angry americans turning on wall streeT? -- long guardian article
OJ Simpson
When smalltown USA turned on 'Fraud Street'Americans have watched with
horror as financial chaos has spread across the country, choking the
economy and threatening to plunge the country into recession. Last
week they turned their anger on the administration as it battled to
put together a rescue package. Report by Paul Harris in Pennsylvania,
Ruth Sunderland and Heather StewartPaul Harris
The Observer, Sunday September 28 2008
Article history
It was the week when an angry Main Street finally fought back after a
decade when the financial Masters of Wall Street were seemingly
invincible. As President George Bush looked straight into the TV
camera last week and spelled out to the nation the economic peril
facing America, fury and fear were mounting in millions of homes.
'Without immediate action by Congress, America could slip into a
financial panic,' Bush warned. He sketched out a scenario of failing
banks and plunging share prices that would savage retirement plans and
put millions out of work. It was a terrifying scenario. Having waged
two wars that are not yet over, Bush faced the final legacy of his
tumultuous two-term period in office: the possible collapse of the
American economy.
But the action he was calling for stuck in the throats of the American
people. The administration's planned $700bn bailout for the financial
sector has outraged and appalled many on the country's Main Streets.
It has led to anger on the left of American politics, shocked at such
aid to wealthy bankers when the millions of families losing their
homes get little direct help. At the same time many on the right have
expressed equal disbelief, watching in amazement as the previously
free-marketeer Bush suddenly embarked on the biggest government
intervention since the Great Depression.
The US media have turned on Wall Street like a pack of wolves. 'Fraud
Street,' screamed the banner scrolling beneath the concerned features
of Fox Business Network's Liz Claman, who told viewers, 'You know
what? I think the American public deserves some answers.' Time
magazine declared that our current troubles are 'The price of Greed'.
'Blame Greed,' the Chicago Tribune intoned.
At the United Nations, an Australian reporter accosted the actor
Michael Douglas during a press conference and demanded to know - with
a straight face, mind you - whether he felt any responsibility for the
crisis because he delivered the line 'greed is good' as the character
Gordon Gekko in the film Wall Street. 'Are you now saying, Gordon,
that greed is not good?' the reporter asked.
'I'm not saying that,' a bemused Douglas replied. 'And my name is not
Gordon. He's a character I played 20 years ago.'
The huge bailout plan has also fundamentally changed the battlefield
of the American election, which is just five weeks away from deciding
who will be the next president. The sheer scale of the economic
crisis, and the enormous sums of taxpayers' money demanded to sort it
out, are the biggest game in town.
In the UK, the red mists of anger are slower to appear but the
frustration is emerging with millions of savers and shareholders in
Bradford & Bingley recognising that will it become the latest High
Street bank to fall victim to the financial contagion that has its
roots in sub-prime lending to poor American homebuyers. Gordon Brown,
who had been in Washington conferring with Bush about the crisis,
branded the past few years an 'age of irresponsibility' and demanded
the banks stop behaving recklessly. Until recently, Brown and his
Chancellor Alistair Darling had been boasting that the past decade has
been an era of unprecedented prosperity and stability, and the PM's
volte face drew immediate accusations of hypocrisy from the
Conservatives.
As the deadlock on Capitol Hill continued last week, it must have been
painfully obvious to Brown that the consequences of failure would
reverberate throughout the world financial system - and straight to
the pockets of Britain's homeowners. The cost of 'interbank' lending
on the London money markets has shot up, as shocked investors feared
more banks could be at risk of going bust. Mortgage rates in the UK
quickly followed, leaving thousands of homeowners struggling to find
affordable finance.
Here in Britain, analysts believe the impact of the financial crisis
on the real economy has only just begun to bite. But to millions of
Americans, it seems as though the doomsday picture is already upon
them, especially in crucial battleground states such as Ohio, Michigan
and Pennsylvania, America's former manufacturing heartland.
