Geez, I didn’t know we taxpayers had $700 billion in loose change to spend on worthless mortgages….er, under-performing assets. Last I heard, it was far too expensive to spend a fraction of that on, say, universal health care, which would at least benefit everyone.…
What I’d like to know is, What is this $700 billion going to buy us? Actually, the tab is now up to $1 trillion once the bailouts of AIG, Fannie Mae and Freddy Mac are figured in. What are we actually going to own? And what standards of disclosure and accountability will govern this strange, unprecedented transaction?
The unspeakable truth is, we taxpayers are writing a blank check to Treasury Secretary Paulson to spend $700 billion as he sees fit. The Bush Administration wants to rush through a congressional authorization as quickly as possible, no questions asked and no stipulations attached. And while Democratic leaders are making a bid to protect homeowners from foreclosure and secure an economic recovery package, there is little talk of leveraging taxpayers’ bargaining power for specific and substantial upside benefits in the years ahead.
The whole bailout deal feels like a case of legalized extortion. House Republican John Boehner warned Democrats, “Efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors and small businesses deserve.” In other words, shut up and give us the money. (Rep. Boehner: please assure me that there was no political leveraging or partisan quid pro quo at work when Congress pushed through the unconscionable consumer bankruptcy bill in 2005.)
The smug condescension of free marketers has evaporated, replaced with a truculent resentment. You’d be pissed off, too, if your all-purpose superhero ideology were suddenly rendered impotent. The talismanic power of free market dogma no longer persuades and prevails. It invites ridicule. For decades, business titans and economists took pleasure in patronizing social democrats, New Dealers and do-gooders about the rigors of the market and the macho realism it engenders. They blasted government taxation as “confiscatory” and “redistributionist” schemes by non-productive elitists.
And now? Can one imagine a more confiscatory seizure of money than the proposed bailout? It is larger than the 2009 budget for Social Security ($651 billion). Productive investment? Hah. As for redistributionism, why, the primary beneficiaries will be the ones who were most profligate and who reaped the lion’s share of gains from the speculative bubble. At least we won’t be hearing any more moralizing about welfare queens.
Since I believe in redemption, I have a challenge to the economic pundits and corporate cheerleaders who have been lecturing us for so many years about fiscal responsibility, market discipline, “there’s no such thing as a free lunch,” and all that stuff. Show me that you believe these principles ought to apply to the American people, whose money is about to be “invested” to bail you out. Shouldn’t basic investment principles apply here as well? Surely taxpayers ought to have the right to call the shots. The piper gets to call the tune.
As it happens, Senator Bernie Sanders of Vermont has just weighed in with an excellent opening proposal. It’s worth quoting extensively from his recent op-ed, Billions for Bailout? Who Pays? It is one of the few serious proposals for using the bailout to benefit commoners over the long term. Sanders declares that four principles should govern the bailout:
(1) The people who can best afford to pay and the people who have benefited most from Bush’s economic policies are the people who should provide the funds for the bailout. It would be immoral to ask the middle class, the people whose standard of living has declined under Bush, to pay for this bailout while the rich, once again, avoid their responsibilities. Further, if the government is going to save companies from bankruptcy, the taxpayers of this country should be rewarded for assuming the risk by sharing in the gains that result from this government bailout.
Specifically, to pay for the bailout, which is estimated to cost up to $1 trillion, the government should:
a) Impose a five-year, 10 percent surtax on income over $1 million a year for couples and over $500,000 for single taxpayers. That would raise more than $300 billion in revenue;
b) Ensure that assets purchased from banks are realistically discounted so companies are not rewarded for their risky behavior and taxpayers can recover the amount they paid for them; and
c) Require that taxpayers receive equity stakes in the bailed-out companies so that the assumption of risk is rewarded when companies’ stock goes up.
(2) There must be a major economic recovery package which puts Americans to work at decent wages. Among many other areas, we can create millions of jobs rebuilding our crumbling infrastructure and moving our country from fossil fuels to energy efficiency and sustainable energy. Further, we must protect working families from the difficult times they are experiencing. We must ensure that every child has health insurance and that every American has access to quality health and dental care, that families can send their children to college, that seniors are not allowed to go without heat in the winter, and that no American goes to bed hungry.
(3) Legislation must be passed which undoes the damage caused by excessive de-regulation. That means reinstalling the regulatory firewalls that were ripped down in 1999. That means re-regulating the energy markets so that we never again see the rampant speculation in oil that helped drive up prices. That means regulating or abolishing various financial instruments that have created the enormous shadow banking system that is at the heart of the collapse of AIG and the financial services meltdown.
(4) We must end the danger posed by companies that are “too big too fail,” that is, companies whose failure would cause systemic harm to the U.S. economy. If a company is too big to fail, it is too big to exist. We need to determine which companies fall in this category and then break them up. Right now, for example, the Bank of America, the nation’s largest depository institution, has absorbed Countrywide, the nation’s largest mortgage lender, and Merrill Lynch, the nation’s largest brokerage house. We should not be trying to solve the current financial crisis by creating even larger, more powerful institutions. Their failure could cause even more harm to the entire economy.
The biggest scandal may be that these sorts of ideas are being met with resounding silence in respectable quarters of the media, Washington and Wall Street. My guess is that there has been such pervasive complicity in the policies that have produced Wall Street’s meltdown, that no one really wants to break ranks and expose the real perfidies and culprits. Standing up for the commoners would be reveal too much about our political culture. It would be too embarrassing.
Hapless Democrats, so accustomed to being pinned with “kick me” labels, are likely to settle for token reforms. Even the Obama campaign is ominously subdued. With advisors like Paul Volcker and Lawrence Summers, Barack Obama seems unlikely to demand the kind of durable structural reforms and taxpayer equity that an emergency bailout of this magnitude surely deserves.
You may remember the pound-of-flesh terms that the banking industry exacted from consumers during its rewrite of consumer bankruptcy laws. The stricter terms were justified as necessary to prevent “fraudulent, abusive, and opportunistic bankruptcy claims.” Now that the shoe is on the other foot, I’m willing to be magnanimous. I’d settle for serious structural reform, generous and specific equity stakes in the assets being bought, and full financial disclosure. And throw in mandatory bankruptcy education classes — and a ban on declaring bankruptcy for another generation. (The massive savings and loan bailout was wrapped up only 12 years ago, for God’s sake!) I know this may be visionary, but one trillion dollars ought to buy us taxpayers a LOT.
Update: Robert Reich has an intriguing set of proposals for what the public might ask in return for its bailout.