Our Most Dangerous Addiction

By Zaid Jilani

In every sector of the economy, we seem to be in crisis. The Associated Press (AP) notes that “from Seattle to Athens, Ga., homeless advocacy groups and city agencies are reporting the most visible rise in homeless encampments in a generation.” The federal government is coughing up hundreds of billions of dollars to save failing banks, and the real wages of most people are falling as the prices of basic commodities skyrocket. Even the usually calm AP responds to the situation with a panicked headline: “Everything Seemingly Is Spinning out of Control.”

Many Georgians are asking themselves why things are spinning out of control, and maybe more importantly, what can we do to alleviate the situation? To answer that question, we must look to a tale of two capitols: Washington, D.C., and Atlanta, Georgia.
 

In 1933 Congress passed the Glass-Steagall Act. Glass-Steagall created the Federal Deposit Insurance Corporation (FDIC), strictly regulated speculation and imposed a firewall between commercial and investment banking.

For decades afterward, the Glass-Steagal regulations prevented the rise of what the Center for Responsive politics has dubbed “financial supermarkets” — huge financial industries that “peddle everything from checking accounts to auto insurance” — that would be too large to be transparent to investors and would dangerously drive up risk in the market.

flash forward to 1999. The financial industry’s lobbyists have spent 25 years and $300 million lobbying Congress to repeal Glass-Steagall. The main legislative thrust behind the move came from Senator Phil Gramm, R-TX, chairman of the Banking Committee. His Gramm-Leach-Bliley Act (dubbed the “Financial Services Modernization Act”), which repeals the provisions in Glass-Steagall preventing the creation of the “financial supermarkets”, passed the House 362-57 and the Senate 90-8. Wall Street, eager to begin the process of mergers, cheered the move. Bill Clinton’s own Treasury Secretary — Robert Rubin, who lobbied for the bill himself — resigned from his own post to take up a top position at merger-happy Citigroup, who rewarded him for his service to their cause with a $17 million annual salary.

Gramm went on to be hired as chief economic advisor to the McCain 2008 presidential campaign. Robert Rubin is now one of Sen. Barack Obama’s top economic advisors.

One of the lone voices against the evisceration of Glass-Steagall was the late Senator Paul Wellstone. He warned, “Congress is about to repeal [Glass-Steagall] without putting any comparable safeguard in its place.” Another senator in his party, Bob Kerrey of Nebraska, downplayed the concerns of Wellstone and others. Kerrey was a member of the “New Democrat Coalition,” which came to power with heavy support from the financial industry in the late nineties. he confidently told his colleagues, “The concerns that we will have a meltdown like 1929 are dramatically overblown.”

Nine years later, the Federal Reserve was forced to provide a $29 billion loan to JP Morgan to save investment bank Bear Stearns from collapse. Six months after that, AIG, Lehman Brothers, Fannie Mae and Freddie Mac, Goldman Sachs and Bank of America all faced the same fate. These banks — heavily invested in the sub-prime mortgage market (where predatory lenders brought millions of Americans into mortgage schemes they knew they couldn’t afford) — were unable to survive once the housing bubble burst. Alan Greenspan, himself one of the free-market ideologues who lobbied intensely for deregulation, called the failures a “once-in-a-century crisis.”

The Federal Reserve, led by Treasury Secretary Henry Paulson, asked for a bailout package of $700 billion from taxpayers to save the failing banks by buying their junk assets. Economist Paul Krugman noted that the Federal Reserve’s guarantee of saving the banks meant “that profits [of the banks] are privatized but losses are socialized. If [they] do well, their stockholders reap the benefits, but if things go badly, Washington picks up the tab. Heads they win, tails we lose.”

A bailout bill for that amount was drawn up, but it faced enormous opposition from the public and lawmakers. Conservative members of Congress were outraged because the bill represented one of the largest government interventions in our history at huge cost to the taxpayer. Progressive members decried the bill’s bailout of Wall Street on the backs of Main Street’s taxpayers, the lack of accountability in how the money would be spent or the re-imposition of New Deal regulations and the failure to assist Americans directly by restructuring mortgage debt to keep people in their homes or investing in the real economy.

This outrage reached a tipping point when the House of Representatives actually voted down the bill on September 29th by 13 votes over the opposition of the president and leaders of both major parties. But the financial industry — which has contributed well over $100 million to candidates this cycle — did not want to give up its blank check. Senator Chris Dodd, D-CT, one of their best allies in the Senate, bypassed the constitutional requirement that all spending bills must originate in the House by attaching the bailout package as an amendment to a mental health bill. The bailout passed the Senate 74-25. Senator Bernie Sanders, I-VT, introduced an amendment to raise the bailout funds from a tax on the richest Americans. The leadership forced the vote on the amendment, which was overwhelmingly defeated, to be a voice vote. This means there was no legal binding for there to be a record made of who voted how.