These are people like Ken Karasek. The 47-year-old union organiser in
the city of Wilkes-Barre has lived all his life among the hardscrabble
towns of eastern Pennsylvania. He has seen factory after factory close
and jobs move overseas. He feels that the economic crisis of the past
year has merely brought the rest of America up to speed with what has
happened in his home patch for the past three decades, and he is angry
that government has been so quick to bail out Wall Street with
hundreds of billions. 'It disgusts me. I have seen huge plants close
down all over this area. I have seen good union jobs go and get
replaced by service jobs, like McDonalds or Wendy's. Now we give all
this money to Wall Street just like that?' he said.
The panic around the economy has infected the political system,
upturning traditional alliances, pushing Democrats closer to Bush's
plan and Republicans further away. It has created ructions in the race
between Barack Obama and John McCain, seeing a dangerous game of
political brinksmanship that ended with McCain suspending his campaign
and rushing back to Washington.
The events that led to that astonishing twist began at 8.30am on
Wednesday. Obama had placed the call to McCain, reaching out with the
idea that the two rival candidates could draft a common statement on
the financial crisis gripping America. Such a move was far from
altruistic. A Washington Post poll had been published that morning
showing Obama opening up a nine-point lead in the race. The poll was
perhaps the strongest sign that voters were beginning to decisively
break for the Democrats. By reaching out to McCain across party
divides, Obama could stamp his ownership on the economic issue and
also appear as a unifying president-in-waiting.
McCain finally returned the call at 2.30 that afternoon. The two men
agreed in principle to a joint statement and McCain mentioned he was
thinking of returning to Washington to address the crisis. He also
suggested suspending Friday night's first televised presidential
debate. Obama, apparently, assumed McCain was not serious - but he
misjudged his opponent. A few minutes later, McCain called a press
conference, suspended his campaign and said he was heading back to the
capital.
It was a high-stakes move, dictated by political needs of the moment.
It showed leadership and his maverick streak that is always popular
with swing voters, as McCain also struck a new populist tone, railing
against the freewheeling excesses of the wealthy bankers who had
caused the mess. But the plan had a huge risk, not least due to
McCain's long record of supporting deregulation and his close ties to
big business. Voters are unlikely to see McCain as a convincing
populist. 'He has an uphill fight to persuade people that this is what
he believes,' said Professor Rogers Smith, a political scientist at
the University of Pennsylvania.
Instead of following his lead, the Democrats slammed McCain for
interfering in something about which he knew nothing. He returned to
Washington, leading a train of reporters in his wake, though he had no
meaningful appointments scheduled there. Bush himself rescued McCain,
inviting him and Obama to a White House meeting which caused gridlock
in Washington as competing motorcades darted around the White House.
As predicted, it also derailed the bailout plan, producing only
partisan rancour. At one stage a frustrated Bush said: 'If money isn't
loosened up, this sucker could go down.' But even such frank language
from the most powerful man in the world could not secure agreement.
Suddenly Republican politicians broke away from the plan, leaving only
Democrats willing to still work on it. In an astonishing scene,
Treasury Secretary Hank Paulson walked into a room where top Democrats
were meeting. He got down on one knee before Speaker Nancy Pelosi and
begged Democrats not to 'blow up' the deal. Pelosi, and other
Democrats, furiously told Paulson that they blamed Republicans for the
mess. 'I know, I know,' Paulson replied.
By Friday the meetings had begun again, seeking to rescue some of the
plan or come up with a better alternative. But by that time the huge
Washington Mutual bank had failed overnight, the biggest such event in
US history - though even such a momentous collapse was relegated to
almost an afterthought on the morning TV news shows. Bush again
appeared before the TV cameras, vowing that a bailout plan would be
passed but offering nothing concrete as to what or when. The political
theatre took on a rare tinge of humour when Gawker, the Manhattan
media gossip website, declared Paulson a 'hotty' after digging up an
old photo of him standing bare-chested on a beach brandishing a large
fish. 'Look at that chest,' Gawker gushed. 'The power of Paulson,
indeed ... Hank can bail us out any time.'
But in Wilkes-Barre, Ken Karasek and others attending a rally for
Obama's running mate Joe Biden were not interested in Hank the Hunk's
manly musculature - they were just furious at being asked to pay for
his extraordinary proposal.
Retired nurse Betty Daniels, wearing a baseball cap emblazoned with
the words 'Jesus is my boss', was furious at the bailout. 'I feel
angry. People are losing their homes. They are barely making enough
money to feed their families. I would like to see that money go to
those people, not banks who just wasted it,' she said.
