Think of this as the month when Fannie and Freddie entered everyday speech as something other than friendly names, when Americans realized that WaMu wasn’t an over-performing Orca at SeaWorld but a massive failing savings bank, and that Wachovia wasn’t a watch brand, but a finance group, as well as the fourth largest bank holding company in the U.S.
And the faster we learned those names, the faster they disappeared into the dustbin of history. First, Bear Stearns hit the skids, then Lehman Brothers vanished into the ether just as Fannie Mae and Freddie Mac were being absorbed by the U.S. government. Merrill Lynch headed directly down the gullet of Bank of America. Just behind was a desperate American International Group (A.I.G.), the world’s largest insurer, in a state of financial collapse, only to be bailed out by the Bush administration. Next, Washington Mutual (or WaMu) fell into the clutches of JP Morgan Chase, and Wachovia into the embrace of Citigroup, just as five big banks in Europe were being “rescued” and two of them essentially nationalized. Meanwhile, other banks in the U.S., Europe, Russia, and East Asia, as well as brokerage houses, and even hedge funds seemed to be stumbling like so many zombies to the brink of catastrophe, teetering over the abyss of… well, we really don’t yet know what.
As the stock market began its trip south, the Bush administration made one of its typical grabs for unparalleled executive power (to be vested in the person of the Secretary of the Treasury). Unfortunately — for its top officials — they had a tad of a “credibility gap” problem and, after an outpouring of popular anger at the thought of bailing out the rich and improvident, a revolt in the House of Representatives by anxious Democrats and a horde of angry conservative Republicans got the administration’s plan voted down. Politicians across the political spectrum, especially those up for election in competitive districts, surely feared being labeled supporters of the “bailout party,” especially when the bailout was to be run by the gang that couldn’t shoot straight in Iraq, Afghanistan, Pakistan, or New Orleans.
This was also a month of financial feeding frenzy, of “creative destruction” in which, as Americans watched in amazement, survivors of the roiling economic carnage swooped onto the battlefield to bloat themselves on the tastiest corpses around (with a helping hand from the federal government). Already in this process, strange, monstrous, jigsaw-puzzle versions of more familiar financial outfits are emerging. Giant creatures like Bank-of-America-Merrill-Lynch, or JPMorgan-Chase-Bear-Stearns-WaMu or Citigroup-Wachovia (whatever they may officially call themselves) now exist, however provisionally. The creative destruction engendered by a faltering American capitalism may prove advantageous to specific companies when the dust clears, but it will surely crush untold numbers of ordinary Americans who simply find themselves in the way.
Of course, even in the “good times,” there were feeding frenzies that crushed the many and sated the few. There was Enron, after all; and as the bad times began, when all those subprime mortgages started to go bad, there was still hedge-fund manager John Paulson of Paulson & Co. to haul in a nifty $3.7 billion in a single year. Mainly he did so, according to the Wall Street Journal, “by shorting, or betting against, subprime mortgage securities and collateralized debt obligations.” In other words, he made his money by betting on the pure misery of others.
If there’s a bright side to any of this, then maybe it’s that, after 50 years of relative immunity from criticism, Wall Street is again the street Americans love to hate; so Steve Fraser, TomDispatch’s (and, right now, everyone else’s) expert on Wall Street’s grim history and author of the indispensable book, Wall Street: America’s Dream Palace, tells us in vivid detail below.
Meanwhile, perhaps it’s time to remember the catastrophic Argentinean national collapse and bankruptcy of 2001-2002, and to try to imagine what in the world any faintly similar set of events might mean when transposed to the world’s “sole superpower.” Here’s one change to expect from the present financial chaos: When the next president of the United States looks “over the horizon,” he’s likely to see a world without a reigning superpower and, when he thinks about “the next war” (as they like to say in the Pentagon), the good news is that he may not have the money to pay for it. Tom
The Specter of Wall Street
Wall Street’s Comeback as the Place Americans Love to Hate
By Steve Fraser