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As Senate Prepares to Vote on Revised Wall St. Bailout, Critics See Only Slight Changes Following Widespread Public Opposition

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Following Monday’s rejection in the House, the Senate plans to vote today on the $700 billion bailout of Wall Street. Lawmakers are said to have revised the bill following public outcry, but critics say the measure includes only slight, cosmetic changes. We get an update from Washington insider and former Senate Banking Committee chief economist Robert Johnson and speak to veteran journalist William Greider of The Nation magazine. [includes rush transcript]

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This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: The Senate plans to vote today on the $700 billion bailout package following angry calls from constituents after the markets plunged on Monday when the House failed to pass it. Congressional leaders told reporters they hope to send legislation to President Bush by the end of the week. The Senate proposal is expected to include measures to win the approval of House Republicans such as tax breaks for businesses and higher government insurance for bank deposits. The vote is scheduled for after sundown, in observance of Rosh Hashanah, the Jewish New Year.

House officials also worked on their own changes to the plan Tuesday. These included a tax credit for low-income homeowners and an extension of unemployment pay. But it remains unclear whether these changes will be approved by the Senate.

As the markets began to recover on Tuesday after Monday’s precipitous fall, President Bush, as well as both presidential candidates, urged Congress to take quick action to stabilize the markets. Both Senators Obama and McCain said they would return to Washington for Wednesday’s vote.

After meeting with Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke, President Bush warned Tuesday the consequences for the economy would be “painful and lasting” unless Congress acted on the bailout plan.

    PRESIDENT GEORGE W. BUSH: As much as we might wish the situation were different, our country is not facing a choice between government action and the smooth functioning of the free market. We’re facing a choice between action and the real prospect of economic hardship for millions of Americans, for the financial security of every American. Congress must act.

AMY GOODMAN: To make sense of what’s going on with the economy, I’m joined now by veteran journalist and bestselling author William Greider. He’s the national affairs correspondent for The Nation magazine and the author of several books, including The Soul of Capitalism: Opening Paths to a Moral Economy and One World, Ready or Not: The Manic Logic of Global Capitalism. His forthcoming book is called Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country.

But before we go to William Greider, we’re going to turn right now for a moment to Rob Johnson. He was on with us yesterday, the former chief economist of the Senate Banking Committee. He was in Washington yesterday through the negotiations.

Rob Johnson, if you can just bring us up to speed — what actually happened? And how is it that the Senate will be voting before the House? The House, expected to vote tomorrow, two days ago they voted the plan down.

ROBERT JOHNSON: Well, it appears that the Senate has a very strong majority in both parties supporting the bill, as many as seventy votes. In order to make the bill more palatable for the Republicans, Majority Leader Reid appears to be offering various business tax cut possibilities, that were covered on the wires last night, and other things, including an increase in the limit on deposit insurance, which small banks favor. Also, among all the business groups — Chamber of Commerce, National Association of Manufacturers, Business Roundtable — they’ve put out a call that said if you don’t want a bill, a left-wing bill, then you’ve got to support this right now, because the President is going to have to sign whatever comes to us, and that’s because the markets are so fragile.

So you’ve seen a tremendous business lobbying effort, an attempt by the Democratic leadership to pass this bill, not by moving to the left and doing more progressive legislation, but by moving to the right to please the business groups and the Republican voters that would change over.

The Senate will vote first, and then my understanding is they plan to adjourn, so the House has to pass the bill or take responsibility for the turmoil in the markets that would ensue.

AMY GOODMAN: And, Rob Johnson, if you could just speak as loud as you can, because there’s a lot of static on your cell phone. But were there people in the Senate who are resisting this in the Democratic leadership?

ROBERT JOHNSON: Well, the understanding is that Senator Webb from Virginia is quite unhappy with the bill and may consider expressing that and working to try to make some changes. That was the word that was out last night. It’s also known that Senator Dodd and Jack Reed from Rhode Island have expressed concerns about giving [Secretary] Paulson quite so much discretion to allocate $700 billion on a “trust me” basis. While they’ve worked to improve the bill, they have suggested behind the scenes that they would like to have seen it go further, but at this point the bill has so much momentum, so many people are fatigued, they want to get out of town, and I think they run the risk of doing some very bad public policy here.

AMY GOODMAN: And then, the House votes tomorrow.

