WEDNESDAY, OCTOBER 01, 2008
THE BLOG OF THE RAINFOREST ACTION NETWORK

…Another One Bites the Dust…

The amount of change, collapse and consolidation in the finance sector in recent weeks has been hard to fathom, and the implications for the U.S. and global economy are dramatic. Although the crisis is still playing out, here’s a quick summary of some of the recent fallout:

  • March 16th: Bear Stearns collapsed, with the Federal Reserve Bank providing a $30 billion taxpayer loan while negotiating a sale to JPMorgan Chase
  • Sept 7th: Freddie Mac and Fannie Mae, the two largest mortgage finance companies, seized by US government, which commits up to $100 billion to each
  • Sept. 14th: Merrill Lynch bought by Bank of America
  • Sept. 15th: Lehman Brothers collapsed, declaring bankruptcy
  • Sept. 16th: AIG nationalized, given $85 billion loan from the Federal Reserve
  • Sept. 21st: Morgan Stanley and Goldman Sachs, formerly the two largest independent investment banks, transform into bank holding companies
  • Sept. 25th: Washington Mutual seized by government, and banking assets sold by FDIC to JPMorgan Chase
  • Sept. 29th: Wachovia sold to Citi. Citi agreed to absorb up to $42 billion of losses from Wachovia's $312 billion loan portfolio, with the FDIC covering the remaining losses; in turn, FDIC gets $12 billion in Citi stock

Similar activity is taking place in Europe where, this week, governments “have bailed out or taken over five financial institutions (BusinessWeek.com, 9/29/08), including two in Belgium (Fortis and Dexia), British mortgage lender Bradford & Bingley (BB.L), Germany's Hypo Real Estate (HRXG.DE), and the third-largest lender in Iceland, Glitnir bank. In addition, the Irish government stepped in on Sept. 30 to guarantee the deposits of savers at Irish banks, which are now a cause of anxiety because of the cooling of one of the world's hottest real estate booms.” http://www.businessweek.com/globalbiz/content/sep2008/gb20080930_042833.htm?chan=top+news_top+news+index+-+temp_news+%2B+analysis

And while politicians in Washington argue about the details of a proposed $700 billion bailout package for Wall Street’s “toxic” investments, people across the country are responding with anger to the perception that folks on Main Street are being required to bail out fat cat bankers who made the risky investment choices that are bringing our economy to the verge of collapse.

The failure to pass the bailout package on Monday caused a huge drop in the stock market, with ripple effects throughout the global economy. People are feeling anxiety about what will happen if the bailout package does not pass, and also anxiety about what will happen if it does. What else could we have done with the $700 billion that is being used to rescue Wall Street from its own excess and short-sightedness? That is money that could have been invested in health care, education, infrastructure, and clean energy, among other things.

RAN’s Global Finance Campaign has been arguing for years that Wall Street banks are making risky investments and financing decisions that destroy ecosystems, drive climate change and undermine the future of people and the planet. While we sift through the implications of the credit crisis, we also see another significant and under-appreciated risk on the horizon – the climate crisis. The climate crisis is similar to the credit crisis in that it is being fueled by bank short-sightedness, failures of regulation, and, frankly, greed.

In reading up on the current credit crisis, I found this reference to banks in Texas in the 80s that were investing heavily in oil and were shocked by a sudden market shift:

“At a state level, the same thing had occurred in Texas’s banking industry in the late 1980s which, in many ways, may turn out to be a model for today’s nationwide mess. For years, Texas banks lent aggressively to oil and gas partnerships and real estate developers on the belief they would always get paid back. But with a sharp decline in oil prices and a sudden change in the tax laws, the market collapsed. The result was that virtually all of the largest banks in Texas — names like Republic Bank, InterFirst Bank, First National City Bank, and Texas Commerce Bank — either failed or were snapped up by bigger, out-of-state institutions. Crippled by their widening losses, they pulled back on the amount of money they lent.” http://www.nytimes.com/2008/09/30/business/30citi.html?_r=2&oref=slogin&oref=slogin

With the recent bank consolidations and failures, we are left with “the Big 3” banks in the US - Bank of America, Citi, and JPMorgan Chase. RAN has been pushing all of these banks to develop robust and meaningful climate policies that take accountability for the role their financing is playing in the growth of global carbon emissions. At present, they are the lead backers of the coal industry, as well as oil and gas, at a time when greenhouse gas emissions are escalating and the economic, public health and environmental consequences of climate change are becoming all too clear. We have been urging these banks to shift their resources away from climate-destructive industries and towards support for the development and deployment of clean, renewable energy sources including solar, wind, and energy efficiency.

That argument is even more relevant today, when our troubled economy needs investments in real, tangible infrastructure that leads us to secure energy future, and not the artificial economy that fueled this recent economic collapse. We need to invest in clean energy security that is developed, built and installed by a “green collar” job force.

Related posts:

RAN Activists Foreclose on Wall Street, banner hang 10/1/01: http://itsgettinghotinhere.org/2008/10/01/rainforest-action-network-activists-foreclose-on-wall-street-with-150-square-foot-banner/

All Eyes on Wall Street: http://understory.ran.org/2008/09/30/all-eyes-on-wall-street-reframing-the-crisis/

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