannot unload the rotten mortgage securities packaged by Fannie Mae and banks sold worldwide. Wall Street’s preferred solution: dump the bad paper on the rest of us, the unwitting American taxpayers.
Greider is the go-to guy on the social impact of economic events, and particularly on the Fed. His magnificent book Secrets of the Temple: How the Federal Reserve Runs the Country is typically accurate and detailed, yet oriented to the big picture and philosophically consistent. He knows what he’s going for, he doesn’t lose track and wander about, and he’s solid on the details along the way.
Though by no means without hope, Greider doesn’t seem to be optimistic about the near term for the American economy. A good deal of the problem comes from the coöperative relationship between the Democrats and Republicans, leaving no one to advocate for the people against Wall Street.
We are witnessing a momentous event — the great deflation of Wall Street — and it is far from over. The crash of IndyMac is just the beginning. More banks will fail, so will many more debtors. The crisis has the potential to transform American politics because, first it destroys a generation of ideological bromides about free markets, and, second, because it makes visible the ugly power realities of our deformed democracy. Democrats and Republicans are bipartisan in this crisis because they have colluded all along over thirty years in creating the unregulated financial system and mammoth mega-banks that produced the phony valuations and deceitful assurances. The federal government protects the most powerful interests from the consequences of their plundering. It prescribes “market justice” for everyone else.
Deflation is a word that doesn’t get used in conversation very often, so it can sound abstract. But it’s not. Discussing the Fed’s attempts to calm the panic, Greider says:
Bernanke knows the history of the last great deflation in the 1930s — better known as the Great Depression — and so he is determined to intervene swiftly, as the Federal Reserve failed to do in that earlier crisis.
So there’s pain on the way, and the question is how much of it can be off-loaded from the hedge-fund managers and real-estate speculators who caused the problem, and onto the folks who compare prices before choosing a gas station.
Americans should forget about whining; it’s too late for that. People need to get angry — really, really angry — and take it out on both parties.