ROBERT JOHNSON: The House vote would follow the next day, that’s correct.

AMY GOODMAN: William Greider, you’re with us in Washington, D.C. As you hear these latest develops and, of course — developments, have been following them, what are your thoughts right now?

WILLIAM GREIDER: Rob is an old friend of mine, and I know he’s on the case, but I think he would agree this is a very revealing moment in American democracy. We’re seeing the real deformities and power alignments that govern issues like this, particularly the financial system. And I think he’s right. My guess would be that the House will fall, will cave, and they’ll get their votes. I’m sure right now the captains of industry are pounding the bejeezes out of the Republican dissenters, and when it’s through, then we’ll see.

We have — my sense is that we are in this very rare and somewhat dangerous situation for the next three months, until a new president and congress are in office, in which, yes, the government has to act, but all of the power centers in politics and finance and business are discredited by these events, which is very unusual. And so, we had this moment Monday when, for complicated political reasons, a majority in the House rose up and said no. They were standing, of course, with the broad public, which regards this bailout as a swindle and backwards. Why are you giving all this money to the people who caused this crisis and taking the money from the public assets of the victims, which is the rest of us?

AMY GOODMAN: So, what about this, William Greider? What about this, what you call the historic swindle?

WILLIAM GREIDER: Well, it’s going to roll forward, I think. And we will see how Secretary Paulson dispenses this money — I would guess, rapidly — in the next three months. He is a Wall Street guy, a member of the club in esteemed standing. He was CEO at Goldman Sachs. He speaks the language, which anyone in the general public can see when they look at what he’s told us, and what he hasn’t told us, about how this bailout will work.

My fundamental complaint is that they have been sleight of hand to the point of broad deception to the American people, if you listen to the rhetoric of the President and others in what they’re setting out to do here. Even $700 billion will not save all the financial institutions. What we’re witnessing is the great deflation of Wall Street, literally, in which it will get smaller, less powerful; firms will have to merge or fold. And that process is underway, and it’s bloody. But he — as a result of that, he can’t bail out everybody. He can take a lot of assets off the balance sheets of crippled and insolvent institutions, but he can’t save them all. So, my view is that he has now put himself in the role of grim reaper for some and savior for others. And the process in which he chooses those is not exactly transparent to the rest of us. We’ll learn later, and we’ll hear, I predict, lots of screams and denunciations, because he will pick and choose on a plane that somebody is going to lose. That’s the banker’s side of it.

Of course, the other side of it is the one that I think matters most to the country — it certainly matters most to me — which is, what is the government doing, while it manages the shrinkage of Wall Street finance, to build a floor and stability under the real economy where people live — producers, workers, families? And the answer is, not much. And I’ve argued for some time that both parties in Washington, following the lead of the financiers and the Bush administration, have this backwards. They — of course, they have to deal with the bloodied financial system, but the real energy and resources should go directly into the real economy in different ways, which is also contracting or in a recession, and so the challenge is to keep that real economy from unwinding as dramatically as the financial system has unwound. And banking is part of that, to be sure, but the heart of it is demand for products and employment and jobs. It’s helping to build at least a temporary floor under income, so that people can just cope with the ordinary costs of living. It’s a lot of things, which get a little rhetoric, but have gotten rather pitiful action so far.

AMY GOODMAN: William Greider, you’ve written that the scandal is not that the government is acting, but that the government is not acting forcefully enough. What do you think the government needs to do right now?

WILLIAM GREIDER: I think the government needs, right now — I don’t think they’re going to go that way just yet, but I think ultimately they may have to — step up, exercise its full powers in emergency, and literally take control of the banking system and the financial system and supervise it as it deals with the realities of firms that will not survive and those that can survive; husband, if solvent, banks and make sure they stay solvent instead of tipping over; and then use that power to guide economic policy for the country, that is, make sure those financial institutions are lending and keeping the credit spigots open for businesses, for families, for all of the uses that go on in our society; and then add the stimulus alongside it, and I mean major stimulus, to encourage all of those players.

Here’s what happens in a situation like this, at least historically, and I think it’s beginning to happen now. Everybody, quite reasonably, hunkers down. That’s a rational decision: I know we’re in trouble, I know the system is crumbling, I’m going to put my money under the mattress, so to speak, and wait this out. So, that means people stop spending, and they stop borrowing and can’t borrow, and bankers, likewise, stop lending. The government is the only player with the power to step in and reverse that dynamic. That is what the federal government should be doing forcefully right now.

