Bailout Saga Proves that Elites Don’t Care What We Think

Bailout Saga Proves that Elites Don’t Care What We Think

October 4, 2008 – by Tom Blumer

In mid-September, when it became clear to Hank Paulson, Ben Bernanke, and George Bush that extraordinary measures were needed to address the mess that had built up in the financial markets during the past decade or so, their first instincts should have been to say:

  • “We need to have a complete plan to deal with this.”
  • “We need to make a case to Congress and the American people that our plan will work.”

They did neither of these things; nor did they even seem to consider whether what they wanted was even constitutional.

Instead, they in essence demanded that Congress and the American people give them a blank check, saying, “Do this, or else.” Last Sunday, I [1] called it blackmail. I stand by that.

Of course, a large plurality of Congressmen and Senators, along with a majority of the American people, were repulsed. The wonder is that everyone wasn’t.

Among the repulsed were well over 150 economists from across the political spectrum, including three Nobel laureates, [2] who signed a letter of protest (also [3] carried here; bolds are mine):

As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan:

1) Its fairness. The plan is a subsidy to investors at taxpayersÕ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

For these reasons we ask Congress not to rush, to hold appropriate hearings, and to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come.

The monstrosity that became law yesterday (PDF-formatted first 250 pages [4] here) does not begin to adequately address the group’s three key concerns.

Fairness? Let’s talk about fairness to taxpayers and future generations. What assurances do we have, if any, that monies recovered when purchased assets are resold will go towards reducing the just-increased national debt? I fear it will instead be diverted to Uncle Sam’s day-to-day operations, enabling Congress and future presidents to further cover up an already over-the-top annual structural deficit. If you don’t think this can happen, just remember how Social Security has been [5] stripped bare for four decades.

Ambiguity? You can’t get much more ambiguous than what a Treasury official [6] told Forbes Magazine on September 23 (bolds are mine):

….. some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Tuesday. “We just wanted to choose a really large number.”

Again: Blackmail.

Oh, and do you think that even the made-up $700 billion now enshrined into law is any kind of real limit? Think again.

The supposedly limiting language in Section 115 of the bill has to do with “the authority of the Secretary to purchase troubled assets” to certain amounts “outstanding at any one time.” Treasury’s authority starts at $250 billion; Congress can increase that authorization to as much as $700 billion.

With this language, under its “Troubled Assets Relief Program” (TARP) authorization, Treasury can initially purchase $250 billion in “troubled” loans. If it auctions off $50 billion of that amount, there will then be only $200 billion “outstanding.” Treasury can then go out and purchase another $50 billion. This can go on and on and on.

As far as I can tell, there is nothing that would prevent Treasury from continually buying, reselling, and replacing loans, thereby busting the supposed “limits” by hundreds of billions, if not trillions.

Given the billions that financial firms [7] appear poised to make in managing the largely outsourced program, Wall Street has the ability, and every incentive, to turn TARP into a fee-generating perpetual-motion machine while it is in place (theoretically, until the end of 2009).

Long-term effects? Heck, we’re already seeing proof of the long-term effects in the short-term. California’s Arnold Schwarzenegger, whose state has a welfare dependency rate that [8] is 2-1/2 times that of the rest of the nation, is making noises about getting [9] his own $7 billion bailout. The auto industry [10] is getting what was unthinkable even two years ago: $25 billion in loan guarantees, and with barely a whimper of objection.

[11] As I wrote yesterday:

….. what possible response, other than “okey-dokey,” is there to anyone who says, “Well, if you could handle $700 billion for the financial-services industry, how can you not provide $_____ (fill in the blank) for _________ (fill in the blank)?”

When the problem became clear, a mature Washington political culture would have done something close to the following:

  • Bush, Bernanke, and Paulson would have consulted with some of the aforementioned economists to craft a plan that would meet the three concerns they were forced to raise after the fact.
  • Bush would have called a joint session of the Senate and House to give Bernanke, Paulson and economists the chance to make their case to Congress and the nation.
  • Bush would have insisted that any changes to what they proposed would have to be germane to the plan (i.e., no pork, and nothing else extraneous).

