Howie Hawkins for Congress - Hawkins Says a Real Bailout of the Economy is Still Needed

Hawkins Says a Real Bailout of the Economy is Still Needed

Howie Hawkins for Congress
25th District, New York
www.howiehawkins.org

For Immediate Release: Wednesday, October 22, 2008
For More Information: Howie Hawkins, 315-425-1019, hhawkins@igc.org

Tax the Rich, Slash the Military Budget

Howie Hawkins, the Green Populist candidate for Congress, said today that Congress should "bail out of the Wall Street bailout" by repealing the recent $700 billion Treasury Troubled Asset Rescue Program (TARP) to bailout of the Wall Street bankers. Instead, Hawkins said, Congress should pass an economic recovery program focused on investing a similar amount in "the real economy of labor and industry instead of the paper economy of financial speculation."

"We are witnessing is the biggest bank heist in history. The Wall Street bailouts are enabling a small financial elite to raid and empty out the Treasury before the next President and Congress take office. The government used catch gangsters who robbed banks. Now the government is helping banksters rob the people," Hawkins said.

"Rather than bailing out the Wall Street 'masters of the universe,' we should fitting them for handcuffs. We shouldindict those who engaged in fraudulent and deceptive practices, and firethe government regulators who contributed to the problem. White collar criminals steal far more money and hurt far more people than street criminals, yet CEOs walk away with golden parachutes rather than jail time," said Hawkins.

"This massive transfer of wealth from the mass of taxpayers to Wall Street elites does nothing to stimulate economic recovery. It will depress the economy because it attempts to make the working people pay for massive private and public debts in the economy by increasing interest payments to financial elites, thus choking off the purchases of capital and consumer goods and services needed to get the economy moving again. This rapid escalation of the national debt will predictably lead to calls by the politically influential financial elite to cut what will be called unaffordable Social Security and Medicare and to privatize them," stated Hawkins.

"We need a massive economic stimulus of the real economy in the form of public investment in building a new green economy of renewable energy, mass transit, railroads, green buildings, and sustainable manufacturing. The financial elites should eat their losses as the debt Ponzi schemes collapse. The government should take into receivership the banks and financial institutions that fail because they made speculative loans and investments way out of proportion to the reserves they should have had to cover their potential losses. The government should then run these failed financial institutions as democratically accountable public banks in the public interest, directing credit and investment into the real economy of production and particularly a new green economy of solar-powered sustainability," said Hawkins.

"We need to put rich and the giant corporations back on the tax rolls in order to pay for this economic stimulus that is needed to recover from this huge financial mess they created," added Hawkins. "We should also cut the military budget by at least $200 billion immediately." Hawkins said immediate cuts should include ending the expensive Iraq and Afghanistan occupations, closing many U.S. overseas military bases, eliminating weapons systems that are redundant and economically inefficient, and cutting military assistance to other countries.

Hawkins pointed out that the initial bailout "Plan A" (Fed expansion of liquidity in the financial system) failed after a year of escalating measures. "Plan B" (TARP, Treasury purchases of the junk securities) failed within days of its authorization by Congress. Stock markets crashed, credit and money markets remained frozen, and European competitors nationalized their failing banks, putting them at a competitive advantage over US-based banks. Hawkins said that the US response, "Plan C," (buy preferred shares in the banks to recapitalize them without firing the current mismanagers and acquiring voting rights and board representatives) would also fail because it left financial decisions in the hands of the same financial elite that created the mess in the first place.

"The underlying problem is excessive debt in the economy, far more than the real economy can pay interest on and still thrive. These debts are going bad and the question is, who is going to pay? The financial elite that created the excessive debt by their predatory lending practices, or the mass of working people who are now placed in the position of bailing out the rich with taxes on their labor? If we don't write down the debts, make the creditors eat their losses, and invest in the real economy so the mass of people have jobs, homes, and incomes to spend, we are headed for a depression even as the financial elite gets richer," Hawkins warned.

Hawkins noted that while media attention was focused on whether Congress would pass the $700 billion Treasury bailout of Wall Street, the Federal Reserve had quietly used the fine print of its charter since Bear Stearns failed in March to give investment banks, brokerage houses, and now large corporations some $875 billion in "cash for trash" swaps by the time to Paulson's $700 billion TARP was proposed. The most recent Fed reports show that in the subseqeunt three weeks, the Fed expanded its purchase of troubled assets by $650 billion, swelling the balance sheet of the Fed with worthless securities and putting it's own credit rating in jeopardy. In October 2007, the Fed's assets were $890 billion, of which $780 was comprised of Treasury securities and the remainder was in mainly gold certificates and physical assets. By the second week of October 2008, the Fed's assets had swollen to $1.6 trillion, but only $265 billion were Treasury securities and the remainder was in junk securities bought with Treasuries from distressed financial institutions. Barry Ritholtz, a financial analyst whose Big Picture website is widely cited by financial and business press, forecast on October 15 that the total Wall Street bailout price tag for the commitments already made by the Fed and Treasury would amount to $4-6 trillion in new federal debt.

