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POSSIBLE LONGER-TERM APPROACHES FOR DEALING WITH THE ECONOMIC

By Carolyn Bennett,2014-05-17 18:37
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POSSIBLE LONGER-TERM APPROACHES FOR DEALING WITH THE ECONOMIC

    APPROACHES FOR DEALING

    WITH THE ECONOMIC CRISIS AND CORPORATE POWER

    Submitted by the Rocky Mountain Peace and Justice Center

    Contact: Carolyn Bninski 303-444-6981x2

Introduction:

In his new book, Agenda for a New Economy: From Phantom Wealth to Real Wealth, David

    Korten provides an analysis which can guide us as we create a new economy. He suggests that

    instead of evaluating our economy by “Phantom Wealth” of financial profits made from

    speculation and “return to money”, we need to look at “the economy’s contribution to the long-

    term well-being of people and nature”. Korten describes “Real Wealth” as the production and

    exchange of real goods and services that meet the real needs of people.

Most economists feel that the meltdown of the U.S. and world economy has been, for the most

    part, the result of massive speculation and greed by the big financial institutions and the

    corporations that serve them, often referred to as “Wall Street”. Government complicity was also

    a key factor (see “Sold Out: How Wall Street and Washington Betrayed America” at

    www.wallstreetwatch.org), as Congress and presidents stripped away important post-

    Depression regulations that protected the economy. Individual greed on the part of mortgage

    lenders and irresponsible buyers was a lesser factor.

The current economic morass is fueled and exacerbated by excessive military spending (about

    50% of discretionary spending goes to past and present military expenditures), much of which is

    designed to economically dominate the world and extract the human and natural resources of

    other countries. Militarization does not create any real wealth, but instead drains the economy of

    precious resources for human needs, green infrastructure and environmental protection. Most

    military spending is unproductive and is designed to dominate others, not defend our country.

This Wall Street blowout has now turned the economy into a shambles, eliminating over 3.5

    million jobs, driving millions more out of their homes and devouring much of the lifetime savings,

    retirement accounts and home equity of Americans.

In October 2008, Congress passed a massive $700 billion bank bailout. After Congress

    released the first half of the money, the banks hoarded a significant part of the funds, gave their

    executives huge bonuses and bought other banks. The money that the banks did loan out was

    not enough to make up for the slowdown in the non-bank lending sector (i.e., finance companies,

    car finance companies, etc.), which accounts for 40% of consumer lending. Consequently, the

    $350 billion bailout paid for by taxpayers had virtually no effect in stopping the downward slide

    of the economy.

Some Important Steps to Protect the Economy:

We offer the following suggestions for restoring honesty, responsibility, fairness, trust,

    prosperity and community to our economy and to our economic relations with each other:

    ? Restore strong regulation of the entire financial sector and other steps to restore

    power to the people. We must eliminate the casino approach that has caused this

    disaster. Some steps to accomplish this include:

    1. Regulate all pools of capital that rely on leverage. All financial sectors, including

    hedge funds, derivatives, credit default swaps, must be regulated. For example, one

    simple change regarding swaps is to require that a person buying a swap actually

    owns the asset being insured.

    2. Re-instate the Glass-Stegall Act, which separated regular banks from investment

    banks.

    3. Re-instate effective anti-trust legislation and a strong anti-trust regulatory system to

    ensure that no companies or groups of companies have monopoly power or have the

    potential of adversely affecting our economy.

4. Break up companies that are too big to fail. The current policies based on banks “too

    big to fail” creates a real problem of moral hazard. If these companies think they will

    continue to be bailed out, they have reduced incentives to take appropriate actions.

    5. Require that capital and liquidity buffers must be large enough to handle big shocks.

    Restrain overall use of leverage.

    6. Regulatory agencies, both nationally and internationally, must coordinate to ensure

    that risks are not out of control. There needs to be international coordination, not just

    to reduce risks, but to start developing an adequate international regulatory structure.