Instead, what was three pages turned into 451. What was a bill with a made-up $700 billion price tag became a pork-laden bill with a made-up $850 billion price tag chock full of unrelated and dangerous provisions too numerous to mention here.

The just-enacted legislation will likely haunt the economy, and the nation, for years.

That we have a nearly incorrigible and immature Washington political culture has never been more clear.

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Why and How the financial crisis happened

don’t fail to view its ten (10) minutes long video.  You won’t be sorry.
After you view it……pass it along to everyone you know.

Dear Congress: Put the gun down now

Senate package would bail out major foreign investors, including China

Fire (Or Impeach) Paulson and His Stooges!

Fire (Or Impeach) Paulson and His Stooges!

September 29, 2008 – by Ron Rosenbaum

Now that the first vote on the bailout has shot it down (thanks to the urging of Mike and me–see post below–actually thanks to the rare working of representative government by those on both sides of the aisle who rejected it), it’s time for some accounting. First of all, Treasure Secretary Paulson should have been fired when he sent Congress a flagrantly unconstitutional bill that would make him tin-pot dictator with no judicial review for his actions. As if the constitution were toilet paper.

Then he should have been fired yesterday when it was revealed (on the front page of The Times) that he brought a fellow stooge from his old firm, Goldman, Sachs–the chief executive!–into an emergency meeting about the fate of A.I.G.–a fate in which Goldman had huge undisclosed (to the public) stake–and one from which all other corporate finance stooges were excluded.

This is breathtaking contempt for the rule of law (the no judicial review provision) and then an astonishing, shameless naked display of crony capitalism corruption. Where were the law school profs to protest no judicial review? An astonishing dereliction of civic duty.

Paulson should be kicked out of his office forthwith and all his papers and e-files locked down so the Feds can see the full extent of his corruption. And anyone else who signed off on that original blatantly unconstitutional bill should be identified and fired as well. It was the well-earned bad faith created by these acts that were the final nails in the coffin of this attempted “shock doctrine” coup. (The reference by the way is to Naomi Klein’s book of that title (The Shock Doctrine) which I once thought was a disturbing account of the kind of things plutocrats got away with only in banana reublics. Paulson tried to turn us into one.

Yes I know both parties and both campaigns are riddled with corporate stooges who are complicit in this crisis. So purge them! Now! Whichever campaign is the first to insitute a fire-all-investment-banker policy can win the election. Yes it’s too late but it will have symbolic value.

But I’m sick of hearing it blamed on would-be homeowners. No, it’s the fault of those who spun derivatives out of derivatives out of derivatives from the bad paper and turned the economy into a casino. It’s the culture of greed.

Once again: put Ralph Nader in charge of the clean up. If you’ve stilll got 700 billion kicking around (as aparently we did) then distribute it (proportionately) to the poor.

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God Bless the House Republicans Read the whole thing long but right on

Democrats left and right. That’s another thing.  I am agitated today.  I am sick and tired of our conservative intelligentsia media trying to balance things out by saying “both sides are at fault.”  Both sides are not at fault!  They may be talking about the vote yesterday on the bailout.  Both sides are not at fault.  Stop trying to impress people are going to hate you no matter how much you might think they like you.  Stop trying to get invited to cocktail parties and dinner parties in Washington.  Both sides are not to blame for this!  What is the point of having a conservative media if they’re not going to stand up for conservatism?  What’s the point of having a conservative media if all they’re going to do is wring their hands? “Well, we know that both sides are at fault, Mr. Limbaugh, and we must be assessing blame accurately and fairly on both sides.”

Both sides are not to blame.  If you could find a Republican guilty here, he would be in the hoosegow.  As I keep saying, they would have had congressional hearings led by, Barney Frank, Harry Reid, John Conyers, et al.  Both sides are not at fault here, and until we can come to grips with that, we’re just going to be whistling Dixie (no offense to Dixie) about fixing this problem, and Lecturer Miron here sums it up in one brief sentence. “The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government. The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company

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