America's Economic Free Fall
In their haste to do anything Wall Street wants, Congress and the lame-duck President are sowing far more profound troubles for the country.
By William Greider

Washington can act with breathtaking urgency when the right people want something done. In this case, the people are Wall Street's titans, who are scared witless at the prospect of their historic implosion. Congress quickly agreed to enact a gargantuan bailout, with more to come, to calm the anxieties and halt the deflation of Wall Street giants. Put aside partisan bickering, no time for hearings, no need to think through the deeper implications. We haven't seen "bipartisan cooperation" like this since Washington decided to invade Iraq. In their haste to do anything the financial guys seem to want, Congress and the lame-duck President are, I fear, sowing far more profound troubles for the country. First, while throwing our money at Wall Street, government is neglecting the grave risk of a deeper catastrophe for the real economy of producers and consumers. Second, Washington's selective generosity for influential financial losers is deforming democracy and opening the path to an awesomely powerful corporate state. Third, the rescue has not succeeded, not yet. Banking faces huge losses ahead, and informed insiders assume a far larger federal bailout will be needed -- after the election. No one wants to upset voters by talking about it now. The next President, once in office, can break the bad news. It's not only about the money -- with debate silenced, a dangerous line has been crossed. Hundreds of billions in open-ended relief has been delivered to the largest and most powerful mega-banks and investment firms, while government offers only weak gestures of sympathy for struggling producers, workers and consumers. The bailouts are rewarding the very people and institutions whose reckless behavior caused this financial mess. Yet government demands nothing from them in return -- like new rules for prudent behavior and explicit obligations to serve the national interest. Washington ought to compel the financial players to rein in their appetite for profit in order to help save the country from a far worse fate: a depressed economy that cannot regain its normal energies. Instead, the Federal Reserve, the Treasury, the Democratic Congress and of course the Republicans meekly defer to the wise men of high finance, who no longer seem so all-knowing.

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Housing Lenders Fear Bigger Wave of Loan Defaults

The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building.

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Massive US Deficit Spells Austerity Policy For Next Administration

The Bush administration this week predicted that the US budget deficit will hit a record $482 billion in 2009. This means that the next president, whether Democrat Barack Obama or Republican John McCain, will follow a policy of unprecedented austerity, including gutting entitlement programs, such as Medicare and Social Security. Although the deficit figure is $74 billion higher than what the White House predicted just two months ago, it is widely acknowledged that it severely underestimates the real scope of the coming shortfall. The amount announced by White House budget director Jim Nussle includes only $70 billion for the wars in Iraq and Afghanistan—which could cost at least three times as much. Moreover, the estimate ignores the $100 billion—or hundreds of billions, which could be the eventual cost—being allocated for the Treasury Department’s rescue of the mortgage finance companies, Fannie Mae and Freddie Mac. The estimate was based on projections of better-than-expected economic growth, corporate tax revenues, unemployment and inflation estimates and a slowing down of the fall in housing prices. These were quickly discredited by news that real estate prices had fallen by a record 15.8 percent in 20 major US cities over the past year. The same day that the White House released the estimate, Merrill Lynch was forced to write-down $5.7 billion in mortgage-backed assets and was essentially bailed out by investors from Singapore. “That’s not the real number,” former Bush Treasury Secretary Paul O’Neill said of the deficit in a comment cited in the Washington Post. “It’s upward of $500 billion and counting. It’s a mind-boggling number.” This staggering rise in government indebtedness—which has more than doubled in the current 2008 fiscal year to $389 billion, from $162 billion in 2007 and will be nearly half a trillion in 2009—further undermines the international creditworthiness of the US and places even greater downward pressure on the US dollar. According to the New York Times, “When Mr. Bush took office, he predicted that federal debt held by the public—the amount borrowed by the government to pay for past deficits—would shrink to just 8 percent of the gross domestic product in 2009. He now estimates that it will amount to 40 percent.”

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Henry Paulson Has Lost Control Over US Finance
The Real State of the US Economy

In an eerie echo of President Herbert Hoover in 1930, during a Presidential campaign against Roosevelt, following the stock market crash and collapse of numerous smaller banks, Paulson recently appeared on national TV to declare "our banking system is a safe and sound one." He added that the list of "troubled" banks "is a very manageable situation." In fact what he did not say was that the US bank deposit insurance fund, the Federal Deposit Insurance Corporation (FDIC) has a list of problem banks that numbers 90. Not included on that list are banks such as Citigroup, until recently the largest bank in the world.

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