Goldman Sachs Socialism

Wall Street put a gun to the head of the politicians and said, Give us
the money--right now--or take the blame for whatever follows. The
audacity of Treasury Secretary Henry Paulson's bailout proposal is
reflected in what it refuses to say: no explanations of how the bailout
will work, no demands on the bankers in exchange for the public's money.
The Treasury's opaque, three-page summary of plan includes this chilling

"Section 8. Review. 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.
" In other words, no lawsuits allowed by
aggrieved investors or American taxpayers. No complaints later from
ignorant pols who didn't know what they voted for. Take it or leave it,

Both political parties may submit to this extortion because they don't
have a clue what else to do and bending over for Wall Street
instruction, their usual posture, seems less risky than taking
responsibility. Paulson and Bernanke evoked intimidating pressure for
two reasons. The previous efforts to restore investor confidence had all
failed as their slapdash interventions worsened the global panic.
Besides, the Federal Reserve was running out of money. Nearly
three-fifths of the Fed's $800 billion portfolio is now loaded down with
junk--the mortgage securities and other rotten assets it took off Wall
Street balance sheets. The imperious central bank is fast approaching
its own historic disgrace--potentially as discredited as it was after
the 1929 crash.

Despite its size, the gargantuan bailout is still designed for the
narrow purpose of relieving the major banks and investment houses of
their grief, then hoping this restores regular order to economic life.
There are lots of reasons to think it may fail. The big boys are acting,
as usual, in self-interested ways since the government allows them to do
so. Washington's money might pull firms back from the brink--at least
the leaders of the Wall Street Club--but that does not guarantee the
banks will resume normal lending, much less capital investing. The
financial guys may well hunker down, scavenge the wreckage for cheap
profits and wait for the real economy to get well. Likewise, global
investors--China, Japan and other major creditors--have been burned and
may step back from pumping more capital in the wobbly house of US

Secrecy and opacity are crucial to achieve Wall Street's purposes. It
could allow Paulson to overpay his old pals for near-worthless assets
and slyly recapitalize the damaged banks while telling public and
politicians the money is to save the system. To achieve this, Wall
Street needs to keep control of the process whoever is elected president
(the Wall Street Journal recommends John Thain, ex-chief of the
New York Stock Exchange to succeed Paulson). Not everyone will be saved,
of course, but high on the list of endangered nameplates is Goldman
Sachs, Paulson's old firm. The high-flying investment house looks doomed
by these events. The Fed quickly agreed to convert Goldman and Morgan
Stanley into banks. Think of Paulson's solution as Goldman Sachs

The most hopeful comment I heard from an astute economist was by Nouriel Roubini of
NYU, who has been darkly prescient during this crisis. The bailout
should help, he told the Times. "The recession train has left the
station, but it's going to be 18 months, instead of five years," he
said. Hope he's right, but voters are unlikely to regard this as fair
return on their $700 billion. The bandits will be back in business and
partying, while the victims are still gasping for air.

If Paulson's gamble fails--just as possible--then maybe government will
finally undertake forceful intervention rather than friendly solicitude
for Wall Street. Washington should literally take control of the banking
and finance sector and employ its emergency powers to oversee and direct
these private, profit-making enterprises. If any bankers do not wish to
play, cut them off from any public assistance (and wish them good luck).
Then government can exercise temporary supervisory powers that force
banking to cooperate with economic recovery by sustaining lending and
investment to the real economy. Washington can put profit on hold.

Order full stop to the many financial gimmicks and accounting illusions
that led to inflated lending and falsified asset valuations. Unwind the
complicated time bombs known as credit
and shut down this lucrative line of business.
Meanwhile, instead of throwing millions of homeowners and debtors out of
their homes and into bankruptcy, hold them harmless temporarily so
people can work out reasonable terms for recovery. Finally, force-feed
new life into the real economy with government spending on public
projects and capital formation. How much spending? Rescuing America from
irresponsible Wall Street is worth whatever it costs to save the
bloodied bankers.

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