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US nationalizes banks; candidates talk economy

US President George W Bush made the radical announcement on Tuesday of the partial nationalization of the nine of the nation’s leading banks. The move to part ownership by the government, was made to ensure that the banks won’t be hoarding their bailout money, but use it to bolster lending — to each other and to customers.

The presidential candidates also announced their economic proposals to deal with the current financial meltdown.
Barack Obama spoke in Ohio on Monday: "Today, I’m also proposing a 3- month moratorium on foreclosures. If you’re a bank or a lender that is getting money from the rescue plan that passed Congress and your customers are making a good faith effort to make their mortgage payments and renegotiate their mortgage, you will not be able to foreclose on their home for three months."
Obama also proposed allowing people to withdraw up to $10000 from their retirement accounts without any penalty for the remainder of the year and 2009;
a $3,000 tax credit for every new full-time job created in the US by businesses for the next two years; to suspend the tax on unemployment benefits for the rest of this year and next;
and to have the Federal Reserve provide short-term loans to state and local governments caught in the credit crunch.

John McCain made his announcement in Pennsylvania Tuesday. "On my orders, the Department of the Treasury will guarantee one hundred percent of all savings accounts for a period of six months. – I will cut in half the capital gains tax on stocks purchased and held for more than a year from a rate of 15 to 7.5 percent.” McCain also proposed that for 2009-2010, those over 59 who take money out of their retirement accounts should only be taxed at 10%; to raise the deduction on stock losses from $3000 to $15000; and like Obama, to suspend the tax on unemployment benefits for the rest of this year and next.

The Real News Network spoke to Counterpunch columnist Mike Whitney.

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Story Transcript

US nationalizes banks

Producer: Carlo Basilone

CARLO BASILONE, TRNN: US President George W. Bush made the radical announcement on Tuesday of the partial nationalization of nine of the nation’s leading banks.

GEORGE W. BUSH, PRESIDENT: The federal government will use a portion of the $700 billion financial rescue plan to inject capital into banks by purchasing equity shares.

BASILONE: The move to part-ownership by the government was made to ensure that the banks won’t be hoarding their bailout money but use it to bolster lending to each other and to customers. The presidential candidates also announced their proposals to deal with the current financial meltdown.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: Thank you, Toledo!

BASILONE: Barack Obama spoke in Ohio Monday.

OBAMA: Today I’m also proposing a three-month moratorium on foreclosures. If you’re a bank or a lender that is getting money from the rescue plan that passed Congress and your customers are making a good-faith effort to make their mortgage payments and renegotiate their mortgage, you will not be able to foreclose on their home for three months. We need to give people the breathing room to get back on their feet.

BASILONE: Obama also proposed allowing people to withdraw up to $10,000 from their retirement accounts without paying any penalty for the remainder of this year and 2009, a $3,000 tax credit for businesses for every new full-time job they create over the next two years, to suspend the tax on unemployment benefits for the rest of this year and next, and to have the Federal Reserve provide short-term loans to state and local governments caught in the credit crunch. John McCain made his announcement in Pennsylvania Tuesday.

MCCAIN: On my orders, the Department of the Treasury will guarantee 100 percent of all savings accounts for a period of six months. I will cut in half the capital gains tax on stocks purchased for more than a year, from a rate of 15 to 7.5 percent.

BASILONE: McCain also proposed that for 2009-2010, those over 59 who take money out of their retirement accounts should only be taxed at 10 percent, to raise the deduction on stock losses from $3,000 to $15,000, and like Obama, to suspend the tax on unemployment benefits for the rest of this year and next. We spoke to Counterpunch columnist Mike Whitney.

