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.