"This Wall Street bailout is the biggest corporate welfare program in history. We cannot afford it. It will bury the economy in debt and depression. Instead, we need to tax the rich again and dismantle the US global military empire and use the revenues and saving to rebuild the real economy of production," Hawkins said.

Hawkins cited a recent report by the Institute for Policy Studies to indicate how a restoration of progressive taxation could fund an economic recovery program without radically increasing the national debt.

Increase top income tax rates. There are 7,500 households in the United States with annual incomes over $20 million. Congress should boost the top tax rate to 50 percent on annual incomes over $5 million and to 70 percent on incomes over $10 million. This would generate an additional $105 billion a year.

Increase estate taxes. The estate tax, our nation's only levy on inherited wealth, should be revamped to tax inheritances over $20 million at higher rates. Revenue should be dedicated to reducing the payroll tax or providing debt-free college educations.

Tax warehouses of wealth. Over the last two decades, the super-rich have avoided taxes by funneling billions of dollars -- funds that could have been taxed -- into private foundations and nonprofit organizations like Harvard University. We should increase the annual excise tax on private foundations and nonprofit corporations with assets over $20 million by two percent. Foundations that fail to pay out more than 5 percent a year, excluding their overhead, should be assessed an even higher excise tax.

Institute a Securities Transfer Tax. Such a tax would also be an anti-speculation measure, primarily hitting on those who treat the securities exchanges as a casino, gambling with frequent transactions as to which way the market it headed. The United Kingdom imposes a modest stock transfer tax of 0.25 percent on every purchase of a share of stock. This sort of tax would make almost no difference to a typical middle class shareholder. However, a tax of this size, with comparable taxes on various other financial instruments, like options and futures, would put a serious crimp in the money shuffling business that has wrecked so much havoc on the U.S. economy. The last year saw about $500 trillion in securities transactions on American exchanges. A 1/10th of 1 percent tax would generate $500 billion a year.

Other steps Hawkins would take to resolve the financial mess created by the banks and financial groups:

- Write-down debt to what real economy can sustain, with creditors taking the loss (avoiding a potential reflating of the housing bubble that will make housing unaffordable for millions of Americans).

- Refinance predatory and delinquent mortgages: write-down the principal to their historic value (70 percent below the 2006 peak of the housing bubble) and refinance the terms to 30 to 40 year long-term, fixed- rate mortgages. A public bank on the model of the Depression-era Home Ownership Loan Corporation could refinance and hold these mortgages.

- Restore mark-to-market accounting, replacing TARP's mark-to-model, Enron-style fantasy accounting, where creditors wildly overstate the value of assets the government or other investors are buying.

- Rewrite oppressive bankruptcy laws so courts can renegotiate home, medical credit card, car, and student debts and terms to levels borrowers can afford.

- Nationalize failing and distressed banks. Take voting shares and a controlling interest when injecting public capital into failing and distressed banks. The Treasury's policy of purchasing preferred shares is the worst option, putting the government behind bondholders in the line creditors if the institution fails and behind common shareholders when it comes to voting on policy and management.

- Nationalize and Democratize the Fed. The central banking functions of the Fed are too important to be controlled by the big banks that finance and appoint most of the officers of the Federal Reserve System. It should be public owned and controlled as part of the Treasury Department so that fiscal and monetary policy are coordinated and accountable to the public through elected officials, not the big banks who created the financial crisis.

Hawkins noted that the "formal" military budget of the Department of Defense is now over $650 billion for FY 2009. Along with massive tax cuts for the rich, it is the principal factor in our runaway public debt, Hawkins said. He added that as much as $300 billion military expenditures are "hidden" in other parts of the budget. If one adds in Veterans programs and interest on the national debt due to deficit financing of the military in the past, Hawkins said that estimates range from $1.1 trillion to $1.5 trillion in total military expenditures for FY 2009. The total federal budget, including self-funding transfer programs like Social Security and Medicare, is $3.1 trillion for FY 2009.

"Tens of billions are wasted on military systems whose prime purpose is pork barrel spending on military contractors in the districts of members of Congress. The military-industrial complex has created a patronage system that includes every congressional district in the nation," Hawkins said. Hawkins listed the F-22 fighter ($4.6 billion), the V-22 Osprey ($2.6 billion), the CVN-21 aircraft carrier ($3.1 billion), the SSN-774 Virginia attack submarine ($2.7 billion), the Trident D-5 Submarine-Launched Ballistic Missile ($1.2 billion), and Ballistic Missile Defense ($10.8 billion) as examples of weapons that are unnecessary, unworkable, or both, and should be eliminated.