Various Bailout Items
.The big news at the moment continues to be Paulson’s “plan” to make everything in the markets okay by creating a fund to buy up all the “distressed assets” out there, e.g. the bad bets that the banks created and then spread around the entire financial system while hiding the risks from all concerned. If the taxpayers end up shelling out for this thing, it’s a gigantic transfer of wealth from the average American to the hugely wealthy. Seven hundred billion dollars, even today, is a huge amount of money (and works out to about two thousand dollars per American).
If you didn’t already think that Paulson’s plan was extraordinarily dodgy, here’s an excerpt from the proposed Act that would authorize it:
Sec. 8. Review.
Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
—Text of Draft Proposal for Bailout Plan, The New York Times, 20 September 2008
Yes, quite. I’ll take the seven hundred billion that you’re giving me because my Wall Street friends have apparently screwed up the global financial system so badly that there’s nothing to do but throw money at them until they solve it, and I’ll do whatever the hell I want with it, no questions asked. Thanks.
Incidentally, when some of the less panicked Democrats in in Congress asked if they could possibly use some of that money to bail out some of the everyday Americans who are suffering under the debt loads, e.g. attempting to make good the bad mortgages at the root of a ton of the problems by paying part of them off on behalf of the would-be homeowners, Paulson said no.
Alternatively, the government could buy out the banks, rather than bailing them out. Krugman:
That’s what happened in the savings and loan crisis: the feds took over ownership of the bad banks, not just their bad assets. It’s also what happened with Fannie and Freddie. (And by the way, that rescue has done what it was supposed to. Mortgage interest rates have come down sharply since the federal takeover.)
But Mr. Paulson insists that he wants a “clean” plan. “Clean,” in this context, means a taxpayer-financed bailout with no strings attached—no quid pro quo on the part of those being bailed out.
—Cash for Trash, The New York Times, 21 September 2008
So, no help for the poor/middle-class/upper middle-class Americans having trouble with their loans. No downside (like being bought out) for the banks. Okay, what about making sure that the people who made the horrific decisions leading to the taxpayers assuming this huge burden?
The architect of the bailout plan, Treasury Secretary Henry Paulson, admits that there have been “excesses” in executive compensation, but he’d rather save the pay debate for another time. Paulson fears that any punitive action on salaries might prompt firms that should be participating in the bailout to stay away.
—Editorial: Don’t reward execs in Wall Street mess, StarTribune.com, 22 September 2008
Right. So, they drive their firms to the point where they’re not merely failing, but failing so hugely that (allegedly) not saving them will result in massive financial destruction that would be terrible for the country and the global economy. But the issues around their compensation (and that’s their future compensation, not even touching on the outrageous amounts they’ve pulled down in the last couple of years while trading on assets that essentially weren’t there)—those are for “another time”. And besides, if we did something like that, maybe they wouldn’t play nice. As if they have any choice but to accept a bailout if the alternative were to go under!
The sheer chutzpah is breathtaking. Or it would be if not for the fact that it comes naturally to people like Paulson, because they’ve entirely internalized a gargantuan sense of entitlement.
Last words to Naomi Klein:
The disaster is far from over. They’ve actually just relocated. The disaster was on Wall Street and they have moved the disaster to Main Street by accepting those debts and you said they didn’t have to bomb, the bomb has yet to detonate. The bomb is the debt that has now been transferred to the taxpayers so it detonates when, if John McCain becomes president in the midst of an economic crisis and says look we’re in trouble, we have a disaster on our hands, we have to privatize social security, we can’t afford health care, we can’t afford food stamps, we need more deregulation, more privatization. The thesis of the Shock Doctrine is you need a disaster to rationalize these very unpopular policies so the real disaster has yet to come. The real disaster is the debt that is going to explode on the American taxpayers. And then they do economic shock therapy.
…
The reason why this bubble was allowed to inflate was not that the American people demanded it, it was spectacularly profitable for Wall Street. Just in bonuses last year, they handed out 33 billion dollars in bonuses… The problem is we have crybaby capitalism where when the times are good they are preaching deregulation and when the times are bad they want the bail-outs.
—Naomi Klein saves the day on Real Time, Crooks and Liars, 20 September 2008