When the rumpled, plain-spoken Senator Bernie Sanders of Vermont spoke virtually nonstop for more than eight hours on Dec. 10 to explain his opposition to tax cuts for the rich, he quickly became a YouTube and Twitter celebrity.
President Obama’s firm support for a compromise on the tax cut — which Congress approved late Thursday night — helped swing many voters back into approval, but the debate publicized the issue of economic inequality.
Senator Sanders, who describes himself as a democratic socialist, describes the United States economy as “socialism for the rich.”
Earlier in the year, he allied with Representative Ron Paul, Republican of Texas, to win support for new legislation requiring an unprecedented level of disclosure of the Federal Reserve’s specific emergency lending activities.
With that process of disclosure now under way, Senator Sanders can offer details from the Fed’s “bailout files” to substantiate his claim that the $700 billion Troubled Asset Relief Program was pocket change compared with the trillions of dollars in low-interest loans the central bank provided both to American corporations and foreign agencies.
No such assistance was offered to small businesses in need of capital or homeowners going through foreclosures.
Senator Sanders’s criticisms of the Fed go well beyond the observation that it bailed out only institutions it considered too big to fail. In a recent public letter to the Fed chairman, Ben Bernanke, he points to major conflicts of interest: Senior executives of General Electric, JPMorgan Chase, Goldman Sachs, Banco Popular, Sun Trust and Fifth Third Bank served as directors of regional Federal Reserve Banks even as they doled out funds to their firms.
The new information lends support to the concept of a financial oligarchy detailed by my fellow Economix blogger Simon Johnson and his co-author, James Kwak, in “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown.”
The specifics also provide a case study of regulatory capture, in which a state agency created to act in the public interest instead advances the commercial or special interests it was charged with regulating.
Mainstream Republicans and Democrats have recently squared off over the issue of who caused the financial crisis – the government or the financial industry. Republicans blame public efforts to increase homeownership through the Community Reinvestment Act of 1977 and the subsidization of low-interest mortgages through Fannie Mae andFreddie Mac. Democrats blame deregulation.
If Senator Sanders is correct, the debate is misplaced, because a government dominated by the financial industry helped orchestrate both federal subsidies and deregulation.
Many of our most influential policy makers spin through revolving doors between government and private finance. Hardly an eyebrow was raised this fall when the White House budget director, Peter Orszag, left public service to join Citibank’s global banking division.
The Fed does not seem a bit embarrassed by the bailout’s double standard or uneven impact. Corporate profits are up 28 percent from a year ago, but unemployment edged up to 9.8 percent last month.
A widespread apprehension that government no longer effectively represents the interests of ordinary people has tipped populist rage to the right.
Senator Sanders has proved more adept than any of the Democrats in tipping it the other way.
Nancy Folbre is an economics professor at the University of Massachusetts Amherst.