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The $700 Billion Wall Street Bailout: One More Weapon of Mass Deception
Not since the Bush Administration's lies about Iraq's "weapons of mass destruction" have the American people been so despicably misled.
The Bush Administration's proposal to buy, with taxpayers' money, $700 billion of toxic liabilities from the corporate financial titans of Wall Street is a fraud. It is by no means necessary, as Treasury Secretary Henry Paulson claims in the agency's Fact Sheet, "...to promote market stability, and help protect American families and the U.S. economy."
It is necessary only to assure the financial survival of Wall Street banks and brokerages, the Administration's most loyal supporters and its greatest political contributors-and in large measure the cause of the financial meltdown the country is facing.
These financial corporations lobbied ferociously to be free of government regulation. Had they not succeeded, they could not have done what they did next. They created and leveraged trillions of dollars of complex "derivatives"-mortgage-backed securities, collateralized debt obligations, and credit default swaps-all riding on an unprecedented real estate bubble stimulated by their frenzy of creative finance. When the bubble burst, as bubbles do, many of these financial titans faced bankruptcy, their obligations far exceeding their assets.
The $700 billion of taxpayers' money, in the plan suggested by Treasury Secretary Henry Paulson, will buy enough of the toxic obligations to allow the companies to avoid bankruptcy. Not coincidentally a major beneficiary of the scheme will be the investment bank Goldman, Sachs. Mr. Paulson resigned as CEO of Goldman, Sachs to become Treasury Secretary in 2006, having amassed a personal net worth of $700 million during his 32-year tenure at the bank. (On average, $21.9 million per year.)
We need to "remove the distressed assets from the financial system," Mr. Paulson suggests. Relieved of the burden, the great Wall Street banks can then regain, presumably, their folksy function: assuring that "...money and capital flow to and from households and businesses to pay for home loans, school loans, and investments that create jobs."
For the good of the American economy, Mr. Paulson is correct that credit needs to flow and the distressed assets need to be removed. He is not correct that credit needs to flow from Goldman, Sachs and other Wall Street financial houses. And the distressed assets do not have to be assumed by the taxpayers.
There are other, far more equitable and justified ways to accomplish both.
The distressed assets-that is the losses-can and should be absorbed by the executives, directors, and stockholders of the corporate banks and other institutions that propagated the financial firestorm. They can and should, as the dictates of the free market insist, stand accountable for their actions and accept bankruptcy. It is not the responsibility of the American taxpayers to shield them.
Mr. Paulson wants to rescue Wall Street so Wall Street, he assures us, can get back to lending. That is certain to save Mr. Paulson's former firm and the others, but it is by no means certain credit will then flow to "...home loans, school loans, and investments that create jobs." The Wall Street firms are far more likely to revive their lucrative trade in complex and esoteric financial "products."
$700 billion is a lot of money. It is more than we've spent so far on the Administration's fraudulent "war on terror." (See http://www.alternet.org/waroniraq/63632/ ) Is it not better public policy to channel the money to "households and businesses" in some other, more direct, more effective, and far more reliable way?
There are hundreds if not thousands of Main Street banks and thrift institutions which played no part in the real estate securitization/derivatives game. Certainly the $700 billion could be made available to them instead, at low but positive interest. Or special publicly-held banks could be set up in statute and capitalized with the $700 billion.
The crisis is real, but there are ways to serve the nation's interests at large, and even to earn a modest return on its assets. We do not need to subsidize the failure of Wall Street and hope thereafter for better days.
The welfare of the Wall Street financiers should not be the focus of public policy, and this clever attempt by the Bush Administration is a perversion of decent governance. We should not be stampeded into the greatest corporate theft of public assets, arguably, in the nation's history. Instead, to paraphrase one of our presidential campaigns, we need to put our country first and stop Mr. Paulson dead in his tracks.
- Posted in
101 Comments so far
Show AllLet Wall Street use their laundered drug money..they have a limitless supply.
The US Government should be nationalizing outright any business that requests a “bailout.” Government bureaucracy could not possibly do a worse job that private bureaucracy has done.
Hey, how much money does Bush's father and family stand to lose in the financial markets?
Why isn't anyone asking that question? Or if they are asking it, why haven't I seen them doing so?
Saturnalia September 22nd, 2008 1:13 pm
"Hey, how much money does Bush's father and family stand to lose in the financial markets?
Why isn't anyone asking that question? Or if they are asking it, why haven't I seen them doing so?"
That is the 64 million dollar question. When it was middle class America's jobs that were being moved overseas forcing middle Americans into bankruptcy not a peep was heard. Now that the countrie's "elites" are about to be hurt the government is screaming bloody murder.