In the banking system, it has most of the power it needs to exercise control, and I’m not talking about — it sounds like nationalizing the banking system, and, in a sense, it is. It says, OK, we’re in charge for the duration, until we’re out of this crisis. But you don’t need to take over the buildings and so forth. The banking regulators, including the Federal Reserve and a number of others, if they had the will, if they had the understanding, if they had the authority of the political situation, can literally impose supervisory control over a troubled bank. And banks really don’t — I mean, you can go to court and sue, if you like, but basically, in the meantime, they get to tell the bankers how to behave.

That’s what I want to see right now. And that would give the regulators the opportunity to go through banks, one by one, starting with the largest ones, and say, these people are in much worse shape than they’ve revealed, let’s put them in a — either a workout plan that forces them to shed some of their liabilities, but also to start behaving properly, or shut — close them down, force them to sell. Now, we’re seeing that process already.

What I’d like to see is a sort of general approach that does that, even as the government identifies big spending projects that will be part of that stimulus package. It’s all very fine to give people a small rebate, but that doesn’t begin to get there, because, as we’ve seen, most people will say, “Great! I get to pay my phone bill this month,” or “I get to catch up a little bit on the mortgage.” What you need to do is direct government contracts, spending, loans, all kinds of vehicles, to create, stimulate economic activity, which then has a sort of lateral effect in communities, and so forth and so on —- those two prongs.

AMY GOODMAN: William Greider, we’re going to go to break. We’re going to come back, though. National affairs correspondent for The Nation, forthcoming book called Come Home, America. This is Democracy Now! We’ll be back in a minute.


AMY GOODMAN: We continue with our discussion with William Greider, written a number of books, has one coming out soon, Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country.

William Greider, how did we get here? How did we get to this point? Who was predicting it?

WILLIAM GREIDER: Well, there were a lot of bag ladies on street corners, myself included, who were telling people for two decades, really, that the political system was in the process, under intense guidance from financiers, of unwinding, literally obliterating, all of the hard lessons that Americans learned in the pain and sorrow of the Great Depression. I’m talking about the New Deal rules and laws that imposed prudential controls on the behavior of the financial system. And a whole new generation came along that said, “That’s old-fashioned. We don’t need that anymore. We’ve got computers. We can do these things. And those old bankers in the 1920s who produced the collapse of 1929 were good people, but they didn’t understand what we understand.” And so, we got a, quote, “new architecture” for the financial system. And people have been reading for the last couple of years the gimmicks, the delusions, the fraudulent valuations that are built into that system now, still there. We met a -—

AMY GOODMAN: You have written about the savings and loan scandal and about what was created then, the RTC, the Resolution Trust Corporation.


AMY GOODMAN: Explain that and its relation to today.

WILLIAM GREIDER: Well, the model that Paulson, the Secretary of Treasury, is taking is the Resolution Trust Corporation, which they created in the late ’80s to clean up the mess the government had also caused by collusion with the banking system in the collapse of savings and loans. Bank regulators closed down a lot of S&Ls that failed and therefore inherited their assets, which, in most cases, were property — houses, shopping centers, developments, and so forth and so on. How to get — and basically, the taxpayers picked up the tab.

How to dispose of those assets? They created the RTC, which literally sold them pennies on the dollar back to the financial system, which had lent the money in the first place to start these projects. And so, it was not just a financial bath, but it seemed to me a scandal in its own terms. The same players who had helped gin up the reckless borrowing and lending in the savings and loan industry picked them up and picked up the ruined assets and profited again on the downside.

What Paulson is doing is — the bankers got stuck with all these rotten assets, which they created and sold to each other and to the world; now let’s take those off their hands, and they’ll be OK again. I’m not alone in saying that that’s a real crapshoot as to whether that works, first of all, because those banks, as I said, are going to get smaller, and they’re collapsed, and they may or may not start lending again. I would guess not, not until they see a vibrant economy again.

But it’s also — and this is where the public stepped up — it’s profoundly illegitimate as an act of democracy to take the money from taxpayers and say to the villains in this story, “Here, here. Can we help you out of your troubles?” No rules, no guarantees that these villains will correct their behavior, no really serious effort to write into this legislation a sense of where the system goes from here that’s honest.

