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Published on Monday, September 22, 2008 by The Nation

Bernie Sanders: Bailout Transfers Wealth - Upward

by John Nichols

Democratic presidential candidate Barack Obama, like rival John McCain, has yet to take a stand one way of the other on the proposal to have U.S. taxpayers bail out the worst players in the U.S. financial system with a scheme to buy up $700 billion worth of bad loans.

Obama calls McCain "the great deregulator" and warned that the Republican would do to the health care system what had been done to the banking.

McCain's campaign called Obama a "directionless driver" on the economy.

Obama was for helping Wall Street and Main Street, which was better than just helping Wall Street... but not much, when you consider that Main Street rarely wins these wrestling matches. McCain was for keeping "people in their homes and (safeguarding) the life savings of all Americans by protecting our financial system and capital markets," which is this week's variation on the "sound economy" in "crisis" dichotomy of last week.

But neither candidate took a clear stand on the proposal that's being placed on the table.

So what should the contenders -- especially Obama -- be saying?

How about borrowing a page from Vermont Senator Bernie Sanders, who served as a member of the House banking committee before his election to the Senate, where he is now a member of the budget committee.

Sanders actually understands how the current crisis got started.

And the independent senator understands that what is being proposed by the Washington and Wall Street mandarins who got us into this mess as a fix is actually bad policy on steroids.

Here's what Sanders says -- and what Obama and the Democrats should be saying:

 

For years, as a member of the House Banking Committee and now as a member of the Senate Budget Committee, I have heard the Bush Administration tell us how "robust" our economy was and how strong the "fundamentals" were. That was until a few days ago. Now, we are being told that if Congress does not act immediately and approve the $700 billion Wall Street bailout proposal these "free marketers" have just written up, there will be an unprecedented economic meltdown in the United States and an unraveling of the global economy.

This proposal as presented is an unacceptable attempt to force middle income families (and our children) to pick up the cost of fixing the horrendous economic mess that is the product of the Bush Administration's deregulatory fever and Wall Street's insatiable greed. If the potential danger to our economy was not so dire, this blatant effort to essentially transfer $700 billion up the income ladder to those at the top would be laughable.

Let us be clear. If the economy is on the edge of collapse we need to act. But rescuing the economy does not mean we have to just give away $700 billion of taxpayer money to the banks. (In truth, it could be much more than $700 billion. The bill only says the government is limited to having $700 billion outstanding at any time. By selling the mortgage backed assets it acquires -- even at staggering losses -- the government will be able to buy even more resulting is a virtually limitless financial exposure on the part of taxpayers.) Any proposal must protect middle income and working families from bearing the burden of this bailout.

I have proposed a three part plan to accomplish that goal which includes a five-year, 10% surtax on the income of individuals above $500,000 a year, and $1 million a year for couples; a requirement that the price the government pays for any mortgage assets are discounted appropriately so that government can recover the amount it paid for them; and, finally, the government should receive equity in the companies it bails out so that when the stock of these companies rises after the bailout, taxpayers also have the opportunity to share in the resulting windfall. Taken together, these measures would provide the best guarantee that at the end of five years, the government will have gotten back the money it put out.

Second, in addition to protecting the average American from being saddled with the cost, any serious proposal has to include reforms so that we end the type of behavior that led to this crisis in the first place. Much of this activity can be traced to specific legislation that broke down regulatory safety walls in the financial sector and allowed banks and others to engage in new types of risky transactions that are at the heart of this crisis. That deregulation needs to be repealed. Wall Street has shown it cannot be trusted to police itself. We need to reinstate a strong regulatory system that protects our economy.

Third, we need to address the needs of working families in this country who are today facing very difficult times. If we can bail out Wall Street, we need to respond with equal vigor to their plight. That means, for example, creating millions of jobs through major investments in rebuilding our crumbling infrastructure and creating a new renewable energy system. We must also make certain that the most vulnerable Americans don't freeze in the winter or die because they lack access to primary health care.

Finally, we need to protect ourselves from being at the mercy of giant companies that are "too big to fail," that is, companies who are so large that their failure would cause systemic harm to the economy. We need to assess which companies fall into this category and insist they are broken up. Otherwise, the American taxpayer will continue to be on the financial hook for the risky behavior, the mismanagement, and even the illegal conduct of these companies' executives.

These are the last days of the Bush Administration, the most dishonest and incompetent in modern American history. It is imperative that, at this important moment, Congress stand up for the middle class and for fiscal integrity. The future of our country is at stake.

 

© 2008 The Nation

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