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
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
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
dyn/content/article/2008/11/13/AR2008111303634_pf.html for more information on
? 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
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
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.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
? 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
? Support Single Payer Health Care.