By Brent Budowsky - 09/18/08 07:08 PM EDT
Financial institutions collapse. Global recession threatens. The government nationalizes bankrupt business at taxpayer expense. Markets collapse. The crisis cascades. Anger and fear spread among hard-hit Americans paying for bailouts of greed and incompetence in a financial Katrina.
The Republican economic philosophy of “anything goes” deregulation is disastrous and politically dead. Proposals by Sen. John McCain (Ariz.) and Republicans to privatize Social Security should be terminated. Democrats should be bold and bipartisan as America enters a dangerous and historic rewriting of rules for American finance.
1. Congress should pass an emergency economic stimulus of $100 billion for middle- and lower-income Americans. There must a lame-duck session of Congress to consider systemic reform of American finance that should not be crammed in with election politics, and must not be delayed until next spring.
2. There should be an urgent, coordinated global interest rate cut by the Federal Reserve and central banks in Europe and Asia. There is an extreme danger of a global recession that must be promptly addressed. European institutions must share responsibility for bailouts and reforms.
3. The attorney general and Securities and Exchange Commission (SEC) should begin criminal investigations of manipulations by firms that may be using illegal methods and spreading false rumors to foment fear and panic, especially by short-sellers who profit when markets collapse.
The tolerance of illegal market tactics creates an incentive and reward for corruption. The announcement of a priority criminal investigation would immediately have a deterrent and stabilizing impact on markets.
4. Congress and the president should create a Reconstruction Finance Corporation to comprehensively address the crisis for lenders, borrowers and taxpayers. It is incompetent to deal with these crises with a haphazard “one bailout at a time” panic. The Fed should not act as investment banker and bankruptcy liquidator, forcing hastily arranged deals in panic conditions, with irrational time pressures and inadequate information. It is reckless for government to act like communist-era central banks, outside of the democratic process, forcing wholesale nationalizations, liquidations and mergers without informed debate or checks and balances.
An RFC would bring a fair, comprehensive solution to stabilize markets and equalize risks and rewards for financiers and taxpayers alike.
5. Emergency actions are needed, but Congress should consider enacting some new form of the Glass-Steagall act. It is reckless and will be catastrophic to force-feed a return to the financial structures of 1929.
High-risk investment banking and speculation should not be merged with savings and retirement accounts that must be managed conservatively. As the entire structure of American finance is being radically changed, within days, without debate and under panicked conditions, mixing the money of Middle American depositors and retirees with high-risk speculation is disastrously wrong.
6. Democratic and Republican leaders should name a super-prestigious reconstruction commission to consider dramatic, balanced solutions. We must build a political consensus for solving multiple trillion-dollar crises in finance, energy, healthcare and veterans’ funding.
Al Gore, Warren Buffett, Jack Kemp, Bill Gates and former GE Chairman Jack Welch are the kind of leaders who might participate. America urgently needs a sweeping era of reform, of the magnitude of a modern New Deal. We face extreme crises of confidence, credibility and cash. Americans demand a full and fair mobilization to solve them.
Budowsky, a former aide to senior Democrats, has an LL.M. degree in international financial law from the London School of Economics. He is posting a series of essays on this subject on The Hill’s Pundits Blog and can be reached at firstname.lastname@example.org.