Alex Blaze

Don't panic, the financial crisis doesn't call for a $700 billion bailout

Filed By Alex Blaze | September 23, 2008 12:00 PM | comments

Filed in: Living
Tags: Alan Greenspan, economic policy, finance industry, financial crisis, government bailout, Henry Paulson, Hillary Rodham Clinton, iraq war, John McCain, Nancy Pelosi, phil gramm, savings and loans

Treasury Secretary Henry Paulson has put forward a proposition to bail out the finance industry with a price tag at $700 billion.

The plan comes with near-dictatorial power granted to the executive branch, with a huge raid on the treasury with no means of paying for it, with a petulant demand of "Now, now, now!" coming from the Bush Administration, and with no plans for oversight (this time, actually, there's a specific ban on oversight written into the bill).

No plan for an end game, an endless blank check for private companies who have well-placed friends, and more power for the executive branch, all sold by typical Republican hysterics that the sky will fall if their bill isn't passed immediately... what does that remind us of? To me, it sounds a whole lot like the Authorization for Use of Military Force (AUMF), the bill that authorized the Iraq War.

And if Democrats prove to be as ineffective in defending basic economic fairness, in articulating the need for any bail-out to come with serious regulation, and in exercising their power in Congress to make sure that the plan the government goes forward with is sound as they were when it came to supporting the basic principles that told any thinking American that the war with Iraq was a bad idea right from the start, they're going to cave once again right before all our eyes.

Personally, I never got over the AUMF and the absolute lack of foresight it represented in favor of sheer destruction, so that someone's head, anyone's head, could be brought before the American people as a sign that George W. Bush was doing what he could to prevent another terrorist attack. It was an utter failure of democracy, calling into question the very concept itself as it attempted to promote it, daring us to ask If this is what happens when democracy's at work, then is it really such a good idea after all?

As much as Hillary Clinton supporters wanted everyone to just get over that vote, I can't even begin to understand how someone could look past it. And as pundits who made careers cowardly cheer-leading the war on still get TV time and newspaper print space to stroke their egos and prove that they have the gall to tell us how foreign policy works, I'm coming to the conclusion that Americans just didn't learn their lesson the first time around.

So here we are, presented with another crisis that demands another decisive solution that will once again work to the benefit of a small sector of the American population and to the detriment of just about everyone else.

This one doesn't promise the murder of hundreds of thousands of people in a small country on the other side of the world that doesn't pose a threat. We should at least count ourselves as blessed that the financial elite found a way to make bank off the government that doesn't involve genocidal policies.

Fortunately, a few factors have changed since 2002 that'll work in our favor here.

First, we have a Democratic majority in the House and a split Senate. Here's Pelosi's statement:

Congress will respond to the financial markets crisis by taking action this week in a bipartisan manner that will protect the taxpayers' interests. The Administration's $700 billion proposal does not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation.

We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome. Democrats will act responsibly to insulate Main Street from Wall Street.

As we proceed to deal with this crisis, this is clear recognition that the party is over for the Bush Administration's anything goes, failed economic policies that have damaged our economy, undermined the middle class and further pointed out the need for a New Direction.

Tough words. We'll see how the Democrats hold up.

Second, while we're in "everyone scream" mode, at least there's not a significant number of Americans who think that they will die as a result of this crisis (even though this has the potential to kill more Americans through hunger, lack of medical care, and exposure than Iraq ever did). That decreases pressure and the likelihood that Congress will do something stupid to prove that they're willing to do something.

Third, Bush hasn't been harping on this one as long as he had Iraq. Up until just this month, he was still arguing that the fundamentals of the economy were sound. Phil Gramm was telling Americans that they were just a bunch of whiners. And any Republican with a platform saw it as his or her responsibility to let the American people know that if they had a problem, it was theirs and theirs alone. A small rough patch, but the economy would keep on moving.

Well, we know now that we're most likely facing an economic disaster of Great Depression proportions, they've decided to turn course, acknowledge that their is a problem, and ask for money and power, supposedly to fix it.

For the most Machiavellian administration this country has seen, they should know that that's just not how it's done. These sorts of schemes take time, and they haven't put in enough to make it happen.

This is a huge disaster, and there shouldn't be a deal on the table, at all, that doesn't include

  1. regulation to prevent banks from taking on risky loans,

  2. regulation to create transparency on the stock market,

  3. regulation to reduce the size of finance firms,

  4. a plan for exactly what the money's going to be spent on (as much as I'm a French-lovin' liberal, no bailouts for foreign firms. Sorry),

  5. a source for the cash, and

  6. a clear system for both Congressional and judicial oversight of executive actions.

We'll see how the Democrats hold up. If there's anything we learned back in 2002, it's that they have to have a clearly identified counter-plan, a unified philosophical response to conservative arguments, and the necessary tools to get their message out.

Otherwise, they're doomed to repeat the same mistake and keep on passing devastating legislation at Bush's whim.

Until we find out what's going to happen, here's an angry rant from a Democratic Senator on the financial crisis:

Paulsen and congressional Republicans, or the few that will actually vote for this (most will be unwilling to take responsibility for the consequences of their policies), have said that there can't be any "add ons," or addition provisions. Fuck that. I don't really want to trigger a world wide depression (that's not hyperbole, that's a distinct possibility), but I'm not voting for a blank check for $700 billion for those mother fuckers.