    (See http://www.ips-dc.org/reports/#752, http://us.ft.com/ftgateway/superpage.ft?news_id=fto111220081503251801 and

    http://www.washingtonpost.com/wp-

    dyn/content/article/2008/11/13/AR2008111303634_pf.html for more information on

    these points.)

    ? Protect taxpayer interests in all future dealings with the banks and nationalize

    insolvent companies receiving bailouts. There must be no more giveaways for Wall Street at taxpayers' expense, including the

    latest plan by the Obama administration to bail out the banks. Any future plan needs to

    be implemented fairly for taxpayers. If banks made bad investments, then their

    shareholders need to face the consequences before any taxpayer money is put on the

    line. If taxpayers' money is at risk, then taxpayers should get any potential profits and

    equity just like other stockholders. Prominent economists, including Paul Krugman,

    Joseph Stiglitz, Nouriel Roubini, Dean Baker, and Jeffrey Sachs, all agree that the

    government must get a fair bargain for any money it invests in the banks, even if that

    means temporarily taking over insolvent banks. Even conservative Republican Senator

    Lindsey Graham and Alan Greenspan admitted this. The FDIC regularly takes over

    failed institutions and appoints new management until they are able to be returned to the

    private sector.

The government should take control over the failed banks, oust the management, and

    begin a restructuring process that would break up the “too large to fail” banks into retail

    units which could be sold to local investors as independent community banks. The units

    could also be spun off as member-owned mutual savings and loan associations

    managed on a cooperative model. This system of local banks was the norm for most of

    U.S. history, and would restore accountability to the system and to communities being

    served.

In summary:

NATIONALIZE: Insolvent banks that are too big to fail must incur a temporary FDIC

    intervention - no more blank check taxpayer handouts.

REORGANIZE: Current CEOs and board members must be removed and bonuses

    wiped out. The financial elite must share in the cost of what they have caused.

DECENTRALIZE: Banks must be broken up and sold back to the private market with

    new antitrust rules in place - new banks, managed by new people. Any bank that's "too

    big to fail" means that it's too big for a free market to function.

    ? Congress must have oversight over the Federal Reserve. A Congressional task

    force on the Federal Reserve should be established. (See

    http://www.counterpunch.org/nader02112006.html and

    http://www.yesmagazine.org/article.asp?ID=3050 for more information.)

    ? Support legislation which empowers bankruptcy judges to make loan

    modifications, including “cram downs” (reductions in the amount of the mortgage), on homeowners’ primary residences.

    ? Support for homeowners who are having trouble paying mortgages so that they

    can stay in their homes.

    ? Passage of the Employee Free Choice Act. EFCA will protect workers' rights to

    form unions and protect them from intimidation from employers opposed to union

    organizing. EFCA, supported by a bipartisan coalition in Congress, would enable

    working people to bargain for better benefits, wages and working conditions by restoring

    workers' freedom to choose for themselves whether to join a union. It would: 1) Remove

    current obstacles to employees who want collective bargaining. 2) Guarantee that

    workers who can choose collective bargaining are able to achieve a contract. 3) Allow

    employees to form unions by signing cards authorizing union representation. Giving

    working people the freedom to form unions and bargain collectively is key to turning

    around the economy and rebuilding America's middle class. Union members are 52

    percent more likely to have job-provided health care, nearly three times more likely to

    have guaranteed pensions and earn 28 percent more than nonunion workers. No matter

    what else we do to turn around America's economy and rebuild the middle class, we will

    not have broadly shared prosperity until we restore workers' free choice to bargain with

    their companies for a better life-without corporate intimidation. The Employee Free

    Choice Act will do that. (more info at

    http://www.aflcio.org/joinaunion/voiceatwork/efca/whatis.cfm and

    http://www.americanprogressaction.org/issues/2009/03/efca101.html).

? Reduce the power of money in politics by:

    Working for the public financing of political campaigns

    ? Cut the Military Budget and end U.S. occupations of Iraq and Afghanistan, attacks

    on Pakistan and support for the Israeli occupation of Palestinian land (see packet

    of information).

? Support Single Payer Health Care.

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