Seeing the Sea-Change in Germany and in the USA
What kind of “growth” is possible and desirable, what is impossible or dangerous on the thin surface of this planet? What do we want to “stimulate”, or “invest in” — and who makes, and in whose interest, “investment” decisions?
By David MacBryde / The Rag Blog / February 12, 2009
BERLIN — In Germany on Friday, the sixth of November, 2009, the major conservative newspaper here, the Frankfurter Allgemeine Zeitung, ran a front page picture captioned “The World Hanging in the Air” just prior to, and while waiting for, the US response to the financial crisis and the economic stimulus package.
The paper reported, as a taste of what might come, that the US administration just extended public health coverage for children (SCHIP) “as a down payment on comprehensive reform.”
In the German news, local TV showed school districts in Berlin and around the country where people were working overtime gearing up to implement school building renovations as part of the German economic stimulus plans that had already been agreed upon.
One definite if relatively minor controversy was about accountability. Substantial public funds, borrowed in effect from the future, were being rapidly distributed to local school districts. How would the public school administrations handle the funds in an accountable way? That involves accounting in the bookkeeping sense (where German bookkeeping can be “stuffy” and rigid, not flexible and as fast as needed in the emergency.) The issue is also accountability in terms of appropriate use of public funds borrowed from the future. That sense of accountability, given the flood of funds, is getting lots of attention, including that of the school kids.
The main controversy in the German news came in debates about the crisis in the financial system. There are still many unknowns about conditions in some banks. There are still questions about possible huge hidden obligations, “innovative finance packages,” in the financial sector. And worse (since only relatively few banks here held many “innovative finance packages” bought from the USA — and there was no housing bubble or sub-prime mortgage problem here), the rapidly deepening recession meant that even “normal” bank assets were of unclear value, or were losing monetary value.
The German government is preparing legislation should it become necessary in the public interest to nationalize, expropriate, banks on a large scale. The government, the taxpayers, already de facto own a few banks on a case by case emergency basis. (And simply “nationalizing” the banks is not in itself here seen as adequate. One of the first banks to face failure here was the Bavarian State Bank, owned by the very conservative state of Bavaria and run by the local equivalent of very conservative Republicans. That is a topic for another blog.)
On Tuesday the 10th of February there was news from the USA about the stimulus package being passed by the Senate. That process is being closely watched and generally greeted with some relief here.
Then the US administration presented the revised action plan about the financial crisis.
Lead by a hefty 10.2% decline in financial stocks, the stock market dropped 4.6%.
One thing is obvious: the announced action plan was NOT seen as making US banks wealthy.
To the contrary, bank stocks dropped.
Historians will have many details to look into. And more decisions will have to be made in order to get beyond the crisis in the financial system. But it is obvious that the plan as announced will NOT hand the banks a blank check from taxpayers as the original three page Bush-Paulson Republican bailout plan tried to do.
Into the future. Working towards April:
In Germany there has been much work on the crisis in the capital market system.
There was a meeting in Berlin about the financial crisis that was initiated by the German Ministry of International Economic Cooperation and that included non-governmental organizations and think tanks. The issue was the impact of the crisis in the financial system on weak states. The bottom line: the crisis, created in the richer countries, appears to be causing the unemployment of an additional 20 million people in poorer countries, with an increase in infant mortality. While over the years there had been some improvement in overcoming poverty and malnutrition, now that progress is being threatened and more kids are starving to death, all because of decisions that were made in banks. The German foreign policy position now includes (a) increasing direct foreign aid and (b) cutting those European and US agricultural subsidies that harm indigenous farming development in poorer countries. It was noted that Obama has explicitly urged the cut of those farm subsidies in the US, but that farm legislation in the US is also a domestic issue and depends on legislative work at the state level.
The German and European Union negotiating position on the financial crisis is being worked out with a view to the next international finance crisis meeting in April. That meeting will now include Brazil and China, and there is intense non-governmental work happening that concerns the inclusion of the interests of weaker states. This process will be one thing to watch.
For one aspect of the sea change that is happening, see the accompanying chart of current bank rankings as of Feb. 6, 2009 (Frankfurter Allgemeine Zeitun).
What will be happening in the USA regarding the financial system crisis?
There were congressional hearings with bankers on Wednesday, Feb. 11, 2009.
After the panicky punt by Paulson with his three page plan being defeated in Congress, Congress did pass a financial system plan that was supposed to be different — not a bailout but an investment — with oversight and accountability for us tax payers.
What has been happening to that? And what will happen next?
Personally, I have long appreciated the work of Elizabeth Warren. She wrote “the Coming Collapse of the Middle Class” and “The Two Income trap” concerning what has been happening economically to middle income families since the early 1970s, in “the mainstream.” She shows the sociological changes in the last 30 years and where we are “now” — BEFORE the current crisis — and how mainstream families ware but one accident away from bankruptcy BEFORE the current crisis started. Warren was previously at the University of Texas and now is at Harvard Law where she specializes in bankruptcy law.
If you have time, and cheep broadband access, she has a fine lecture on YouTube.
Warren was appointed chair of the Congressional Oversight Committee on the financial crisis. She is an expert in personal bankruptcy. She is certainly no fan of bankrupting average Americans in the interest of pumping money to bankers. She has heavily criticized both the Bush-Paulson plan and its implementation.
As the capital market crisis continues, she is one person to watch. There will be much controversy and more hearings in Congress.
On the stimulus package, Obama went on the road and encouraged local home meetings about the economy. And supposedly a government website is being set up for accountability, to follow implementation and to keep tabs on who does what with tax payer money for the stimulus.
There will be hearings in Washington on the financial system crisis. How will the controversies and decisions about the finance system crisis proceed?
Looking forward. From afar, one question:
Is there interest outside of Washington, D.C., in holding hearings on the financial crisis, on what happened and what is in the public interest? Might it be of interest, say in Austin, Texas, to encourage, say Congressman Lloyd Doggett with his staff, to set up a local hearing?
Maybe calling on Jim Hightower and perhaps faculty from Austin Community College, maybe Richard Croxdale, and UT journalism professor Robert Jensen, and James Galbraith of the UT Inequality Project, and others?
A start-up working paper to raise questions could be the Dec. 10, 2008, report from the Congressional Oversight Committee.
The focus for a hearing could be the Preamble to the Constitution, specifically one core purpose for the founding the United States, namely for “promoting the general welfare”. How do the efforts to solve the crisis in the financial system measure up to the purpose of “promoting the general welfare?”
That is a short term question. The longer term issue is what is meant by getting “beyond” the crises? Four cars in every garage is not the answer. I will write on that in a future blog. What kind of “growth” is possible and desirable, what is impossible or dangerous on the thin surface of this planet? What do we want to “stimulate”, or “invest in” — and who makes, and in whose interest, “investment” decisions?