Nancy said she wanted to include the second "stimulus" package that the Bush Administration and congressional Republicans have blocked. I don't want to trade a $700 billion dollar giveaway to the most unsympathetic human beings on the planet for a few fucking bridges. I want reforms of the industry, and I want it to be as punitive as possible.

Henry Waxman has suggested corporate government reforms, including CEO compensation, as the price for this. Some members have publicly suggested allowing modification of mortgages in bankruptcy, and the House Judiciary Committee staff is also very interested in that. That's a real possibility.

We may strip out all the gives to industry in the predatory mortgage lending bill that the House passed last November, which hasn't budged in the Senate, and include that in the bill. There are other ideas on the table but they are going to be tough to work out before next week.

I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.

I'm open to other ideas, and I am looking for volunteers who want to hold the sons of bitches so I can beat the crap out of them.

And if angry rants aren't your thing, here's an in-depth explanation of how this whole thing came about, that starts with the Reagan Administration, and works its way through the S&L crisis, the Keating 5, the Enron collapse, why California has Arnold as its governor, Phil Gramm's history as a lobbyist, the sub-prime mortgage crisis, and pretty much anything else that led to this mess. It's not as satisfying as swearing, but you'll be glad you read it.

Spoiler: it's the same people doing the same shit, over and over again.

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Can the Fed run its printing machine full-time to churn out all those billions to buy up toxic debt without a substantial infusion from increasingly pinched taxpayers? And won't priming the pump like mad drive the dollar back into the pits and force interest rates higher? And for the dollar, that means uncertainty — never a good thing for any currency.
Superficial fashion question ? Did you see the photo of Nancy Pilosi with the Fed Chairman and all the officials ? Why doesn't she just wear a suit and tie like them men. Her grey sloppy pants suit made her look like a European attendant in a public toilet. Women politicians should go all the way in their so called masculine outfits and forget about the travelling pastel pants suits that make them look ridiculous. IMHO

Unless this bailout is financed by a hefty increase in corporate taxes, capital gains taxes, and the massive untaxed "incentive" bonuses of corporate execs, we will be buying our own earned money twice.

Tax the hell out of those who worked this disaster. The public should revolt at any suggestion that the middle calss pay for this.

Lynn Forester and John McCain can sell a house or two and pitch in...

I suffered through listening to Suze Orman blaming every American for their personal spending habits causing this mess on Oprah today.Not once did she blame Nafta and a Republican Party hellbent on giving American jobs away to foreign countries and foreigners illegally here.Our wages and quality of life have been destroyed to the point there isn't a way to live the American dream without tetering on the edge of financial ruin or above our means.I've lost more than half my wages and my house because of poor executive decisions yet I don't hear Congress talking of any worth while bailout of people in my position.Yet those executives that planned and implimented the housing boom for their personal gain walk away untouched sucks doesn't it? At the same time you now have the same multi millionaires buying homes in lots of one thousand for future gain and why are they being allowed to do it? Shouldn't we be seizing those assets from them to pay for this mess and maybe offering them back to the people who've been fleeced by this mess at fire sale prices? Anger and frustration don't do justice to how I feel about this mess.

amym440's attempts to portray the origins of the current military and political crisis as a simplistic good guy/bad guy showdown that will be turned around by electing a Wall Street pet like Obama is not accurate at all.

Here’s an more accurate picture of the situation.

Both parties are equally guilty for the current economic crisis. That’s so thoroughly documented that it’s futile to challenge it.

Both parties, and particularly Bill Clinton, are responsible for NAFTA, the export of jobs and other union busting measures. Unions are our only guarantee of a livable standard of living. My bumper sticker says “Unions, the antitheft device for working people” and that’s a totally accurate statement.

Large numbers of immigrant workers are imported workers, picked at or near border crossings and transported by on corporate buses to points inland where they face a life of low wages, no benefits and 'liberal' doses of racism. If they try to get better working conditions or form a union the bosses call ICE and say “Daaaam, Ah just found out that Muh plant if full of iiiiilegals. Come n’get em.” And ICE complies, ripping apart families and ruining lives. Then the chartered bus head out for El Paso and San Antonio again.

If they work for a living they deserve the respect and support of all working people. We should organize them in unions, not blame them for being underpaid.

Both parties oppose socialized medicine.

Both parties participated in and continue to support the racist war of genocide in the Middle East, a war for oil and nothing else. Clinton ordered the first genocide against children and Bush the second. Obama and McCain both promise to continue and extend the war.

The candidates of both parties are bought and paid for political hustlers whose promises are worth as much as the promises of Clinton and Bush. Anyone who wants to challenge that is welcome to examine the records of all the administrations from Nixon and try to prove that our standard of living has gotten better under Democrats or Republicans. That’ll be another exercise in futility.

One part of solution to the crisis is a 100% tax on excessive managerial incomes, a 100% inheritance tax on the rich and a 100% tax on the incomes of speculators.

