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

September 22, 2008

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 there 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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One Comment leave one →
  1. JackAcid permalink
    September 26, 2008 3:42 pm

    You need to do a little more homework. This problem wasn’t caused by either just the Democrats or just the Republicans, nor was it simply a result of deregulation. In fact, there are some regulations which specifically added to the problem by forcing lending institutions to give loans to unqualified borrowers if they wanted government favors – under the guise of equal housing opportunity.

    You’ll also find that a huge amount of this happened in the mid to late 1990’s with some key changes made in 1999. Surely you remember who was in charge at that time.

    This problem transcends party lines and is not likely to be properly addressed by either party. Despite the very real possibility of a major depression, we probably would have been better off to refuse a bailout of any kind and “take our medicine” rather than reap what’s coming in the future as a result of this debacle. So from that point of view I can certainly agree with you on the “no bailout” thing, but I have to take issue with tons of your assertions and assumptions in this piece.

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