At this hour, I would settle for honesty. If the politicians in Congress and the officials in the Bush administration and a few people from Wall Street would simply tell the people the truth about the situation, what they intend to do with the public money, that would be a good start.

AMY GOODMAN: Do you expect to get that — do you expect to get that from either leading political party presidential candidate, Obama or McCain?

WILLIAM GREIDER: The short answer is no. I hesitate, only because Barack Obama has marginally been a little more direct in suggesting that we have a big reform problem to deal with. Unfortunately, if you watched the debate a week ago, he took a duck, I think. He —- and, of course, McCain did. But neither of them really stood up to the moment. They had some platitudes about how terrible it is and how we have to do the right thing and all that, but I found that very disappointing. And I understand all the political reasons why it was not just difficult, but risky, for Obama to be clear and more honest about our situation. I’m old-fashioned -—

AMY GOODMAN: Why is it — why is it so risky?

WILLIAM GREIDER: Well, because —- because -—

AMY GOODMAN: I mean, you have America up in arms right now, furious.

WILLIAM GREIDER: Yes, well, that —-

AMY GOODMAN: That’s what the Republicans and some of the Democrats were responding to in the House when they voted this down. Isn’t it not only a critical moment, a teaching moment, where people are open to hearing a different analysis and where else we can go?

WILLIAM GREIDER: That is my view. And my view is that the American people are grown-up and smart, and they know they’re not getting the whole story from these guys. And they would be thrilled to hear somebody talk that way to them. That’s my view.

I’m just saying that inside campaigns, I’m sure the advice is, if you tell people the whole story of where we are and what’s ahead, they’re going to call you a naysayer and a pessimist and an anti-American, and blah, blah, blah, and besides, it will just put them in a sour mood. Or they will say, if you tell the truth about our situation, you will -— the blame will be pinned on you; stand back, let it happen, and then, once you’re in office, you can deal with it. I think that’s backwards, and I think American people expressed very clearly their desire to get to the truth of things.

The campaign is not over. We’ve got another debate coming. Maybe candidate Obama — I think it unlikely for candidate McCain — but maybe one of them will get a little closer next time out.

AMY GOODMAN: Let me play for you a clip of our guest yesterday, Bruce Marks. You may know him, or not, as CEO of NACA, Neighborhood Assistance Corporation of America. He said, say no to the bailout.

    BRUCE MARKS: The fact of the matter is, this thing should be killed. It should not happen at all. It does nothing, Amy, for the homeowners. And what we have to say to Congress, Amy, is we have to say, “It’s the foreclosures, stupid,” just like Bill Clinton said to the first George Bush, “It’s the economy, stupid.” We have to say to this Congress, “It’s the foreclosures, stupid.”

    And they have to do three things: do a moratorium on foreclosures, stop the interest-rate increases, and restructure loans to make them affordable. That’s it, without one dollar of taxpayer money.

AMY GOODMAN: William Greider, we only have thirty seconds. Do agree with Bruce Marks?

WILLIAM GREIDER: I agree totally. And there’s a long list of other things that we could cite, and that’s what I call addressing the real economy, as opposed to healing the wounds of our injured bankers. And —-

AMY GOODMAN: What’s the long list, very quickly?

WILLIAM GREIDER: Well, start putting out big money to the states and localities, which are now being squeezed by all of these pressures, and tell them to spend that money on useful things in their communities and states. Do a general hold harmless on the corrupt gimmicks that are in the financial system now; just tell the banks, “Stop. Don’t do it anymore. We’ll worry about your ruined assets later.” The homeownership is -— it could be done a lot of different ways, but that’s where I would put the public money. We’re going to buy — we’re going to buy a lot of mortgages, and when we buy them, we’re going to change the terms. Give —- keep people in their homes, which is essential to stop the destruction of neighborhoods, and give them three— to five-years workouts. Workouts are what bankers give to most — their most important clients, that is, corporations, when those corporations get in over their heads. Why can’t the government do the same for citizens?

AMY GOODMAN: William Greider, we will leave it there. I want to thank you for being with us.


AMY GOODMAN: National affairs correspondent for The Nation magazine. His forthcoming book, Come Home, America: The Rise and Fall (and Redeeming Promise) of Our Country.

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