The other parts are a 10 year moratorium on garnishments, repossessions and foreclosures, a $25.00 an hour minimum wage, fair treatment for immigrant/imported workers, 32 hours work for 40 hours pay with overtime and life imprisonment at hard labor for company managers who export jobs without creating new ones with trade union rates and benefits.

Vote against the anti-LGBT referenda and vote for the union led and financed US Labor Party. If not vote for socialist or communist candidates as a protest or join the scores of millions who sit it out because they’re smart enough to refuse to vote for the lesser bigot, the lesser warmonger or the lesser evil.

To paraphrase Lou Dobbs from the other night (God is going to strike me dead for quoting Dobbs!):

"I'll vote for the first candidate willing to admit this massive buyout has fucked any social agenda they might have."

Alex, it's not at all clear yet that we're going to have a Depression, although all the conditions for one have been met and then some. The Japanese economy suffered from a serious set back in the ‘90’s and it faltered but didn’t crumble.

It depends on the political balance of power. There really is no economic crisis that is insoluble if working people can be forced to accept hard times, a ham-fisted right wing government and if a suitable scapegoat is found. Several examples of this, none of them similar to our own situation – yet – can be found in Germany in 1933, France in 1945, and in the Chilean, Argentine and Brazilians juntas of the last century. We are not even close to that but a variant is not unlikely if we have a severe depression with stagflation. The tactic they peruse here will likely remind us of Thatcherism with just a sprinkling of fascism if thing’s get rough.

This US crisis matured during an election so the solution is not as automatic as it would otherwise be because of partisan bickering. A fully implemented solution might occur after November 4th, but it's very unlikely that Obama and the Democrats will come up with a solution that meets the needs of working people.

This crisis combined with an unwinnable and costly war plus anti-democratic offensives (FISA, the Paytriot Act) of both parties means that we’re in for a sharp swing to the right by both Democrats and Republicans. For now it’s likely that the Democrats will be in lockstep with the Republican’s plans while insisting on a few sops to make it appear as if they aren't. That’s what they did under Carter when he rammed through NAFTA and deregulation and that’s what Biden did when he gutted the bankruptcy laws. It’s the classic Democratic tactic.

The cost of these bailouts, including Fannie Mae and Freddie Mac will be close to $15 trillion dollars, and so far not a penny of that is allocated to help the victims of the speculators.

Robert Ganshorn Robert Ganshorn | September 24, 2008 4:58 AM

Wow, thank you Alex for this incredible post. I find it to be your absolute best. I enjoyed the referenced articles and agree that US taxpayer dollars should not be used to bail out anything beyond domestic banking that impacts American citizens.

Already the sharks are in the water to "aide" the foreign and domestic institutions anyway. Expect to see the Japanese (Bought two divisions of Lehman's in two days) British (Barclay's also bought a division of Lehman's as well)Chinese, Indian, Saudis, and other oil rich entities to buy in to these assets at fire sale prices. They have plenty of dollars to do it with from all that we have purchased from them.

Our dollar will suffer in value internationally (which would increase oil price) and domestic inflation will be an additional tax on everyone. You see, we have already PRINTED plenty of money which is in the central banks of all countries that need to buy oil (Iran will take Euros, so will Venezuela). If this crisis takes oil off the dollar purchase standard and a "basket of currency" approach is used to value oil there will be a lot of dollars coming back in to the American market looking for something to buy. Our GDP is twice the size of our nearest competitor, Japan, with China close behind. Ultimately that will save us.

I will volunteer now to be available to hold the SOB's while congressman Waxman beats them. It is more than past time to look at golden parachutes and CEO ethics, regulation and accounting requirements. This is one federal bureaucracy that will pay for itself. Even as they are, many of these swine are looking at prison time already.

The article Alex referenced is from Daily KOS, self described as "left, progressive, liberal, Democratic". They harbor the illusion that they can reform the Democratic Party or use it to accomplish 'liberal' goals. Their analysis is flawed because it's partisan and only looks at half the truth. It lacks an analysis of the central and equal role the Democrats played in the process, who are as usual willing accomplices of the Republicans in busting unions, degrading our standard of living and crafting laws to make the rich richer.

Here are some alternative and more rounded infomation pieces about the crisis, one which the left has been predicting but which the right and most liberals have long dismissed as a fantasy. an quick analysis by Jesse Jackson opposing the bailout. an examination of the impact of the bailout. An examination of the her4oic and incisive reaction of Democrats when confronted with Republican strategies.
looks at the crisis and the response of the labor movement and the left to the Great Depression and the current crisis. at look at the Democrats central bipartisan role in creating the crisis. ]

Most of these articles are printed in AlterNet and CounterPunch: sources independent of the Democratic Party.

The bailout should be limited to erasing the debt of working people and confiscating the wealth of speculators, bankers, the rich and upper management. If the money is given to Paulsen he'll cover the gilded asses of the rich.

Section 8 of the proposed legislation lays it out:

"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."

Robert Ganshorn Robert Ganshorn | September 24, 2008 11:30 PM

Alex, you must someday show me how to add links and links and links to my comments. It is not that anyone will read them, of course, but they do look pretty don't they? :)