Using this new political momentum, the House’s leadership lobbied their members furiously to pass the bill. They even added $150 billion in pork tax breaks and subsidies for the districts of members who had originally voted no.

Congressman Dennis Kucinich, D-OH, was interviewed about the vote by Democracy Now’s Amy Goodman. He told her that the Obama campaign had instructed Democrats during their caucus not to include mortgage restructuring for homeowners in the bill — which may be a result of the fact that Obama is the second largest recipient of money from the Fannie and Freddie mortgage giants. Kucinich was furious about Treasury Secretary Paulson’s demands to quickly pass the bailout and include a section in the bill that would absolve him from any legal responsibility for how he spent the money. He pointed that Paulson was the former CEO of Goldman Sachs, had collected nearly half a billion dollars in compensation from the company and was using the bailout as a way to eliminate his former company’s bad debt. “Is this the United States Congress?,” the congressman asks his colleagues during the debate on the bill, “or the board of directors of Goldman Sachs?”

Four days after Congress rejected Wall Street’s blank check, they passed the bill 263-171. The bill failed to restore market confidence as its backers assured us it would. The Dow Jones industrial average dropped below 10,000 for the first time since 2004 the Monday following its passage.

In contrast, when Prime Minister Gordon Brown bailed out British banks recently, the British government and taxpayers recieved voting rights at banks, seats on their boards, 12 percent annual dividend payments to the British treasury, a suspension of dividend payments to shareholders, restrictions on executive bonuses, and a legal requirement that banks institute policies to preferentially loan to homeowners and small businesses. The Guardian reports that Brown is now widely regarded as a political “superhero” for saving the country’s banking system while ensuring a fair deal for taxpayers.

To understand why our government was so much more eager than the British government to write a blank check to socialize Wall Street’s losses without imposing new regulations or directly helping the victims of the subprime crisis, we have to follow the money. The financial industry spent more than $100 million in political donations to candidates in 2008; figures from the center for Responsive politics show that House members who voted for the bill received 54 percent more money from the banks and securities firms than those who did not. In the United Kingdom, most elections are mostly publicly financed, and there are strict limitations on donations from industry.

“The problem is being connected to Wall Street, in terms of your funding.” reflected journalist and former Bear Stearns investment banker Nomi Prins following the bailouts. “Wall Street...was the biggest contributor to all the politicians in Washington over the last decade. It’s where the most money comes from.” Money ruled the day, and we lost.
 

Georgia is in dire need right now of additional support from the state. A report by the Joint Economic committee of the U.S. Senate finds that the real median household income in Georgia has only increased by $16 between 2000 and 2006, while gas prices have increased 94 percent, healthcare premiums have risen about 36 percent and college tuition has increased nearly 23 percent in roughly the same period of time. It’s undeniable that Georgia is hurting, and the federal government has failed to respond appropriately.

The recession that is hitting the nation has hurt the state’s revenue intake. Gov. Sonny Perdue has projected a $1.6 billion shortfall in the 2009 fiscal year budget. Because the state has a balanced budget amendment that requires the budget not go into deficit, perdue has requested a series of cuts to vital services: PeachCare cuts of 5 percent, or $108 million, Board of Education cuts of 2 percent, or $161 million, the elimination of the Homeowners Tax Relief Grant, cutting $428 million and cuts of 6 percent, or $443 million in all other state agencies.

These cuts would hit the poorest Georgians the hardest, but the Republican-controlled legislature has lined up behind the governor in his requests. Yet as the Atlanta Journal Constitution reports, the Georgia Budget and Policy Institute (GBPI) has found that legislators do not plan to reverse more than $150 million in special interest tax breaks — which include a $50 million tax break for people or corporations that donate to private school scholarship funds, a $34 million tax break for forest-land owners and $10 million tax break for filmmakers. perdue has also chosen not to tap into the $678 million to $787 million available in the Revenue Shortfall Reserve. Lastly, most legislators have refused to consider any sort of tax hike, despite the fact that the state has some of the lowest taxes in the country. GBPI reports that an increase in the cigarette tax by one dollar a pack would accrue $442 million, and a one percent income tax surcharge on family income above $400,000 would bring in $225 million of revenue.

These minor tax increases would do little to deter businesses; on the contrary, businesses are constantly leaving the state to other states with higher taxes but also healthier and better educated workers. Georgia ranks 49th in state spending per capita, resulting in one of the worst health and education systems in the country. Knowing these facts, why are legislators so timid to institute small tax increases to make up the funds for essential services for those who need them most?

For the answer, I turn to Alan Essig, GBPI’s executive director. He gives me two words when I ask him why the state’s lawmakers are favoring tax cuts for millionaires over essential services for indigent children: “special interests.” Essig explains that he’s been working in the state capitol for 20 years, and that it’s obvious that the Chamber of Commerce and its business allies hold the most sway.