Lobo Gris
The US Government should be nationalizing outright any business that requests a “bailout.” Government bureaucracy could not possibly do a worse job than private bureaucracy has done.
"The distressed assets-that is the losses-can and should be absorbed by the executives, directors, and stockholders of the corporate banks and other institutions that propagated the financial firestorm. They can and should, as the dictates of the free market insist, stand accountable for their actions and accept bankruptcy. "
Yes, I agree. But the problem is that executives, directors, and stockholders will not absorb their financial losses. They will find the money by laying off average employees like you and me. For the employees not terminated, the corporations will reduce benefits and demand more productivy. Even more obscene, they will also outsource jobs to another country.
The answer here is the bailout bill most hold these corporate fat cat bastards accountable for what they have done in the past, and they must be closely watched in the future. How about distributing some of those multi-million salaries and benefits to the rest of the employess in the company? If trickle down economics is such a great idea, the trickling needs to start now. Only a trickle isn't enough - it needs to be more like releasing water from a dam.
How can a small group of elitist men/women develop such as expensive plan so quickly? As a National Science Foundation funded scientist, our proposals are peer reviewed which takes months. Major projects often take many years of vetting by external groups, all wanting to see milestones, management plans and month-by-month spending and achievement goals. Tens of thousands of man-hours can be spent just generating the plans before funding is approved.
And now this. Back-room plans by people whom I would not even lend a dime to are committing us to a $700B plan, with almost no justification other than "we need to move quickly".
This is wrong.
The Wall $treet elites knew this was coming ahead of time and most likely made plans for Congress to be doing their DUMBSHOW to fool the public yet AGAIN !
Fred:
Yeah! And the bankruptcy reform that our so-called representatives voted into law a couple of years ago was the icing on the cake to not let us stupid consumers off the hook when the jobs dried up and we couldn't refinance the predatory mortgages.
I really don't think fooling 'the public' is part of their plan. They have to fool their world business partners, thats all.
They are not accountable to us and they know it. We the people don't matter anymore to them, we are fooling ourselves if we think we do.
Why bother fooling the public, when the public are fools??
The American people were segregated from the plan long ago. They are committing themselves to a 700B plan. Not us.
Pickpockets have to be quick.
Joe
Pickpockets have to be quick.
Joe
We won't solve this problem with the same thinking and by the same guys that created it. Let the financial firms go down if they haven't got a viable business model. It is they who screamed for "deregulation." Let them eat their own dogfood.
On the other hand, when the Japanese had a similar meltdown in the early 1990s they didn't bailout the financial firms. Instead they put a lot of money into public infrastructure projects which helped keep their GDP up and created a lot of jobs and work. Given our deteriorating public infrastructure this would be a lot better use of 700 billion bucks.
nomobush September 22nd, 2008 2:16 pm
"Instead they put a lot of money into public infrastructure projects which helped keep their GDP up and created a lot of jobs and work. Given our deteriorating public infrastructure this would be a lot better use of 700 billion bucks."
It also would be beneficial to halt the tax breaks given to the multi national corporations that encourage them to move overseas to low wage areas of the world and to start moving manufacturing back to the U.S.
Lobo Gris
Not being an economistician, my speculation could be well off the mark: if these great financial institutions fall wouldn't related international institutions also fall? If any of the CEOs keep their personal assets in offshore banks, then wouldn't they loose their shirts completely? (I'm imagining Swiss bank accounts here)
No "economisticion" degree is required to see behind the curtain. This too is likely to fail, simply because they have strangled the golden goose, the American consumer. Housing is the snowball's tipping point; retail (most of our GDP) is the cliff, where job losses will free-fall. Robbing the public treasury and shoveling it into empty bank vaults will not stop the snowball.
Samski September 22nd, 2008 2:31 pm
"If any of the CEOs keep their personal assets in offshore banks, then wouldn't they loose their shirts completely? (I'm imagining Swiss bank accounts here)"
No, because American investment banks fail does not mean Swiss Banks will also. Foreign banks that have a presence in the U.S. and have fallen into the same greed trap as U.S. banks may also be in trouble though. I heard Deutche bank, for example may be in trouble.
Lobo Gris
The NYT's front page shows a smiling Bush urging Democrats in Congress to HURRY and pass this bailout.
In the article the word stampeded is used.
For a great quick read; Informed Comment, by Juan Cole, Today.
Here's what else The People have gotten when W cried "HURRY":
USA PATRIOT Act
Military Commissions Act
FISA protect my ass from prosecution forever Act
Other assorted pecks and probes at the desiccated husk of the Constitution.
