The progressive pressure group Campaign for America's Future - the left counterpart of the centrist Democratic Leadership Council - welcomed the House's rejection of the bailout and released three guidelines for further government action. Tony Curzon Price critiques the American Left's remedy for the current financial crisis. For more of Tony's analysis of the meltdown, go here. (editor's note)
Invest In Main Street: On Main Street, jobs are disappearing, infrastructure is crumbling and local budgets are straining. A $200 billion economic rescue package for Main Street would generate clean American energy, extend unemployment benefits, aid states and localities to avoid debilitating cuts and modernize our crumbling infrastructure.
More redistributive taxation in the US makes sense, as does generous, Danish-style unemployment insurance tied to re-training. Convincing America of this is a different matter. New Deal-style public works programs do not (yet) make sense. Most of the spare money for US investment is coming from Asia. Does it make sense to spend the savings of India and China on better roads in the US? No! Public works are useful in a depression, but we're not there and may never get to that point. It is not useful to confuse the finance bail-out with every other pet project one might have.
Save The Homeowners: Defaulting mortgages are at the heart of the crisis. Keeping deserving people in their homes is critical to shore up Main Street and Wall Street. The bankruptcy courts need to have the power to renegotiate mortgages and reduce foreclosures.
This sounds sensible. Taxpayers will pick up the mortgage payments in whatever bailout is agreed. In a fit of great generosity, we could cut through all of this and just wipe out the debts - "just have your house". What happens to the savers that were counting on those mortgage payments to pay out pension payments? Taxpayers could fund those by increasing taxation and state pensions, for example.
However, it's better not to completely wipe the slate clean. Some of those mortgage-holders can afford to pay something. So taxpayer dollars can go furthest by having an orderly way of reducing mortgage payments. In a way, you can think of the whole savings/borrowings around mortgages as a complicated form of pensioners buying houses and renting them out. Pensioners need to recognise that "rents" (mortgage payments) will need to be cut.
Hold Wall Street Accountable: Instead of simply propping up reckless firms, we should establish a Reconstruction Finance Corporation that can take over financial firms, sort out the solvent from the insolvent, close down some and merge others. We also need modern regulation that cracks down on the abuse. And taxpayers deserve preferred shares in any bank or investment house that we are forced to rescue.
Of course, but there is much detail here that cannot be so swiflty brushed over. The way we wind down Wall Street will determine the sort of financial system we have for many years to come. I think there should be widespread nationalisation - essentially, the Fed should say to the financial institutions: "Time up. If you can't pay back what we've lent to you, we'll take you over". This gives us time to decide what kind of financial system we want for the future. I do not like the idea of creating mega-banks. That is sure to collect power in those institutions that will be abused. I do like the idea of a strong, tough state regulator at the center of the financial system auctioning quite large numbers of licenses for particular types of taxpayer-backed guarantees. Pool the risk in the government, and make sure that individual institutions are small enough to fail. Regulation should be very hands-on, as it is for water or electricity utilities.