Rep. Doug McKillip, D-Athens, a populist legislator elected in 2006 on a platform of stopping cuts to social services, tells me in a phone interview that the Republicans in the House think “that if they do allow an increase [in taxes] on extraordinarily high income brackets that they’ll face primary [election] opposition” from even more extreme-right members of their own party. “Many of the...members of the House of Representatives,” he says, “have signed a pledge to not increase any taxes whatsoever.”

One group of particular importance is the American Legislative Exchange Council (ALEC). ALEC was founded in 1973 by a small group of activists opposed to abortion and the Equal Rights Amendment. By the 1990s, it had transformed into a gigantic umbrella group with more than 2,400 state legislators under its wings working on a variety of right-wing issues. While the organization portrays itself as independent and civic-minded, it’s easy to see where its loyalties lie when you look at how it’s funded. According to a 2002 report by the Natural Resources Defense Council and Defenders of Wildlife, only two percent of the group’s multi-million dollar operational fees come from membership dues. The other 98 percent comes from corporations. Its “Private Enterprise Board” is stacked with representatives of PhRMA, Coca-Cola, ExxonMobil, AT&T, Bayer, Wal-Mart and other long-time foes of public interest legislation.

Using ALEC’s resources, Rep. Earl Ehrhart, R-Powder Springs, the group’s former chairman who now serves on its Board of Directors, has recruited more than 100 Georgia legislators into the network and has passed a number of its bills. Two major ones were a “tort reform” law that made it much harder to make claims for asbestos damages and a law that barred cities (but aimed mostly at Atlanta) from instituting living wage policies on public contracts. Apparently ALEC’s “limited government” tenet does not include letting cities decide how they spend their own money. “[The legislature is] adopting the ALEC agenda and platform wholesale,” McKillip says. “[Their] legislation just sails through the system.” ALEC’s agenda has included cutting more than a billion dollars from the state’s education funds in the past six years and cutting thousands of students from HOPE scholarship eligibility.

Efforts to raise the state minimum wage have been virtually killed off, despite the fact that opinion polling regularly finds 80 percent of Georgians support some sort of increase. “In the House, the Republicans never let us get a hearing on [bills to raise the minimum wage],” says McKillip. “We’ve done information packets for House members about the overwhelming support for raising the minimum wage. It’s just not part of the majority party’s agenda.”

PeachCare, the state’s most popular program, continues to be privatized and outsourced to Care Management Organizations (CMOs). The CMOs, run for profit, are much more expensive to run than publicly administered, Medicare-style programs — unless they turn people away, which defeats the point of the system. “They thought that putting that bureaucracy in the hands of a profit-driven corporation would somehow result in better service,” McKillip says, referring to conservative legislators that pushed for the move. “I think if you ask any doctor, that system is not working well. You’re paying so much funds to that insurance company just to administer it...you’re not delivering the services to people who need it.”

The legislature has been rewarded generously for its deference to the CMO’s. The healthcare industry has donated nearly $2.5 million in contributions to the legislature in 2008, second only to the insurance and real estate sector. Both industries contribute more than ten times the amount of money the chief public-interest lobby (labor unions) do to the political process, assuring that the state’s officials will be in their pockets, not the Georgian public’s. McKillip was asked if he thinks the worsening economy will create the political momentum necessary for the state government to take a greater role in alleviating economic suffering. After a long pause, he replies, “I hope so.”
 

Forget marijuana; our country is hooked on a much more dangerous drug. Wall Street is addicted to risky investments that are edging us toward a global depression and our lawmakers are addicted to campaign contributions from big donors that have resulted in disastrous policies of deregulation and privatization. Make no mistake about it: this is your country on greed.

The principle at work here is that we as a society should not provide things like education and healthcare as fundamental rights, and that making sure people earn fair wages and have decent working conditions is not our responsibility. Instead, we’re told, we should only look out for ourselves, keep regulation out of the economy and try to make as much money as we can.

The recent election brought with it the ethos of change, but as this article has demonstrated, the power of financial giants and their lobbies remain well-represented even in a Democrat-controlled Washington, D.C. The election of Barack Obama has been a stunning rebuke to the extreme-right’s philosophy of endless deregulation and tax cuts, but it is up to us to make sure his mandate for change is used to enact the policies the millions who voted for him want, not the policies that the corporate-friendly advisers — his announced Chief of Staff Rahm Emmanuel was made notorious for using his position as the head of the Democratic Congressional Campaign Committee to funnel money to Democrats who pushed pro-corporate agendas — he has surrounded himself with desire.

As Wall Street goes into crisis, more children are hungry in our country than at any time in decades, and millions of Americans are waking up every day wondering whether their homes will be foreclosed on or if they will still have a job tomorrow. We can clearly see where greed has gotten us. Let’s hope it’s an addiction we can kick.