Seems about time for The People to reach for the tube of K-Y jell to ease the pain that's on its way.
This looks like an 11th-hour rush to rob the public treasury to prevent a run on the bank. Typical of Democrats, Schumer today expressed reservations, but then conceded to Paulson’s urgency, saying “he [Paulson] knows this market inside and out’” so we have to panic. Oh, does he now; does anybody? Is he trustworthy now, more than he was last August when he said, "We have the strongest global economy I’ve seen in my business lifetime."
How many times does Lucy have to pull away the football, until Charley Brown Democrats wise up? This is another imminent threat; WMD all over again; Powell’s testimony to the UN; Condi’s mushroom cloud; Bush’s yellow cake; Tenet’s slam-dunk; and the war that will pay for itself. Credulous Democrats are on the verge of approving a blank authorization to use force against American workers and taxpayers.
Doug; This orgy of deregulation and corporate thieving has been a Republican debacle.
The housing and Wall Street crises are gifts from the GOP.
Now the GOP wamts to bail out their Republican friends with mostly Democrat's-the middle class's money, while the GOP CEO's and managers walk away loaded.
However, you blast the Democrats.
You all are like people denouncing the WW2 German people but not the Nazi Party.
Hey; The GOP is the Nazi's. Even if the Dem's are looking on. (In a Republican dominated MSM I add.) Let's kill Hitler, then heal our country.
Obama.
yah, those poor witless democrats, helpless to such ferocious power. The people would do the world a favor if they just rolled up their sleeves and saved the stranded souls from the Federal hell they all find themselves living in. Forget about bailing out wall street, the democrats need it more.
Translucent,
I don't disagree, but they've done it with the complicity and political cowardice of many Democrats, who joined with (unanimous) Republicans to vote for NAFTA and GATT; off-shore banking; credits for relocation to China; bankruptcy reform (for "whining" peasants); for Phil Gramm's repeal of FDR's Galss-Steagall Act; FISA, etc. Furthermore, Obama has some of the same advisors like Bob Ruben and Larry Summers that pushed farce-trade agreements and globalization.
Ours is a bipartisan corporatocracy, the best that money can buy. Recently Wall Street has been investing more money in Dems than Reps as they sense the wind shift. It's called hedging and they're experts at it. They expect something for their money, and they usually get it.
How many Leibermans and Zell Millers are still hiding under blue skirts? The Democratic Party needs a spine implant.
Spinelesness is mandatory for Dems. But they have memory traces of decency.
Republicans have spine. But are plutocratic rapists.
What a blessing it might be if a real name figure, a Gore or Kucinich hypothetically, disavowed the Democratic party and went Green, Independent.
Then began building a 3rd party from the bottom up and the top down simultaneously.
Doug Terpstra September 22nd, 2008 4:43 pm
"The Democratic Party needs a spine implant."
We need to replace the Democrats with people that have spines already.
Lobo Gris
Well, I do denounce the people far more than their government, whether it's the Nazi-era German people or the Bush-era American people, or any time in the past when the people have allowed their government to continue to openly commit criminal acts.
Denouncing the Republican Party or the Nazi Party is like denouncing thieves and murderers for being thieves and murderers. Theft is what thieves do, murder is what murderers do.
The majority of the German people voted for, elected and continued to support the murdering, thieving Nazis. The majority (or close enough to it) of the American people voted and continued to support the current murdering, thieving Republican government of the US. The people also elected for the second time the Democrat Clinton, who through continued sanctions and bombings was no less a genocidist than Bush. "U.S." or US is us: the government of and by the people.
The thieving murderers that run this country can do so only at the pleasure of the masses who support them, who pay them, who allow them to rule. It does absolutely no good to rant and rave about lying, thieving, murders when the people insist on voting for lying, thieving, murders election after election.
It's comforting to blame the bad guys, that way you can say, as many do, that Americans are good people who keep being unlucky to have a bad government.
Bullfeathers!!!
The people are the government, not merely the people among them they choose to represent them.
I believe that the most profoundly truthful and useful anti-war
song is The Universal Soldier, by Buffy St-Marie (google the lyrics if you don't know it). The universal soldier really is to blame. Support the troops who knowingly kill the innocent? - and all killed by the aggressors are innocent when they invade a country that has done them no wrong as in Vietnam or Iraq. In the same way as the soldier, the people really are to blame: the people are the government, not just those they elect to represent them.
Do we have a government of murderers and thieves? Then in a government of the people by the people, the people are also murders and thieves.