MIKE WHITNEY, COLUMNIST, COUNTERPUNCH.ORG: Well, McCain’s proposals, which mainly focus on the cutting of capital gains tax and of, you know, additional benefits for the wealthy, are basically more of the same. He has suggested that we buy back mortgages of people who are being foreclosed on and then reduce the face value of the mortgage, but that’s going to happen regardless, because they can’t allow six million people to go into foreclosure. That would just essentially collapse the whole system. That’s the problem we have right now. So he’s not really creating any innovations here as far as policy; he’s just doing exactly what his financial advisors are telling him. And neither candidate shows that they really have any grasp of the situation as it stands now. Now, as far as Obama and his, you know, creating new jobs for $3,000 incentive, you know, that provides some incentive. So if we look at the $700 billion bill, just the first installment on this bailout, that is essentially a tax on every man, woman, and child in America of $2,000. So it’s basically a wash, because we know it’s going to be well over $1 trillion, probably $2 trillion. You know, as far as the state and local governments needing the money, the federal government already knows that. I mean, unless you’re going to let California slip into the ocean, you’re going to have to take some responsibility there, and you can’t let the seventh-biggest economy in the world, California, just disappear. So there’s going to be a stimulus package regardless of whether it’s McCain or Obama. It’s pretty well already decided, to start up, to rev up the consumer engine that is now going in reverse, because consumers in this country are actually cutting back so dramatically that we’re looking at a steeper decline in spending in any time since the Great Depression. What we’re dealing with is a generalized contraction of the entire system. If we look back at the last seven or eight years, the problem was in state-inflated asset values. Everyone was feeling rich because the value of their house was going up and the stock market was going up, the bond market was going well, and this commerce and this prosperity was all artificially created by the low interest rates and the expanded leverage in the investment banks. So now that we have a generalized contraction, what you’re going to find is that people who feel less wealthy and are more cash-strapped and are underwater on their housing loans, on their mortgage loans, on their credit cards, on their student loans, on their car loans are not going to be in a position where they can spend as much money. And in the last month, we’ve had something amazing happen, which is the rate of savings in this country has gone up for the first time in, I think, certainly in a generation, and that’s because people are afraid: they understand their situation, they understand that they’re walking in quicksand, and that the economic situation is getting worse. That’s good as far as people saving and being more prudent as far as, you know, their own situation, but as far as the economy, when less money is being spent, there’s less transactions, there’s less economic activity, the economy shrinks. But the only alternative to that at this point is fiscal stimulus, which means that the government is going to have to borrow more money from China, from the Gulf States, from the BRIC states, etcetera, so that we can sell them our treasuries, so that we can pump more money into our domestic economy. And people are really doubtful that that’s possible, because the appetite for US debt, for US treasuries, is already beginning to wane. And if that doesn’t happen, we’ll have to raise interest rates to make our money more attractive. And if you raise interest rates, what happens to the housing bubble? Well, it crashes at an even more accelerated speed. So it’s kind of a vicious circle we’re in right now. You know, essentially this whole bubble was created because wages were not keeping pace with production. Now, that sounds kind of abstract, but if people’s wages don’t go up, then how can you grow the economy? The only way you can grow the economy or that people can buy more stuff contribute to this consumer economy is if they borrow money. And the powers that be in the Federal Reserve and the Treasury understand that, understood that people were getting maxed out on their credit cards, their car loans, their mortgages, etcetera, but they would rather have you indebted to them than having your wages increase with production so that you can actually create a stronger, well-balanced society. And that’s what has to happen is wages have to increase so there’s greater distribution to strengthen the society. It’s not some leftist scam; this is an idea of the only way—and this is why China is saying if they’re going to strengthen their economy—. You know, isn’t it funny that, you know, communist China is operating according to the old paradigm that we used to use in democratic America, which is we’re going to raise these salaries of the people living on the farmland so they don’t migrate to the cities, because there’s a loss of demand on the world paradigm right now, so we’re going to increase their salary so they start spending money, buying the consumer products that we used to buy. And it’s a very sensible program for understanding the economy.

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Please note that TRNN transcripts are typed from a recording of the program; The Real News Network cannot guarantee their complete accuracy.