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Panic in Washington

The chaos in Washington last night, with members of Congress shouting at each other across the table, ignoring President Bush who was chairing the emergency cross-party summit, shows how the frenzy in the crumbling financial system is finding its mirror image in politics.

The meeting of 35 members of the two US parties in the US Senate called and led by the president around the cabinet table in the White House was meant as a show of political unity following Bush’s national TV warning of a panic in the markets if no agreement was reached. John McCain, Republican presidential candidate for the election due in under 40 days, suspended his campaign to attend the meeting and challenged Barack Obama, the Democrats’ candidate, to do the same. The two issued a joint appeal to the Congress to support the outline sketch of a plan hastily scratched together by the Treasury.

But there was no agreement. Members of Bush’s own party accused the president of socialism by bailing out the banks and refused to back the rescue package. Others wanted more direct help to millions of US householders struggling to meet their repayments as the deepening recession multiplies unemployment and drives more and more Americans from their homes.

Even while they were arguing, the crisis deepened on the home front. The mortgage lender Washington Mutual (WaMu) was closed by its regulator, making it the biggest US bank to fail. The Office of Thrift Supervision (OTS) stepped in to shut the mortgage lender before selling its assets to JPMorgan Chase for $1.9bn. The OTS said it was worried WaMu would run out of cash as $16.7bn of deposits had been withdrawn since 15 September.

The idea of the show of unity is/was to convince the markets that there could be an above-politics agreement on the proposed $700 billion dollar bail-out plan for the mortgage markets. The huge sum is larger than the vast US defence budget, and equal to about the value of half of US production. Yet it hardly touches the towering trillions in credit default swaps, the next hurricane about to barrel though the global economy.

The plan, if implemented, means that the US government would borrow this huge sum of money, largely from other governments, and use it to buy parcels of “toxic” mortgages, taking the pressure off the paralysed and nearly bankrupt peddlers of debt who could then return to business as usual. Responsibility for servicing the unpayable debt will then pass to the American people. Estimates put it at more than $2,000 each. All indications suggest that they aren’t happy.

Some commentators, sceptical about his true intentions, say that McCain’s suspension of his campaign – invoking instincts of the need for action in a crisis gained from his military career – is anything but. Instead they see it as another attempt to raise his profile, following his selection of ultra-right wing Sarah Palin as future Vice-President. But there’s another lesson here. Irrespective of the intentions of any of the individuals caught up as actors in it, the financial crisis engulfing politics is an objective process, itself the expression of a deeper crisis in the capitalist global economy.

What little remains of democratic niceties are subordinated to the survival of the system. As Gordon Brown emphatically stated at New Labour’s annual event (hardly a conference) last weekend, he’ll do “whatever it takes” to restore stability to the markets. And that includes following the US attempts at a national coalition, presiding over mass unemployment and homelessness, and cancelling democratic rights. Was it an accident that the new ID card was paraded on the day Brown flew to the US to support the lame-duck Bush? All the more reason to stand up for your rights at the forthcoming festival on October 18.

Gerry Gold
Economics editor
26 September 2008

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