If you want to change the government, you are going have to change the people.
Good luck on that. First Nation peoples are still waiting.
Thanks you for your thoughtful reply. And I agree that to change the government, people will have to change.
But their nature or their awareness?
The latter. When people become aware of their material goods, standard of living slipping away from them before their eyes it is their nature to fight violently against this.
People's nature won't change, nor motivations until their circumstances radically deteriorate. The weakest segments of society have already been burned, the poor and elderly. As this spreads to the middle class, people will change. Violently.
Obama.
Or McCain to hurry the process up.
translucent September 22nd, 2008 3:02 pm
"Doug; This orgy of deregulation and corporate thieving has been a Republican debacle."
The Democrats have been just as complicit as the Republicans. It was under Clinton that the Glass Steagal act was repealed.
Glass Steagal act:
Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999 by a bipartisan, conference committee version of the Gramm-Leach-Bliley Act signed by President Bill Clinton.
Lobo Gris
.
Ralph Nader :
"Capitalism will never fail because Socialism will always be there to bail it out."
.
Looks like Nader doesn't expect to win. I guess he enjoys reaping the benefits of the downtrodden American as much as the next guy. Laughing all the way to the bank?
Congress, Bush team agree on bailout terms - - - it looks like the American Poor and Middle Classes have been sold down the river to China and the Arabs to fund the GOP life style.
You left out Israel.........
The hour is upon the various fifty states to discern their commitment to this corrupted federal union. No State need stay loyal to a failed confederacy and has a duty to dissolve any ties that will endanger the rights of their citizens.
This country can only fix it's self through the states separating them selves to reform.
If this tide of corruption continues to be treated as a job for the corrupt to manage, we are doomed to their swift path to absolute failure.
http://twocanpete.blogspot.com/
Bush is on a tear to loot this Nation and burden it's taxpayers as much as he can in the last few weeks of his horrible adimistration! Congress must rise up and protect the people from this financial gang rape while there is still time.
I await to find out with a sinking feeling exactly what a congress who gave all their powers to Bush will do with his missive.
Hey, I just ran across this article on Huff-Post regarding the absolute non-negotiable, non-reviewable authority of the bail-out proposal.... The section 8 clause. I hope that my US reps have enough guts to review and amend the proposal before passing it into law....
Section 8 of proposal:
"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."
Also, we got into this mess by trading in debt, It's like expecting debt to generate money.... People have debt precisely because they have no money... It's as abstract as trying to sell the hole of a bagel.... and then trying to figure out the ways to package that hole so that it looks like a bagel instead of a hole and then dividing the hole by an abstract number to arrive at the derivitive for a bagel hole, and then selling a portion of the repackaged holes to bankers who obviously don't know the difference between a bagle and a hole.
Kinda reminds me of the day when we used to step on the horse and sell the s*#t. Makes me wonder if investment bankers aren't just another kind of drug dealer.... I mean all of the tons of coke being smuggled are backed by somebody's big money...
Section 8 of proposal:
"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."
Ha! How very apropos. For anyone who has never served in armed forces... a "Section 8" is a discharge from the military for being mentally unfit.
We need to Section 8 all of CheneyOilCo's RICO buddies and institutionalize them until they have proven that they are harmless to America.
Dangerous Sociopathic Maniacs!
"$700 billion is a lot of money."
First of all, it's a very well-known fact that this administration LIES about every goddamn thing, and there is no reason whatsoever to believe they will only be spending $700B of taxpayer money. Safe to say, it's $1 trillion, at least.
Second of all, every TRILLION of taxpayer money the Fed gives the Wall Street thieves breaks down to $8,000 PER TAXPAYER.
THAT is a lot of money to those of us taxpayers earning the average $32,000 per year - $25,000 after taxes.
Third of all, the present TRILLION is on top of the (at least) TWO TRILLION already gifted/promised to said Wall Street thieves. That means the average taxpayer will reward the Wall Street criminals with $24,000 this year.
THAT is a lot of money - an entire year's net earnings for the average taxpayer.
All in favor, raise your hands... oh, wait, before you do, remember that for your year's worth of earnings you will be part owner of "complicated toxic assets" that will never again be worth even half of what you're paying for them.
Now, all in favor?...
A Trillion is not even close---only a down payment on another subprime deal. Who are you going to believe, Secretary Paulson’s lips or your own lying eyes? Recall Wolfowitz’ $1.7 billion estimate for the Iraq war? This "one measly" trillion in socialized is wildly optimistic.
