Saskia Sassen “The new new deal” http://www.opendemocracy.net/article/the-new-new-deal
The taxpayers' money should not go to bail out a financial sector that has brought the country to the most severe crisis since 1929 - and which will have (like the great-depression era) economic and political reverberations across the world. The US has a strong banking sector, whose regulation and capital requirements have allowed it to survive the crisis of the financial sector. The fact that the two titans of Wall Street, Goldman Sachs and Morgan Stanley, have voted with their feet by joining the banking sector is another indication of a possibility of returning to a financial model centred more on banking - with more regulation, stiffer capital-reserves requirements, and fewer leveraging options.
If there is $700bn of taxpayers money available to spend, let's spend it in the right way. Let's use this rare chance of the United States's political leaders feeling the political - democratic, from-below - pressure to force them to use such a large intervention in the economy for the benefit of everyday citizens. In recent times, Congress and other branches of government have shown little inclination or determination - even when confronted with shocking levels of social and infrastructural neglect - to act in this direction. This is a once-in-a-lifetime opportunity for them - with the breath of popular, democratic sentiment at their backs - to take a major step towards a new economy that delivers a broad distribution of benefits, and fuels direct economic growth rather than financial growth.
What would this counter-plan involve? The most important item would be to focus on the kind of work the economy needs desperately but seems unable to perform, work that involves wide sectors of the population and of the economy. A rebuilding of the country's infrastructure is a prime example. There are vast numbers of essential tasks waiting to be done: repairing flood defenses and unsafe bridges, environmental clean-ups, developing alternative-energy sources, introducing suburban train systems, rebuilding devastated inner-cities, creating urban parks and green belts, helping low- and modest-income households to acquire foreclosed properties; and allowing recently foreclosed on households to recover their homes. There is so much more.
These tasks alone would require the creation of huge numbers of jobs and enterprises of all sizes, in almost all economic sectors. This in turn would feed directly into GDP growth and heave a healthy effect eventually on the value of the dollar. At present, actual economic growth is more urgent than lowering the interest-rate so that households can borrow more; households need income and employment, firms need buyers of their goods and services. In this dispensation, banks would do the lending through conventional loans rather than financial firms selling high-risk structured financial instruments.
There is also a fundamental issue of accountability. Section 8 of the Paulson proposal grants the treasury secretary full responsibility over its implementation, something that no other party (legislator, lawsuit, or judge, for example) can contest; in its words, "(decisions) by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency." None of the other bailouts has entailed such an immense power-grab. It is another instance of the growing "executisation" of government (see "Globalisation, the state, and the democratic deficit", 19 July 2007*2 ).
The US can learn here from previous rich-world financial meltdowns such as Sweden and Japan. The US is today facing (according to IMF estimates) an approximately $1 trillion financial debt/loss across its diverse sectors, from consumers to firms. Japan faced equivalent loss in the 1980s when it went into crisis. It decided to launch massive infrastructural development projects that kept GDP growth stable, albeit low. The country remained in this state for a number of years: there was economic activity involving a cross-section of economic sectors and households. This allowed Japanese firms and households to keep paying off their debt, supported by traditional banking, and today Japan has cleared that $1 trillion debt.
CARL HULSE and DAVID M. HERSZENHORN “Trying to Avoid Economic Calamity, Lawmakers Grope for Resolution” http://www.nytimes.com/2008/09/30/business/30cong.html