In an already distressed area such as Wilkes-Barre the impact of the
economic crisis has been profound. Over the past year more businesses
have closed and many homes have been lost as the mortgage crisis has
reached out and cast people out of their houses.
When Biden took to the stage in front of the small crowd, he dished
out lashings of angry politics that struck a chord with many of those
present. Biden slammed Wall Street executives and a culture in
Washington that had been too friendly to big business. 'The wealthy
and the powerful have a seat at the table and everybody else is on the
menu,' he said.
There were echoes of that populist mood in the UK, where the
Archbishops of Canterbury and York intervened in the debate, slamming
City speculators as asset strippers and bank robbers. Only a few
months ago the churchmen would have been ridiculed for their
outbursts, but now there were even some in the Square Mile prepared to
admit they have a point. Investment banker John Reynolds, chairman of
the Ethical Investment Advisory Group (see right) said: 'It is easy to
see how abusive market practices have developed, harder to see why
they have been allowed to grow unchecked by regulators. To avoid
repeating the mistakes we need regulators to be more interested in
understanding markets and politicians to be less in awe of money and
less influenced by the seemingly munificent gestures of large
companies seeking to show that they aren't just greedy bastards - when
in fact they are.'
The financial crisis has called into question a whole philosophy on
both sides of the Atlantic: the so-called 'Anglo-Saxon model' of
liberal capitalism that has dominated the US and the UK economies for
30 years, with now disastrous results.
Even Irwin Stelzer, Rupert Murdoch's economic adviser, and arch-
defender of free markets, admitted: 'The day when that engine of
capitalism, the financial market, will be allowed to operate more or
less unimpeded by government, has passed.'
Veteran investor George Soros has argued that we are suffering the
after-effects of a 'super-bubble,' fuelled by decades of deregulation
and hands-off economic management - and it is time for the political
tide to turn.
The financial markets' extraordinary ascendancy can be traced back to
the Reagan-Thatcher era of the 1980s. They slashed controls on markets
- and set finance free. In 1986, a whole series of rules were
abolished in one fell swoop, the 'Big Bang'. For consumers up and down
Britain, the liberation of the financial markets made it much easier
to borrow. The days of queuing anxiously to see the bank manager, to
persuade him to give the nod to a mortgage, or agree to an overdraft,
were over. Owning shares was no longer the preserve of the wealthy
few, sauntering to their brokers after lunch in a London club.
When the Berlin Wall fell in 1989, exposing the shattered state of the
centrally planned Soviet economy, defenders of market freedom felt
vindicated. It was, said one darling of the free marketeers, Francis
Fukuyama, 'the end of history' because the Cold War was over and the
power of the market had triumphed.
During his decade as Chancellor, from 1997, Gordon Brown worked hard
to keep the City on side, boasting of its competitiveness, and
nurturing it with 'light-touch' regulation. But with the crisis-hit
banks now forced into pleading for charity from the state many
observers are arguing that the financial firms have surrendered their
right to demand an easy ride. One stunned City veteran trying to
absorb the magnitude of Paulson's plan said, 'We've just turned the
clock back on 25 years of Neanderthal capitalism.'
Already, the Treasury and the Federal Reserve are busily drawing up
plans to tighten the rules on the level of assets banks must hold to
secure their loans; and to ensure that financial regulators from
different countries keep in closer contact. French President Nicolas
Sarkozy has called for a global summit in November to rebuild the
whole world financial and monetary system from scratch, saying: 'The
idea that markets are always right was a mad idea.'
Even if the Paulson plan is clinched without further delay, there is
no hope of an imminent recovery either in the US or the UK. The pain
for ordinary homeowners on Main Street USA is already being felt, and
in Britain, unemployment is rising fast, and consumers are tightening
their belts. Rosebys, the home furnishing chain, became the latest
casualty in the retail sector on Friday, when it collapsed into
administration, leaving its 2000 staff uncertain about their future.
'Folks, it's not just finance,' Citigroup economist Steven Wieting
warned. 'The recession bus left the station earlier this year.'
• Additional reporting by James Doran, Elana Schor and Lisa Bachelor