The crisis is HUGE! Fannie and Freddie alone (“FEDdie”) hold $5-7 trillion in debt, and more than $1 trillion of that is rotten, not the declared $200 billion, or 3.5% of liabilities. Now add the soured bank debts that Paulson has “volunteered” us taxpayers to carry, amounts unknown to anyone because bank books are closed and the watchdogs were run off. Those could amount to trillions, plural, from which banks and brokers have already siphoned off hundreds of billions in fees. Watch the glittering parachutes unfurl, and the yachts glide off to distant island villas---if we let them.
Sorry to sound even more alarmist, but if that doesn’t make you anxious and angry, consider the housing crash as only the tipping point. The taller cliff ahead is retail---and this snowball will be hard to stop. Consumerism is roughly 70% of our GDP, and consumers strangled with usurious debt can’t go shopping anymore. Job losses resulting from failing retail could trigger an avalanche that spreads globally, burying a lot of people and structures, with violent aftershocks that make digging out much harder.
Listen to Greenspan (a key perpetrator), no market alarmist, who calls this a once in a century event. And watch Bill Moyers Journal, especially Kevin Phillips, author of Bad Money.
For a bankers’ emergency, bipartisan corporatists in Washington seem too eager to abandon “free” trade ideology to aid their lobbyist cronies. Any rescued banks must yield public equity. We must also demand that those responsible for gross malpractice and malfeasance, whether “book-legal” or not, pay the price: no parachutes, no bonuses, and retroactive stripping of ill-earned profits. A good number of them should be wearing orange jumpsuits, black hoods maybe, but no fedoras or Club Fed casuals.
In an article on msnbc "Impact of Wall Street bailout becoming clearer" they actually try to convince readers of the necessity and sense of this "bail out". This article lays much of the blame for the collapse of the markets on the Americans who bought into bad mortgages. This is just sick, this MSM that is now oiling the wheels of complicity that the lot of the corrupt Washington family feeds off of. We will be putting up bail money for sure with no expectation that the person we are bailing will ever be held to trial for crimes. I never knew the public would sit around while watching themselves become surety for criminal debt in perpetuity while giving up any judicial oversight..
Leea September 22nd, 2008 5:30 pm
"We will be putting up bail money for sure with no expectation that the person we are bailing will ever be held to trial for crimes"
Held to trial for crimes? Lehman Bros. who just declared bankruptcy has set aside 2.5 billion dollars to pay bonuses to their New York executive staff.
Lobo Gris
Doug Terpstra September 22nd, 2008 4:57 pm
"The taller cliff ahead is retail---and this snowball will be hard to stop. Consumerism is roughly 70% of our GDP, and consumers strangled with usurious debt can’t go shopping anymore. Job losses resulting from failing retail could trigger an avalanche that spreads globally, burying a lot of people and structures, with violent aftershocks that make digging out much harder."
Since the majority of our manufacturing has been moved overseas to low wage areas of the world such as China, Vietnam etc., the effects on our job base will be minimal compared to them. I don't know about you but I really don't give a sh#t if the Chinese, Vietnamese, etc have jobs or not.
Lobo Gris
Do you have any comprehension of $6 trillion and 2 billion people on their way to collect it?
DogLeg September 23rd, 2008 5:36 am
"Do you have any comprehension of $6 trillion and 2 billion people on their way to collect it?"
I have no idea what you're talking about. If you want to argue against what I've written you need to do more than one liners.
Lobo Gris
I do not 'need' to do anything. What I write is an extension of the logic or lack of it I read. In other words, try to understand. And believe me I am not picking on you. A lot of what you write is spot on, then, for some reason, you blow it off. That I have noticed.
I wonder how much of Paulsons'worth is in Stocks, which would drop in value. I'm hoping that my Iowa up for election Senator and the one that isn't will not pass the bill that's being rammed down "our" throats.
From the blog by Larisa Alexandrovna
"The Treasury Secretary can buy broadly defined assets, on any terms he wants, he can hire anyone he wants to do it and can appoint private sector companies as financial deputies of the US government. And he can write whatever regulation he thinks are needed.
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."
Write, call, fax, email all appropriate people in congress to make sure these provisions are stripped out.
... and these videos are worth a few minutes consideration
http://market-ticker.denninger.net/archives/2008/09/20.html
ji3m
hi all. Question: is there any truth to the buzz on the web about a massive public mobilization at the capitol this week to pressure congress to not consolidate the theft in progress? If so, when is it starting to happen? Anyone know who's doing the organizing or is it really just spontaneous? I have been able to confirm much but maybe someone else can. I hear it the biggest yet and definitely not partisan.